Tag Archives: tax policy

The Great Republican Giveaway: Their Not So New Tax Plan

Good day, It’s time for our daily reminder that the GOP’s grand idea that Tax Cuts cure all ills is quack medicine. To hear ads from the Business Roundtable and associated PACs one might think that merely enacting a tax cut will cause Business To Boom, Wages To Rise, and, who knows, flowers to bloom.  Probably not, and probably not for some obvious economic reasons.

The proposed tax cut is deficit financed.   Yes, tax cuts are lovely, BUT:

“Tax cuts have the potential to grow the economy, but their benefit depends on how they are structured and financed. For tax changes to promote growth, changes should encourage work and investment through lower rates, efficiently encourage new economic activity (rather than providing a windfall for previous investments), reduce economic distortions, and create minimal (if any) increases in the budget deficit.” [CRFB]

The current proposal doesn’t really encourage new activity, it doesn’t reduce economic distortions (income inequality, etc.) and it certainly doesn’t reduce the budget deficits.

Reducing the statutory tax rate is meaningless if not paired with closing corporate tax loopholes and incentives.   Under the current system AT&T paid an effective tax rate of 8% from 2008-2015.  How do these corporations pull this off?  They can book most of their profits overseas, out of the IRS reach.  The GOP proposal assumes that if the statutory rate is reduced to 20%, the companies will reflexively book profits here, and decide to avoid other techniques which reduce the statutory rate to almost 0.   Here’s a brief list of popular tax dodges:

American Electric Power, Con Ed and Comcast, qualified for accelerated depreciation, enabling them to write off most of the cost of equipment and machinery before it wore out.

Facebook, Aetna and Exxon Mobil, among others, saved billions in taxes by giving options to top executives to buy stock in the future at a discount. The companies then get to deduct their huge payouts as a loss. Facebook used excess tax benefits from stock options to reduce its federal and state taxes by $5.78 billion from 2010 to 2015, the institute found.

Individual industries have successfully lobbied for specific tax breaks that function as subsidies: for instance, drilling for gas and oil, building Nascar racetracks or railroad tracks, roasting coffee, undertaking certain kinds of research, producing ethanol or making movies (which saved the Walt Disney Company $1.48 billion over eight years, the report says).  [NYT]

Nice, and nothing in the current proposal should give anyone any comfort that if given a 20% statutory rate major corporations won’t try to pull the same tricks to get into the 0%-8% effective tax rate.  It just makes it easier to get there.

Reduced statutory tax rates don’t automatically create employment.  For the 1 millionth time (?)  — There is one reason, and only one rationale reason, for hiring anyone ever:  The company doesn’t have sufficient numbers of employees to deliver goods and services demanded by clients and customers at an acceptable level of customer service.   That’s it. That’s all there is to it.  An employer might give preference to a veteran IF there is a need to hire someone (and get a tax break for doing so), or an employer might decide to hire someone to create a more diverse workplace, or a workplace that is more flexible.  However, that hire will take place IF and ONLY if there is a need to hire someone in the first place.  Put more mundanely,  if having four check out clerks on every shift is enough to insure that no one waits longer than 5 minutes in the grocery check out lanes, then the fifth won’t be hired.

Secondly,  there is no evidence that tax cuts themselves produce increased employment.  If one is referring to the Reagan Era tax cuts for evidence — be careful — one of the prime drivers following that tax cut was the Fed’s monetary policy. [CAP] Otherwise there is preciously little research concluding that tax cuts for millionaires and billionaires spurs employment or even wage growth for working Americans.  [CNBC] [CBPP] [NYT] [WallStJournal]

A third point — the argument that “tax incentives” encourage entrepreneurship is almost risible.  No one starts a business because of the “tax environment.”  Listen to one successful entrepreneur:

“While I can imagine tax regimes that would create disincentives for entrepreneurship, we don’t have that situation today in America, where tax rates on capital gains (the primary way that founders of successful start-ups make money) are already far lower than rates on ordinary income. Indeed, some of the most admired entrepreneurs — Bill Gates, Steve Jobs, Jeff Bezos — started their companies under significantly higher tax regimes. This is consistent with empirical research; the economists Robert Moffitt and Mark Wilhelm, for example, found that the large cuts in marginal tax rates in 1986 did not induce high-income men to work longer hours.”

There are two things to unpack from this analysis: (1) Companies aren’t formed because of the tax environment; and (2) Companies ARE formed because of the availability of capital.   Now, take a look at the FRED trends in real gross domestic investment. See any downward trends? Seems like there’s been a steady upward trend from 1950 onward.  This doesn’t argue for a lack of capital being a major problem for start ups.

And then there are the details, summarized by Patriotic Millionaires:

– On the elimination of the Estate tax: “We can’t wait to hear President Trump try to explain how a $4 billion tax cut for Ivanka and Tiffany helps the middle class.”

– On the elimination of the AMT: “The elimination of the Alternative Minimum Tax will virtually guarantee that thousands of Americas wealthiest people will pay no tax at all. How will be left holding the bill for that lost revenue? The middle class.”

– On the territorial tax system: “President Trump’s big plan to boost the middle class starts by helping multinational corporations avoid paying any taxes at all? That is absurd.”

– On reducing the number of tax brackets: “If anything, we need more tax brackets. Someone making $5 million, $10 million, or $50 million a year should definitely pay higher taxes than someone making $400,000 a year. How can we even debate this?”

That last question is a good one, as are the other items in the list.  How is demand for goods and services increased by (1) giving tax breaks to corporations which can use the windfall to pay higher executive compensation, indulge in more mergers and acquisitions, or enjoy the fruits of stock buy-backs; (2) eliminating taxes on millionaires and billionaires and placing more of the burden on working Americans; (3) eliminating the estate tax which doesn’t apply to most American taxpayers and helps only the few at the expense of the many? —

“For decedents in 2017 (with an exemption of $5.49 million), the Tax Policy Center estimates there will be only about 11,300 estate tax returns filed, of which 5,500 will be taxable. Estate tax liability will total $19.9 billion after credits.” [TPC] (Note: There were 150,493,263 returns filed in 2015. (download) Divide 5,550 by 150 million and your plastic brains will yield an infinitesimally small number complete with exponents.]

A final point — Nevadans (and residents of the other 49 states) should be aware that many of the arguments set forth by proponents of the Republican tax plan are couched in vague or highly generalized terms.  Not many politicians want to have to explain why eliminating the Alternative Minimum Tax will benefit lower income Americans.  Quick answer: It doesn’t.  Or, the arguments may be set forth in platitude form, for example: This will put money back in your pockets.  The major question is WHOSE pockets and for how long.  It’s no secret that the GOP tax plan puts the majority of the benefits into the pockets of the ultra-rich, something like 80% of the benefits accrue to the top income earners.

Apologists may take a step or two further.  “Democrats are engaging in class warfare.”  Well, if it’s the ultra-rich vs. the other 99%, so far the 1% are winning very nicely, thank you. And, then there’s the “Democrats want to punish success.” Please spare me.  First, it’s not “punishment” to pay for the military that defends you, the schools that educate you, the national parks you visit, the hospitals that treat you, the roads that smooth the way for you get to work… Secondly, no one is talking about punishing anyone, it’s just a matter of equity — we should all be paying our fair share.

Please contact your Representatives and Senators to oppose this egregious handout to the multi-national corporations and the millionaires and billionaires who stand to reap 80% of the benefits of this Great Republican Giveaway.

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Filed under Economy, income inequality, Politics, Taxation

That Changing Trump Tax Plan and the People Who Love It

 Trump Tax Plan It’s time to haul out the old Etch-A-Sketch template from the Romney campaign for another deployment in the Trump 2016 version – Trump has offered two tax policy proposals.  Neither one accomplishes much more than exacerbating the problems of the current tax code; in fact they’d both do more damage than good.  

Representative Joe Heck (R-NV3) candidate for the Nevada Senate seat and Danny Tarkanian, perpetual candidate and now a contestant for the 3rd Congressional District seat, have both endorsed Donald Trump as their choice for president, and here’s what they’re getting in the bargain.

A Tax Plan for the Top 0.1%

Bracketology: The Tax Policy Center analyzed the initial Trump Tax Proposal (December edition) and this release was followed by significant changes in the original proposal as of August 16, 2016.   And here comes the confusion:

“Trump’s original tax plan included defined brackets, which have since been removed from his campaign website. Trump’s standard deduction increase would make the first $25,000 in income tax-exempt. According to his original plan, the lowest bracket would then apply to all taxable income between $25,000 and $50,000 for single taxpayers, the middle tax rate would be assessed on income of $50,001 to $150,000 and the highest rate would apply to income above $150,000. For married couples, the income ranges would be double these amounts.”  [Motley Fool]

And now:

“As a practical matter, Trump’s plan features a sizable tax-free bracket. He wants to quadruple the standard deduction (currently $6,300) to $25,000 for single filers and $50,000 for joint filers. As a result, about half the population wouldn’t pay income tax.” [TaxAnalyst]

As everyone who has ever filed with the IRS knows full well, what a person actually pays is tax on the adjusted income – income after deductions. If we don’t know what the allowable deductions are then it’s almost impossible to discern what the tax proposal actually means for the average tax payer.  It also isn’t helpful that the ‘defined brackets’ have been removed from the policy section of the Trump info-site.  We can guess that the 12% rate goes for those with taxable incomes between $25,000 and $50,000; 25% for those with taxable income between $50,000 and $150,000; and, 33% for those with taxable income over $150,000.

Who plays in the Brackets?  Here comes the fun, and the way the Trump Tax Plan benefits the upper income earners.   We need to look at Trump’s “pass through entities.”   This is a loophole not only large enough to drive a tractor trailer through, but most of the freight cars on the Union Pacific as well.

“Trump would go one step further, creating an enormous tax loophole for the rich by applying his 15 percent corporate rate to “pass-through” entities as well. Pass-through entities are businesses whose income are not taxed at the corporate level, but rather passed through entirely to the businesses’ owners and then taxed at the owners’ individual income-tax levels. High-income households can easily avoid paying their full income tax bill by reclassifying their income as pass-through income. This loophole allows Trump to claim that he is closing the carried interest loophole, while actually lowering the rate that hedge fund managers would pay from 23.8 percent to 15 percent.”  [EPI]

In 2012 the state of Kansas under the direction of Governor Sam Brownback and a GOP controlled legislature enacted this loophole with disastrous budget results, because of  reduced taxation rates for LLC’s, S Corps, partnerships, farms, and sole proprietorships.

The normally extremely conservative Tax Foundation is not amused:

When the exemption was passed in 2012, it was projected that 191,000 entities would take advantage of the provision. As more and more people have realized the very sizeable tax advantage of being a pass-through entity in Kansas, that number ended up being 330,000 claimants, over 70 percent more than was anticipated.  It’s important to note here that while decreasing taxes is generally associated with greater economic growth, the pass-through carve out is primarily incentivizing tax avoidance, not job creation. [TaxFnd]  (emphasis added)

Thud.  That’s the sound of budget and revenue problems hitting the floor as a result of a ‘carve out’ for the top income earners disguised as a tax cut for small businesses.  Here’s a simple example. If I were earning $165,000 per year working for the Acme Explosives Company, I would ask my employer Wile E. Coyote to immediately re-hire me as an “independent contractor.”  I would re-create myself as an “S” corporation. Handy, since I live in Nevada which doesn’t have a personal income tax, and thus doesn’t recognize the federal S corporation election.  I file the paperwork, get my EIN number, pay some fees, and bingo! – I am taxed at the 15% rate rather than 33%.  There is obviously no job creation here – just a wonderful and perfectly legal way for me to reduce my “bracket” at the expense of those who don’t have the wherewithal to follow my shady example.

The Wichita Eagle editorial board summarizes:

“As part of the 2012 tax cuts, about 300,000 business owners in Kansas don’t have to pay state taxes on pass-through business income. Not only do many Kansas wage earners think this is unfair, so do some of the business owners receiving the tax break – especially when the state is facing serious budget problems.  The exemption is costing Kansas about $260 million a year in revenue. And contrary to what Gov. Sam Brownback promised, it hasn’t acted “like a shot of adrenaline into the heart of the Kansas economy.”

Trump, Tarkanian, and Heck would seemingly like to have Nevada and 48 other states go the way of Kansas?  Only if we’d like to raise tax avoidance and cheating to an art form.

Playing with Children:  Another element of the Trump Tax proposal is the child care tax deduction, and here too the top 1% fare very well thank you.   It’s important to remember at this point that the economic value of a tax deduction increases with the marginal rate of the payer. Or, the higher your tax bracket the more valuable the deduction – for child care.  The deduction is of no use whatsoever to someone already in the Zero bracket but is ever so helpful for those in the upper income levels.

Playing for the Children:  Mr. Trump is pleased to tell us that the Federal Estate Tax is a “horrible weapon which has destroyed many families…”  Not. So. Fast.  “Today’s estate tax is only imposed on less than 0.2 percent of households. Fewer than two estates in a thousand pay it. More than 2.5 million Americans die each year, but less than 5,000 estates were taxed in 2014. Only estates of $5.4 million or more must pay any estate tax at all.” [C&L]   Perhaps it is not too much to return to the appellation “The Paris Hilton Legacy Protection Act,” for this long sought GOP gift to the rich.

There are some serious questions which should be posed to Mr. Trump and his supporters like Mr. Tarkanian and Representative Heck:

#1.  What exactly are the specified brackets in the modified Trump tax policy proposal?  We can assume that the new rates apply to the old brackets but without clarification from the campaign there are significant questions about the revenue projections (or revenue deficit projections) which remain unanswered.  Do those brackets leave us with a revenue deficit of $3 trillion over ten years?  [Tax Analyst] If so, thus much for budget balancing and other forms of fiscal contortion.

#2. Does Trump mean to allow individuals to avail themselves of the Great Pass Through Tax Dodge?  If so, how does he intend to avoid what’s happened in Kansas?

#3. Does Trump intend to provide child care deductions for the rich while working families see none of the economic benefits of it?

#4. Do Mr. Trump, Mr. Tarkanian, and Representative Heck really mean to advocate for estate tax avoidance for those estates of $4.5 million or more? For less that 0.2% of the United States population?

We may have to wait for Trump Tax Policy 3.0 before these questions can be fully answered?

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Filed under Economy, Heck, income tax, Nevada politics, tax revenue, Taxation

The Revenue Side of the Equation: Two Suggestions

ScalesIf the leadership of both major U.S. political parties are truly serious about “paying down” the national debt, and reducing our budget deficit, then both need to move beyond the Austerian economics embedded in the Budget Control Act of 2011 (sequestration).

Perhaps in the rarefied atmosphere of academic debate it’s remotely conceivable that government services could be cut back sufficiently to balance the effects of (1) two major military operations, (2) one major recession, and (3) tax reductions during war time — however, as we discovered during the last government shutdown, “we” want leaner government BUT we don’t want our national parks closed, our NIH studies delayed, our Veterans Benefits deferred, our Indian Health Service programs halted, or our FAA flight safety personnel home on furlough, and so on and on.

The efficacy of the Austerian solutions to the economic doldrums in Europe has already been questioned.  As of May 2013 members of the European Union were seriously questioning the “dogma of Austerity.” [CSMonitor] [Slate][USNWR]  Predictably, there were voices from the financial sector replying that “real” austerity would have worked, and that the philosophy wasn’t truly implemented.  [Forbes]  Once more we tread into Academia, the land in which the theory of “true” austerity drives headlong into the realities of governance.  We may want lower taxes in general, but we also want inspected food, safe air travel, veterans paid what they were promised, scientific trials for cancer treatments, national parks and memorials open and protected, unpolluted air, clean water, regulated nuclear power plants, disaster aid and relief, insurance for livestock losses, and all those other “details” swamped in the rhetoric of the Austerian ethereal-ism.

Sequester Savings

The focus on Austerity Economics (and politics) places singular focus on cutting expenditures — but there is another side to the equation — loath though political leadership may be to discuss it — increasing revenue, otherwise known to  one and all as “raising taxes.”

Let’s begin with the premise that current levels of income disparity are counter-productive to growth in the United States economy.

Income inequality graph 2

The concentration of wealth (and income) in the upper echelons of American income earners doesn’t create the level of aggregate demand which could be achieved if more people had more money to spend for more goods and services.   So, let’s talk about Tax Reform.

On one hand we have the Ryan Plan:

“The tax proposals in the budget that the House approved on April 15 place a top priority on cutting  taxes for high-income people, while doing nothing to reduce budget deficits, themselves.   In addition to making the Bush tax cuts permanent and continuing to provide relief from the Alternative Minimum Tax (AMT) at a cost of nearly $4 trillion over ten years, the House budget advances a series of additional tax cuts that would primarily benefit high-income households at a cost of nearly $3 trillion over that period, most of which is assumed to be offset by reductions in tax expenditures that are left unspecified. ”

Not to put too fine a point to it — but this is austerity on steroids — and there is probably a reason those reductions in tax expenditures are left unspecified.  As we saw during the shutdown, it doesn’t take much pressure to make Republicans cave for specific funding categories.

Options

#1. Financial Transaction Tax could be one way to increase revenue by transactions which would not exacerbate income disparity, would be relatively easy to administer, and might address some of the volatility issues in our current equities markets.  A fuller explanation is available from the Center for Economic and Policy Research, published in 2010.  More information is available from the Center for American Progress (Feb 25, 2013).  See also: Zero Hedge, Nov 2009).  For those who really want to get into the weeds of the European Council’s consideration of a financial transaction tax, there’s Bruegel.Org’s “Benefits of a Transaction Tax,” available in download (pdf) at this link.   The Irish Congress of Trade Union published its “Case for the FTT,” (pdf) Nov 2012.  “FTT: Europe Needs It,” published by the World Economic Review, March 2012. (pdf)

#2. Modify the capital gains tax.  Our current tax system taxes actual w-o-r-k done by human beings at a higher rate than income earned by money.

Most long term capital gains are subject to a top rate of 15%. [TPC] The individual income tax rate (+$400,000-$450,000) are subject to a maximum rate of 39.6%. [TPC]  This system doesn’t serve to ameliorate the income disparity in this country, and is popular only among those who serve the interests of the financial sector and adhere to the principles of the Supply Side Hoaxsters.

Additional information on the current state of capital gains taxation can be found at “A Tragedy in Two Acts,” Bloomberg, Dec. 9, 2012.  CNN “Money” March 1, 2012.  “Who Pays Capital Gains,” CTJ, and
“Ending Capital Gains Tax Preference.”  “Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates,” EPI, June 2013.   “Capital Gains Tax Rates, Stock Markets, and Growth,” Brookings, November 2005.

Not that we can expect members of the Nevada congressional delegation like Rep. Mark “Alamo” Amodei (R-NV2) and Senator “Default Dean” Heller (R-NV) to give these proposals much serious consideration, but perhaps those more inclined to balance the scales in our tax system will give modification of the capital gains taxes and the enactment of a financial transaction tax a serious thought or two.

 

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Filed under Economy, Heller, Politics, tax revenue, Taxation

Distorted Vision: Romney’s Numbers Still Don’t Add Up

Those who believe former Governor Romney is presenting a “vision” for America, especially for the American economy, should move away from the fun house mirror.  The numbers still don’t add up.

I could have sworn that Governor Romney proposed a smaller number for the total deductions cap at one point, [TP]  but I might be suffering from Romnesia. (video)  However, as of the last debate the former Governor would like for us to believe that his tax plan — which will “generate jobs” — will replace revenue lost from giving billionaires and millionaires a hefty tax break with a deductions cap of $25,000.  Nope.

“Capping deductions would generate less additional revenue, and the higher the cap, the smaller the gain. Limiting deductions to $17,000 would increase revenues by nearly $1.7 trillion over ten years. A $25,000 cap would yield roughly $1.3 trillion and a $50,000 cap would raise only about $760 billion.” [taxvox]

Remember that Governor Romney’s calculations call for a reduction in government revenues, ” TPC estimates that on a static basis, the Romney plan would lower federal tax liability by about $900 billion in calendar year 2015 compared with current law, roughly a 24 percent cut in total projected revenue. Relative to a current policy baseline, the reduction in liability would be about $480 billion in calendar year 2015.”

As the chart above indicates there is no way Governor Romney can keep this promise:

“Romney has vowed to make up for all revenue the government would lose due to his proposed tax cut by eliminating tax breaks, particularly for the rich, and by a spurt of economic activity he anticipates would generate more money for the Treasury.” [Bloomberg]

What about those six studies which supposedly ‘prove’ this magic act will work?  In the last week several factcheckers have been busily debunking this contention.  See Politifact, Bloomberg, and New York Times.

The only way to make the numbers fit is to assume some fanciful increase in job creation and economic growth generated by tax cuts.   And, in order to assume that tax cuts lead to economic expansion and therefore job growth is to buy in lock, stock, barrel, nuts, bolts, nails, tacks, and staples into the Supply Side Mythology Voodoo Economics Trickle Down Hoax.

Governor Romney is asking Americans to purchase his Supply Side Hoax, just as President George W. Bush promised that his Supply Side Tax Cuts would generate economic expansion —  What happened?

The tax cuts for the ultra-wealthy (President Bush famously called them his base), helped fuel the Wall Street Casino which in turn created the Housing Bubble and the consequent financial collapse.  And when the collapse hit during 2007-2008 we lacked the financial capacity — having already kept two wars off the books — to address the needs of Americans, their infrastructure, and their economy.

Tax cuts and deregulation were the ingredients offered by former President George W. Bush for economic expansion — they didn’t work.  Now, presidential candidate Romney is energetically advocating following the EXACT SAME RECIPE but this time assuming different results.

And, what do we call “doing the same thing over and over again while expecting different results.”  [answer]

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Filed under 2012 election, Economy, tax revenue, Taxation