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Heritage's Brian Riedl concisely outlines the top ten myths about the Bush tax cuts. This is a particularly dogged one:
Myth 10: The tax cuts tilted toward the rich. Fact: The rich now shoulder even more of the burden. Since 2000, the share of individual income taxes paid by the bottom 40 percent of taxpayers dropped from zero to minus 4 percent -- meaning the average family in this group got a subsidy from the refundable child tax credit or earned income tax credit. The share of income taxes paid by the top fifth of taxpayers climbed from 81 percent to 85 percent.
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A Washington Times editorial explains why Federal Reserve chairman Ben Bernanke is worried about the long-term budget scenario and why Republicans and Democrats should be worried, too.
By 2030 the unified budget deficit would approach 9 percent of GDP (more than four times its present level); the ratio of publicly held federal debt to GDP would soar from today's 37 percent to 100 percent (and then "grow exponentially after that"); and net interest outlays would nearly triple to 4.5 percent of GDP, which is proportionately greater than today's defense budget (4 percent of GDP). These outcomes would occur under four plausible assumptions: (1) retirement and health spending follows the intermediate projections of the Congressional Budget Office, (2) defense spending declines as a share of GDP, (3) other non-interest outlays rise at the rate of GDP and (4) federal revenues remain at their historic (and current) share of GDP.
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Capital gains revenues are way up--well above CBO and JCT projections. The culprit? The Bush tax cuts.
The lower capital gains tax has raised stock values by raising the after-tax return on capital investment. It has also given stock owners a greater incentive to sell their shares, and then reinvest the proceeds, because the tax penalty on these transactions is lower. Class warriors like Mr. Webb often forget that the capital gains tax is voluntary. Investors can defer paying the tax for years by holding on to their stock. This creates what is called the "lock-in effect" that deters an efficient allocation of investment capital.
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Unpack the story, and the alleged tax hikes are not what they seem. Yes, some workers with especially generous insurance plans--those costing about $4,000 more per year than the average family plan--would face tax increases. But even those facing potential tax hikes may be able to move to the individual market and, using the proposed tax deduction, reduce or eliminate the higher taxes. And in addition, millions of workers would gain the power to purchase affordable health insurance that is now denied to them because their employers do not pay for it. This sort of equal treatment would give all Americans choices about what sort of coverage they want--a far better state of affairs that today's prevalent one-size-fits-all employer-sponsored options and government programs.
About 30 million Americans could face a tax hike under President George W. Bush's plan to expand health insurance coverage and address rising health care costs, the White House said on Monday.
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But the president’s plan is solid. If enacted, it would be the boldest free-market health-care reform ever, and the biggest step toward tax reform in years.
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Cutting narrow tax breaks is an interesting proposal but really only for the purpose of tax simplification. On the one hand, cutting these narrow breaks will reduce the bad incentives the muddled tax code now inflicts on Americans--such as employer-controlled health coverage. On the other, spending the additional revenue on new government programs--especially in the wake of years of major budget growth--would be a folly. The best solution, then, is revenue-neutral simplification or even an overall reduction in the tax burden. Simplification needs to be decoupled from the urge to fund yet more government programs that cause the same distortionary impacts as the too-complex tax code. Spending is the big problem now, and increasing it makes the problem worse. We need a better tax code, but that doesn't mean we need higher taxes and more spending.
The first step should be capping a number of existing tax breaks. Capping two of the largest breaks -- the home mortgage interest deduction and the exclusion for employer-provided healthcare, would easily provide over $50 billion a year in savings. Both of these changes would reduce the large subsidies that go to the highest earners while freeing up resources. Getting rid of a host of other tax breaks that subsidize certain businesses or industries could easily generate another $25 billion. A thorough review of the over 150 existing tax expenditures to determine which ones have outlived their usefulness would yield still more in savings. As Democrats search for ways to offset the costs of their new agenda, reducing the $800 billion tax loophole would be an excellent place to start.
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Mayor Bloomberg seeks to cut New Yorkers' property taxes and the sales taxes that they pay on certain goods. The cuts would be far, far less than the tax hikes that the mayor pushed through in his first term. The key issue here is incentives. First, keeping government spending down via tax cuts is a good in itself. Second, families should be able to keep more of their money--they can put it to better use than the government. Third, tax cuts may alter economic incentives, such as for working, in ways that make us all better off, such as by increasing economic growth or spurring job creation. As to the first, sure, Bloomberg's proposal would deny the city government a small bit of money. Concomitantly, New Yorkers who own homes (generally the relatively wealthier ones) would get to keep a bit more money. But what about incentives? The housing market in New York is already tight, and so this small cut is unlikely to spur much growth there. It won't affect the incentives on work or investment or other productive behavior either. Finally, those buying property will see the tax cut--if it is made permanent--factored into home prices as the prices of houses rise in response to the tax cut. Tax cuts, generally, are good but they vary tremendously in their worth. These appear to be small potatoes.
Mayor Michael R. Bloomberg is proposing to cut property taxes by roughly 5 percent and eliminate the city sales tax on clothing and footwear as New York enjoys the bounty from its booming economy and real estate market, city officials said yesterday. Mr. Bloomberg plans to outline his proposals today in his annual address to the City Council. The property tax cuts, which would be in addition to an existing $400 annual rebate for homeowners, would apply for at least the next fiscal year, aides said, while the sales tax cuts would be permanent. The entire tax relief package, which also includes measures meant to benefit small businesses, would consume $1 billion of the city?s $55 billion budget.
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A bad-faith rejection of a good-faith offer of debate. Murphy's actions do not speak well of his cause or institution.
One of the TJN's best-known leaders, Richard Murphy of Britain, recently chided an official of the Isle of Jersey (a low-tax jurisdiction) for refusing his offer of a debate. Whereupon, Dan Mitchell, a senior fellow at the Heritage Foundation and a highly regarded tax economist, challenged Mr. Murphy to a debate. Mr. Murphy initially agreed, but demanded Mr. Mitchell debate in London or Jersey (Isle of), and pay all of the expenses for the debate, including Mr. Murphy's. Mr. Mitchell agreed, and then Mr. Murphy reneged -- with the laughable excuse that Mr. Mitchell had not provided him with private financial information about thousands of Heritage Foundation donors (information Mr. Mitchell did not have or, if he did, ethically could not disclose).
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Well, this is encouraging, even if it stems from a lack of political will.
But even as Democratic leaders continue to accuse Mr. Bush of having a reckless fiscal policy, they have refused to discuss dismantling his tax cuts or even to engage in a debate with him about the best way to stimulate economic growth.... At least not now. Democratic leaders say they see no need to revisit Mr. Bush’s tax cuts for several years because they are not set to expire until the end of 2010. And they contend that the government could increase revenues as much as $100 billion a year simply by closing the “tax gap,” taxes that are owed but not paid.
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Not encouraging, but maybe not surprising, either.
But after Congress sharply raised taxes this year for many Americans living abroad, some international tax lawyers say they detect rising demand from citizens to renounce ties with the United States, the only developed country that taxes it citizens while they live overseas. Americans abroad are also taxed in the countries where they live. "The administrative costs of being an American and living outside the U.S. have gone up dramatically,"€ť said Marnin Michaels, a tax lawyer with Baker & McKenzie in Zurich.
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Not a bad idea. Odds?
The single-best thing the lame-duck GOP Congress can do is vote in a spending-limitation bill with balanced-budget targets for the next couple of years. This would be a spending-cap pay-as-you-go, which means that any increased spending must be offset by lower spending in other parts of the budget. Not higher taxes. Reduced spending.
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But despite the temporary success of tax reform in 1986 and the apparent conquest of the public interest over the special interests, two failures were evident. First, while the legislation did close special tax shelters for select individuals--€”events that often became nightly news stories--the reform did little to close the many significant exemptions that inhibit overall economic growth. Also, much of what passed in 1986 to limit special tax loopholes has already crept back into the system courtesy of politicians quick to give in to whatever lobby fills their pockets.
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A critical response to Greg Mankiw's "Pigou Club" for higher gasoline taxes.
In his Nobel Prize acceptance speech, Ronald H. Coase derided what he calls “blackboard economics”—the practice of assuming simple economic models can be easily implemented in practice, without regard to practical considerations. It’s no surprise Coase spent much of his career debunking the naive application of the theory of Pigouvian taxation.
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And that's even with some obscene stuff going on in the spending side of the equation.
The federal budget deficit, helped by a gusher of tax revenues, fell to $247.7 billion in 2006, the smallest amount of red ink in four years. The deficit for the budget year that ended Sept. 30 was 22 percent lower than the $318.7 billion imbalance for 2005, handing President Bush an economic bragging point as Republicans go into the final four weeks of a battle for control of Congress.
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Tax squeeze for British youth.
Young people could face a massive squeeze on their finances in the next few years, according to a report from the political think tank Reform. Taxes, repayment of student debt and compulsory pension contributions may produce an effective tax rate of 48% for some of them, the report says.
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