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Senate Finance Leaders push "blank slate" to tax reform

by Linda Beale

Senate Finance Leaders push “blank slate” to tax reform

Senators Baucus and Hatch, the Chair and ranking minority member of the Senate Finance Committee, respectively, launched a bid for completing a Code reform before Baucus leaves office with a letter to Senators telling them that they should get their bids in within the month for any tax expenditures they want to preserve. See Letter from Baucus and Hatch (June 27, 2013).

At first glance, this doesn’t sound like a terrible idea. There are, indeed, too many tax breaks in the Code for huge estates, owners of capital, Big Oil, Big Pharma, “Non-Profit” hospitals, and corporate executives’ deferred pay. Wiping them away and then thinking through things fresh might be a part of a process for real tax reform that makes sense.

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The Tax Code Ain’t Nearly So Big as Often Claimed

by Linda Beale

The Tax Code Ain’t Nearly So Big as Often Claimed

I can’t resist pointing readers to tax professor Jim Maule’s excellent post chastising everybody–from those obviously slanted propaganda-tank tax gurus Chris Edwards (you all know him as the purported tax expert from the right-wing pseudo-libertarian Cato Institute, whose other associate, Dan Mitchell, makes similar ridiculous claims in touting the purported “Laffer Theory” about how tax cuts restore tax revenues–I should note that I debated Chris in the run-up to the 2012 elections on Herman Cain‘s ridiculous tax “plan”) and Steve Malanga (you all know him as the purported tax expert from the right-wing Manhattan Institute) to generally reasonable Taxpayer Advocate Nina Olson–about their ridiculous claims of a tax code that runs to the tens of thousands of pages. See James Maule, Code-Size Ignorance Knows No Bounds, MauledAgain (June 5, 2013).

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Screw the Clinton tax rates. Lets party like it’s 1936!

 
Update: *Additional numbers added

Digby wrote a few days ago about the“grown-up” people coming to town to save America from the deficit. She listed a few of those people and their annual income.

 
Also, a few days ago the Senate had a vote on the tax cuts. Letting the Bush cuts go (I’m all for it and we can stop the payroll tax cut too as it is all stupid policy when the problem is declining wages/income going to labor) will return us to the Clinton years rates. People have noted just how little such a rise means to those at the top.
 
Well, in keeping with my define rich series and my series looking at the purpose of taxation, I thought wouldn’t it be interesting to see just what these 1%’ers might be paying if we went back to the beginning of the last great period of mass prosperity: 1936.
 
Yes indeedy, I say go for the brass ring. Let’s show our maturity and actually implement the lesson learned from our history, that period from around 1906 to 1932 and then 1936 to 1979.
 
While we’re at it, let us stop pretending that global trade is something new with an unknowable to man exotic force that we just have to accept as part of the expression of our DNA. There is RNA also (look it up).

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Hey, didn’t the GOP say it cared about deficits?

by Linda Beale

 Hey, didn’t the GOP say it cared about deficits?

Just when you think those on the radical right had gone about as far as they could go without recognizing their own zaniness, those in Congress have revived their version of a tax “reform” for businesses.  It was first proposed in 2009–as an alternative to real stimulus spending on infrastructure .  And yes, it is yet another tax cut.  An even zanier one than the rest that they’ve come up with while at the same time whining of deficits and suggesting that longstanding social programs like Social Security and Medicare must be cut back.
Eric Cantor, in a memo last month to fellow Republicans, announced that the House would be putting this proposal forward–let every business with 500 employees or fewer deduct off the top 20% of their income.  And they want to pass this rot by the filing deadline–on the pretense that it will help ordinary folk.
See Richard Rubin, Hedge Fund Tax Break May Come in Republican Small Business Plan, San Francisco Chronicle (Bloomberg News, Mar. 8, 2012).

Now, folks, there are some mighty BIG businesses with fewer than 500 employees.  Like just about every hedge fund and leveraged buyout fund. (The latter, of course, like to call themselves “private equity” these days–let’s people overlook the fact that they have destroyed many a stable, profitable business by loading them up with debt and sucking out all the cash while firing employees or making the business focus on paying back the debt and not on doing business).  Why would the GOP want to reward those funds with even more tax breaks than they already grab for themselves–carried interest, pass-through taxation, and the ability to avoid the payroll taxes since they treat their compensation as though it were an investment gain?  Because that is what they are all about–making sure the richest people in the country get all the breaks.

Then there are sports teams.  Liquor stores.  Golf courses. Gambling dens….. Hotels. Restaurants.  Engineering firms. Accounting firms.  Law firms.  Architectural firms.  Big Business that normally make Big Money.
Just goes to show that the corporatist GOP never saw a tax break for the monied class that it didn’t like.

crossposted with ataxingmatter

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How the Internet Can Make You Smarter, Today’s FT Version

Today’s Page 1, above-the-fold, biggest type headlines for the FT:

  1. US PDF edition: “Obama proposes corporate tax rate cut: System ‘outdated, unfair, and inefficient’

  2. US Print edition: “Obama and Romney unveil rival tax plans: Proposals show strong support for reforms”

The latter piece waits until the 7th graf to Tell the Truth and Shame the Romney (as Rick Santorum might say):

Mr. Romney’s advisers said that their plan would not widen the deficit, but they relied on so-called “dynamic effects”, which assume that the lower rates mean greater economic growth and therefore more revenue. They did not say which tax breaks—such as the popular deduction for mortgage interest relief—they might scrap to pay for the lower rates.

The English translation of “dynamic effects” is “we’re going to reduce the velocity of money so that it is held by people whose Marginal Propensity to Consume is lower, and count that as a good thing, instead of it being used by people who will not hide it in the TOPIX, and who therefore don’t count in economic modeling. Because that worked well when we did it in 2001 and especially 2003.” (See Noah Smith for discussion.)

The print edition treats this mumbo-jumbo as if it were a real “tax plan.” Readers of the online PDF are saved such bollocks, and therefore better informed at the end of the article.

UPDATE: Ezra Klein (whom Google Plus seems to believe works for Bloomberg, not the web-inept Vast Wasteland that is Kaplan Prep Daily) delves into the Romney/Hubbard plan and finds pretty much what you would expect from the man who led the clusterfuck of 2003 and an at best ambiguous relationship with Medicare Part D* (“all of the expenses without any of the savings, unfunded”):

But for now, the narrative is clear: A Romney presidency will be tough on those who depend on government programs, and good for those who pay high taxes. That suggests a Romney presidency would, at least in its first few years, reduce the deficit by asking much more from the poor than from the rich. Is that really the narrative they want?

*Shorter Glenn Hubbard: “It happened on my watch, and I knew it was in the works, but the “gross mismanagement” of the Bush Administration in enacting Medicare Part D astounds me and I had nothing to do with it.”

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A Warm Wind At the Backs of Some, Generated Off the Backs of Others

This piece offers an understandable comparison between wages and dividend income and neatly summarizes the cost to wage earners. (h/t Mike Kimel)

by Peter S. Meyers

Myers Urbatsch PC

A Warm Wind At the Backs of Some, Generated Off the Backs of Others Yesterday, I learned in this Mother Jones article that workers have increased their contribution to government revenue disproportionately since 1980.  In other words, payroll tax (paid by workers) is a larger portion of government revenue than it used to be.  That’s a macroeconomic analysis, which still doesn’t answer the question of whether rich people are being treated “unfairly” by the current tax system.

So to elaborate a little, let’s take two people who make exactly the same amount:  $100,000 in taxable income (after the standard deduction – let’s not get complicated).  “Worker Taxpayer” earns her money by working (getting compensation by way of a W2) and “Investor Taxpayer” earns her money from dividends in a $4 million stock portfolio she holds (its about 2.5% in yield – about right).  Let’s say they are both unmarried.  Investor taxpayer does not work and has no compensation income.  They are otherwise “equal,” right? (except that investor taxpayer fits the description of those who vituperate about lazy welfare recipients who sit on the couch all day and watch TV, right?)  I’ll keep the rhetoric down, because the facts are outrageous enough to speak for themselves.

Worker taxpayer will pay $7650 in payroll tax, plus $21,617 in income tax (2011 brackets), for a total tax burden of $29,267.

Let’s look at investor taxpayer.  You would think they would be taxed at the same rate as worker, right?  Wrong.  Because investor taxpayer receives all of her income from qualified dividends, they get a “special” tax treatment.  Bear with me, we’re almost done.  Generally, the maximum tax rate for qualified dividends is 15%, BUT HERE it is actually 0% because investor’s other income (remember she doesn’t work) is taxed at the 10% or 15% rate.

To refresh:  worker making $100K pays about $30K in tax.  Investor making $100K in qualified dividends pays $0 – no – tax.  Huh?  Yup. 

What this means is that rich people – who are incented by tax policy to remain on their couches (too much earned income would otherwise trip them into the 15% dividend tax bracket) – are now getting off their couches and going to tea-party rallies to maintain this unfair redistribution of wealth in their favor.  For if they work, they risk having their dividends taxed at 15% (still half of what, say, worker taxpayer paid in taxes, but confiscatory in their view).  Perverse incentive?  Yup.  Does it sound like the rhetoric of the right wingers about unemployed persons and welfare recipients laying on couches and not incented to work?  Hm. . . .

Now let’s say you didn’t work, or you worked very little, and instead you made all of your income from qualified dividends.  The “magic number” (the income threshold you need to stay under to avoid paying any tax on your dividend income) is $69,000 (married), $34,500 (single or married filing separately) or $46,250 (head of household).  Thus, you can actually work a little, and you have all this extra time – to attend rallies, political functions, cook your food, clean your house or do other things that people who actually earn their income from working have to: (a) pay someone else to do (which is not deductible), (b) do in the evenings or on weekends, or (c) simply let it slide.

I will now illustrate how it is almost impossible for someone who is already rich to not get richer, in fact much richer.  Both working taxpayer and investor taxpayer have identical lifestyles and thus spend the exact same amount of money (not likely, given that worker has to pay for commuting expenses – again NOT deductible).  Let’s assume that’s $70,000 per year.  We know that worker taxpayer already paid $30K in tax, so let’s see what they have left to save:  uh, nothing.  Investor taxpayer paid no tax, so what do they have left over to save: $30K.  Exactly the same amount that worker taxpayer paid in taxes.

The rationale for the tax policy you see illustrated above is George W. Bush’s.  In 2003 he said that “double taxation is bad for our economy and falls especially hard on retired people.” He also argued that while “it’s fair to tax a company’s profits, it’s not fair to double-tax by taxing the shareholder on the same profits.”

Its odd to me that the above disparate treatment of otherwise similarly-situated earners is defended on the basis of “fairness.”  Is this 1984?  And I also wonder whether there is a joke in there somewhere – i.e., given that a zero-percent tax bracket would apply to someone who made all of their money from dividends and capital gains, why wouldn’t they retire?  I sure as hell would.  Working too much would bump all of their dividend income into the 15% tax bracket.  Volunteering for the tea-party rally, or perhaps some other Republican cause, would be a far better use of one’s time.

reposted with permission of the author July 23, 2011 post

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Herman Cain, funded by Koch Bros, Says "Let the Little Guys Pay Taxes

by Linda Beale

Herman Cain, funded by Koch Bros, Says “Let the Little Guys Pay Taxes (not the uber-rich)

The New York Times’ “Room for Debate” ran a ‘mini-op-ed’ segment on Herman Cain’s 9-9-9 tax plan, called “What’s So Bad About a Flat Tax?” New York Times (Oct. 14, 2011) (with the subtitle: Isn’t Herman Cain’s ‘9-9-9’ plan essentially what fiscal conservatives and good government advocates have always wanted?). Yours Truly was one of those invited to participate: others include Kotlikoff, Ulbrich, and Gale.

I wrote, in A Plan for the Uber-Rich, that “there’s a lot wrong with flat taxes” (a term used to cover both the flat rate income tax and the flat-rate national sales tax ideas).

Either type of flat tax is regressive, in that it places a high tax burden on the most vulnerable at the lower income scales, for the simple reason that most lower income people use all of their income to pay for food, clothing, shelter and other consumption whereas members of the upper class have lots of cash to spare that they are unlikely ever to consume in their lifetimes. There are additional significant flaws in those tax schemes, like unrealistic economic assumptions, difficult transition paths, rosy revenue scenarios, misleading propaganda about rates and the probability that a national sales tax that cuts deeply into lower income finances will repress consumption that fuels small businesses.

Cain’s plan is even worse, since it:

  • exempts capital income from taxation
  • eliminates the estate tax
  • imposes a flat rate on wage income with no deductions (and apparently only some exemption for the poorest of the poor in certain ‘zones’ defined by the national government, so that if you are poor and live with lots of other poor people, you may not have to pay as much in taxes, but if you are poor and live where there aren’t enough poor people, tough luck)
  • shifts the burden from rich to poor since the rich will only pay on their compensation income and some small additional portion due to consumption taxes, while the poor will pay on all of their income and all of their income again in consumption
  • and continues the regressivity with some type of value-added tax that will also fall mostly on wage earners.

Added since the original positing is Dan Mitchell–conservative spokesperson for the Cato institute, who lauds the flat tax in “The Beauty of the Flat Tax” as “desirable” for its “simplicity, fairness, and transparency.”

  • Actually, the national sales tax version of the ‘flat tax’ supported by Mitchell is anything but simple. It results in the government taxing itself and counting the revenues as a gain. It calculates the tax rate in a way intended to be deceptive and likely to be far too low to raise the claimed amounts of revenues. Since it is a sales tax, we normally discuss that as a tax on top of the price, so a price of $100 and a tax at 23% means a final price including tax of $123. But the way the national sales tax has been discussed is different: they say a tax of 23%, but they calculate that rate by taking the ratio of the tax to the price plus tax–so the rate looks lower than it would look calculated as a ratio of tax to price! In fact, most objective analyses of a national sales tax have suggested that the rate (as a tax to price ratio) would be at least 40% and possibly 50% or even higher, meaning that something purchased foa $100 sales price would have an added national sales tax (not taking into account local and state sales taxes) of betwen $40 and $50 or more. And, worst of all, it will inevitably require an exemption for the poorest of the poor (if not as broad an exemption as currently permitted), thus requiring poor people to pay up front, retain all of their receipts and file a very complex return that will be a request for a refund of the tax. It will, though, be quite simple for the uberrich–they will not have to file income taxes and then would consume only a small amount of their income (and probably even there find all kinds of ways to get around paying their fair share of that limited tax burden). Further, part of the “simplicity” assumption about the tax is that you can get rid of any federal tax collection bureaucracy and that tax enforcement will be minimal. Both of those assumptions are either naive or intentionally misleading: the tax collection responsibilities will fall to the states (imposing significant costs, especially with state systems that still rely on income taxation) and the federal government will nonetheless have to retain a national enforcement system. Most experts say the opportunities for crookedness will be as big in the sales tax system as in any other tax system.
  • What about fairness? Well, fairness is one thing that the flat tax cannot offer. The rich get off super cheap, and the poor pay through the nose. Everybody pays only on what they consume (that is actually collected at the point of consumption), but the rich can choose whereas the poor consume all of their income. Accordingly the national sales tax is highly regressive, compared to our somewhat progressive system today. And with the elimination of the income tax and the estate tax, the role that the tax system plays in pushing against gross inequalities will be eliminated.
  • Transparency is missing as well. The points about simplicity should answer that question head on. It is not a transparent system at all, for much the same reasons that it is not a simple system.
    • Mitchell praises the “repeal of most forms of double taxation” in Cain’s 9-9-9 plan. What he is calling “double taxation” is the fact that people currently pay some tax (though too low) on income earned by capital as well as income earned by labor. Cain repeals all taxes on income earned by capital (and taxes income earned by wages particularly hard–at about 27%, with the “income” tax on wages only, the VAT-type business tax which deducts investments but not wages, and the sales tax (on consumption, which for most wageearners is on all or most of their wage income). But the tax on capital is NOT “more than one bite of the apple” as Mitchell asserts. If you invest 20 and that 20 earns 5 in interest, then the 5 in interest is new money that should be subject to tax, just as 5 earned in payment for labor is new money. The idea that any tax on income from capital is a double tax is just “free market” doubletalk to justify the elimination of taxes on the wealthy. Although economists like to say that “only people pay taxes” and use that to justify allocating all corporate income to shareholders and then asserting that shareholders pay the corporate taxes paid on that corporate income, that is an a priori decision that ignores the reality of perpetual life, managerial renttaking, and “personhood” of corporate quasi-sovereign entities in today’s “free market” globalized economy.
    • Mitchell then asserts that getting rid of deductions and “other distortions in the tax code” will mean that “people will make decisions on the basis of good economics rather than clever tax planning.” Wrong on two counts. First, most businesspeople still do not make most decisions based on tax planning. They want to make money in their business, and if a plan will make money, they will do that plan (even if it also means paying some taxes. Second, some deductions are merely common sense–for example, not allowing businesses a deduction for wages will encourage layoffs in favor of capital investments/robotics, which will accelerate job reduction in the US, not create jobs.

Today’s Associated Press revelations about Cain’s longtime ties to controversial Koch brothers’ group key to his surging presidential bid, AP (Oct. 16, 2011) show a harmonious fit between Cain’s 9-9-9 plan, Cain’s various comments scorning the non rich and his links to wealthy plutocratic anti-populists like David and Charles Koch, billionaires who “bankroll right-leaning causes through their group Americans for Prosperity” Id. (The Koch-funded group would be more aptly named America Run for the Super-Rich, since it lobbies for the right’s agenda of New Deal elimination and targeting of earned benefits of ordinary Americans through a campaign for zero taxation on capital, deregulation, militarization, and privatization .)

AFP tapped Cain as the public face of its “Prosperity Expansion Project,” and he traveled the country in 2005 and 2006 speaking to activists who were starting state-based AFP chapters from Wisconsin to Virginia. Through his AFP work he met Mark Block, a longtime Wisconsin Republican operative hired to lead that state’s AFP chapter in 2005 . . ..

The article notes the many people in Cain’s organization now or earlier with links to AFP, including Rich Lowrie, the accountant/investment manager who serves Cain as chief economic adviser.

And the Koch brothers have a quite clear record of wanting to abolish Social Security, all kinds of federal welfare, minimum wage laws, and similar programs intended to redress the economic imbalance that has grown in our economy since the advent of winner-take-all economics in the Reagan era.

originally published at

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Financial Speculation Taxes

OMB Watch points us to the idea that:

Financial Taxes Can Raise Revenues, May Help Stabilize Markets
The congressional Super Committee, tasked with forging a $1.2 trillion deficit reduction package by Thanksgiving, is currently deliberating on which revenues — if any — to raise and to include in its plan. With Wall Street at the center of the 2008 economic collapse, the committee should look to a pair of revenue options that would fulfill the dual roles of addressing risks to the economy posed by Wall Street and raising much needed revenue: a financial speculation tax and a financial crisis responsibility fee on large financial institutions.

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Are Republicans or Democrats Better for the Economy?

Barry Ritholz’s The Big Picture carries a link to Presimetrics in the Reads to start your week section of his blog and Mike has been asked by Barry to post a chapter in the book section.

Dan says:

Mike’s book is one that people need to study and not skim to reinforce a dearly held slogan.

One of the complexities is that the data cuts across favored soundbites for political and political/economic announcements. The ‘conservative’ economic announcements of the day are so grossly inaccurate that they mask what liberals get wrong as well in the debate of the day.

Snark alert…hat tip Ken H….The Atlantic carries an article along a similar vein and poor Megan McArdle has to contend with the growing numbers thinking along the lines of ‘Mike’s band of merry madmen’. )

Are Republicans or Democrats Better for the Economy?

Feb 6 2011, 12:35 PM ET By James Fallows

By Chuck Spinney

This is my last post and I want to thank Jim and Justin [Miller, of the Atlantic web team] for the wonderful opportunity to be a guest blogger. It has been a fun gig, but quite frankly I am running out of steam. But life is an interplay of chance and necessity, and serendipity has just offered up a chance for a final blast.
For several years now, I have been in a analytical battle with an official in the Department of Defense over the question of whether Republicans or Democrats are better for the economy.
Newk A. Mineshaftgap is the pseudonym of a senior career official in the Pentagon, with a civilian rank comparable to that of a general in the military. He must remain anonymous for policy reasons — to borrow from the insightful reasoning used by President Merkin Muffley in Dr. Strangelove, Minesthaftgap cannot get into a policy fight, because he works in the “the war room.”
I can tell you this: Newk has a PhD in physics, but he is not a geek. In fact, he is a bit of polymath, with wide ranging interests, including nuclear weapons, ballistic missile defense, battleship and tank design, global warming and carbon default swaps, economics, and the development of metrics for measuring the quality of medical doctors. I have known Newk for about 20 years and consider him to be a good and most interesting friend with solid if somewhat eccentric instincts. Politically, I would categorize Newk as an independent with libertarian biases.
So, as my last blast, let me offer the following link [PDF] to Newk’s latest report on whether Republicans or Democrats are better for the economy. For a knuckle dragger from the Pentagon, his conclusions might surprise you.
___

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More on Illinois’ income tax increase –thinking about globalization

by Linda Beale

More on Illinois’ income tax increase –thinking about globalization
crossposted with Ataxingmatter

As states continue to face difficult times and vulnerable residents unemployed by the Great Recession come to the end of their ropes with the last of their unemployment support checks (those unemployed for 99 weeks don’t get any more help under the latest extension), the rhetoric continues to escalate.

As I noted in my last post on Illinois’ decision to increase its personal and corporate income tax rates (See Illinois Senate Bill 2505, signed into law by Gov. Quinn on Jan. 13), tax increases–especially those that require people and companies of wealth and power to kick in a fairer share of the tax burden–may well make sense even as the country deals with the continuing fallout of the banksters’s binge of casino speculation.  Governor Quinn noted when signing the Illinois legislation that the tax increase was need to stave off fiscal insolvency.   The 5% individual income tax rate applies until January 2015, at which time the rate reverts to 3.75% for ten years and then 3.25% after 2025.

The right wing’s preferred solution– to see the states fire public employees or at the least reneg on their earlier commitments to fund pensions (which generally permitted them to hire highly skilled employees at lower wages than would otherwise have been possible)– would only make grave matters much worse. There are important programs to be funded in the states, and ultimately a higher tax burden that is allocated to those who can best pay it may be the best solution.  Management efficiencies need to be undertaken, and wasteful spending and corruption stifled, but in many cases those savings are relatively small.  The “no new taxes” mantra that has dominated public discourse under the Chicago School thinking has kept states from dealing forthrightly with these issues for decades.

Wisconsin’s new governor, right-winger Scott Walker, is a perfect illustration of the zany rhetoric and gamesmanship being played about tax matters all across this country.  He has said he would spurn federal stimulus money and ditch a planned high-speed rail line between Madison and Milwaulkee.  See James warren, Wisconsin Sounds Off, but Misses the Point, New York Times, Jan 15, 2011.  High speed rail is the wave of the future, and the US needs to catch that wave soon or be left behind.   Walker’s rhetoric here seems designed to please wealth and power (and the kooks in the “tea party” who are foolish enough to think that federal monies for infrastructure is a waste of “their” tax money), but move the state in the opposite direction from where it needs to go.  Walker has also gone on the air in a campaign intended to take advantage of corporate dislike of the Illinois tax hike, inviting corporations to “escape to Wisconsin.”

James Warren’s piece in the Friday New York Times challenges that sentiment.  Seems that the Illinois personal rate (5%) is probably less than taxation under the progressive scale of 4.6% to 7.75% in Wisconsin.  And if Caterpillar or some other big corporation were to move to Wisconsin, it would face a higher rate of 7.9% compared to the 7% rate passed for Illinois.    So Walker’s rhetoric is just that–trying to make hay out of the mere fact that Illinois increased its tax rates.  As Warren points out, politicians need to start thinking about what is good for the region and “not just poach others’ enterprises”.  

We need to think strategically, as globalization has made it much easier for companies to move to greener pastures–not just other states, but out of the states.  Congress could help that by eliminating the provision in the Code that permits companies to move active business assets abroad without paying tax on the built-in gain.  In fact, Congress ought really to consider revamping the entire reorganization provisions in the Code.  We have seen that too big to fail banks are costly for us.  Rather than aiding consolidation of companies through nonrecognition provisions, what if we made reorganizations more difficult and costly?  Combine that with a renewed anti-trust vigor, and encourage smaller businesses to stay in this country.  Localvore could take on a new meaning.

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