Posts tagged taxes
Posts tagged taxes
When we focus on the federal income tax, we miss all the taxes that low-income Americans do pay. The payroll tax, for instance. And state sales taxes. And lots of local taxes. Indeed,
Citizens for Tax Justice, a left-leaning tax policy group, produces a study every year showing the total tax burden for different groups once federal, state and local taxes are taken into account. And when you include all the taxes people pay, then, as you can see in the graph atop this post, it turns out that most Americans do pay taxes, and they in fact pay about as much as the rich.
The federal government is larger than conventional budget measures suggest. Many tax preferences are effectively spending programs. Adding these preferences to federal outlays and receipts makes the government appear about 4 percent of GDP larger. The 1986 tax reform cut these benefits, but they have since rebounded to a larger share of GDP than before. Using this broader measure of government size, many base-broadening reforms viewed as tax increases would be reclassified as spending cuts. Raising marginal tax rates would be recorded as a tax increase and a spending increase because it would boost the value of many tax preferences.
Cutting subsidies from Amtrak and Planned Parenthood is the equivalent of President Obama promising to close loopholes for corporate jet owners. It’s red meat for the base, but a rounding error in context of the budget.
Romney’s real savings come in the next section. He’ll “send Medicaid back to the states and cap that program’s rate of growth,” and then “do the same for other programs, like food stamps, housing subsidies and job training.”
Sending the programs back to the states is a red herring. The key bit for deficit reduction is capping their rates of growth. Which is to say, cutting their rates of growth. Which is to say, cutting them.
What Romney is essentially proposing to do is finance a massive tax cut by cutting Medicaid, food stamps, housing subsidies and job training. In other words, the neediest Americans — and, to a lesser degree, federal workers — will be financing a massive tax cut.
(Source: Washington Post)
The econometric consensus on the effects of social spending confirms a puzzle we confront in the raw data: There is no clear net GDP cost of high tax-based social spending on GDP, despite a tradition of assuming that such costs are large. The paper offers five keys to this free lunch puzzle. First, the costly forms of transfers usually imagined have not been practiced by real-world welfare states. Second, better tests confirm that the usually imagined costs would be felt only if policy had strayed out of sample, away from any actual historical experience. Third, the tax strategies of highbudget welfare states are more pro-growth and less progressive than has been realized. Fourth, the work disincentives of social transfers are so designed as to shield GDP from much reduction if any. Finally, we return to some positive growth and well-being benefits of the high social transfers, and suggest how democratic cost control relates to budget size.
On a call with reporters, Glenn Hubbard, the Columbia economist who is one of Mitt Romney’s top economic advisers, described the Romney campaign’s latest tax proposal in unusually evocative terms. “If you take the spending and tax pieces together, it’s a narrative of the policy agenda and life under a Romney presidency,” Hubbard said. And so it is. But if you really follow the numbers, and the policies they imply, it may not be the narrative the Romney campaign wants.
In a sense, this [White House’s corporate tax reform framework] is making two, somewhat contradictory, points simultaneously: Yes, we should reform the corporate tax code. That piece of conventional wisdom is true. But no, it’s not obvious how we should to do it, and it won’t be easy. The mantra “broaden the base and lower the rates” is nice, but a mantra is not actually a plan.
Whether anything comes of this white paper will depend, in no small part, on whether corporations really want a cleaner, simpler tax code, or whether they’re more interested in protecting the breaks, loopholes, and tax arrangements they currently have. They are, after all, the primary constituents of this change, they are sophisticated about tax policy and how it affects them, and they are very politically powerful. So they will have ample opportunity to weigh in.
But all of this just goes to show how insanely difficult individual tax reform will be. For one thing, no one can decide on what “revenue neutral” means because the looming expiration of the Bush tax cuts has put at least three plausible definitions on the table: “Revenue neutral” is tax reform assuming their full expiration, tax reform assuming the expiration of only the high-income tax cuts, or tax reform assuming the extension of all the tax cuts. Nothing can be done — nothing at all — until that question is settled, and as of yet, the two parties are nowhere near settling it.
If some agreement is reached on the level of taxes — and that’s a big if — we’ll find ourselves facing the same point the administration is making with corporate tax reform: to get rates much lower, you have to go after the big stuff. The mortgage-interest deduction. The exclusion for employer-provided health insurance. The exclusion of pension contributions and earnings. The deduction for state and local property taxes. Those sorts of things (see the 10 largest tax expenditures here). And that won’t be easy. Unlike in corporate tax reform, where the big players have departments of tax lawyers to advise them on what to do, individual tax reform has a much more diffuse and uninformed constituency, while those who could be hurt by it will, as per usual, quickly figure out where their interests lie.
(Source: Washington Post)