Budget & Taxes

Trump Asks Conservatives to Revamp Tax Plan

“Donald Trump’s campaign has enlisted influential conservative economists to revise his tax package and make it more politically palatable by slashing the $10 trillion sticker price. Their main targets: Lifting the top tax rate from Trump’s original plan and expanding the number of people who would have to pay taxes under it,” Politico reports.

“Trump’s initial proposal, rolled out with fanfare at Trump Tower in Manhattan last September, has been in the spotlight since he became the presumptive Republican nominee last week and promptly declared that it was only a starting point for any negotiations with congressional Democrats, should he become president.”

“But it turns out Trump’s team is open to revamping it far sooner than that; the campaign last month contacted at least two prominent conservative economists — Larry Kudlow, the CNBC television host, and Stephen Moore of the Heritage Foundation and a longtime Wall Street Journal writer — to spearhead an effort to update the package.”

How the Wealthy Hide Their Money from the Government

Washington Post: “The documents known as the ‘Panama Papers’ have created a global scandal around the ways the world’s rich conceal their wealth from the authorities. The prime minister of Iceland offered his resignation after the papers reportedly revealed that he and his wife had a fortune on paper hidden away in the British Virgin Islands. British Prime Minister David Cameron is taking criticism as well, and he acknowledged that he profited from a secret family trust.”

“In the United States, the Treasury would collect about $124 billion a year in additional taxes — $36 billion from individual taxpayers and $88 billion from multinational corporations — if it weren’t for such schemes, according to estimates by Gabriel Zucman, an economist at the University of California at Berkeley.”

Most Uninsured Escape Obamacare Penalty

The Hill: “Nearly three in four people who lacked health insurance last year were exempt from the penalty under ObamaCare, according to data from the tax-filing software TurboTax.”

“A total of 70 percent of people filed an exemption to ObamaCare’s individual mandate, about the same figure as last year, according to TurboTax.”

“The two most common exemptions were related to the cost of coverage. Many people without coverage said they couldn’t afford healthcare plans in their area or couldn’t afford plans through their workplace.”

“The other common exemptions were related to a recent eviction or the death of a family member.”

“The number of people seeking cost-related exemptions poses a challenge to the Obama administration, which has made affordability a central part of its strategy to reduce the uninsured.” If you’re interested in using TurboTax, check out this TurboTax promo code to save some money.

Cruz on Military Spending is Big Government

Daily Kos: Sen. Ted Cruz has “talked about giving our nation’s bloated war budget a big boost if he becomes president. As if spending more than the next 14 countries combined isn’t enough.”

“His proposal to increase the Pentagon’s budget … to 4.1 percent of gross domestic product during his first two years in office would raise the 2017 fiscal year budget to $738 billion, a 26 percent increase from what President Obama has proposed. That compares with the peak war budget of $699 billion in 2011.”

“Cruz doesn’t want to raise taxes to accomplish this—golly, no. Rather, he wants to pay for it by dumping the Internal Revenue Service and four Cabinet-level departments: Education, Housing and Urban Development, Energy, and Commerce.”

“Fifty-four percent of federal discretionary spending now flows to the military. But that’s only so when a narrow view is taken regarding what comprises military spending. The overall Veterans Affairs budget including benefits and health care adds another 7 percent in discretionary spending. There is also national security spending for international FBI activities, Selective Service, the National Defense Stockpile, and other miscellaneous defense-related activities that add another 4 percent. An additional 5 percent goes to Homeland Security functions that are not part of the Department of Defense or Department of Energy. So federal discretionary spending that actually goes for national security purposes is 70 percent.”

States With High State Taxes Are Vulnerable to Migration

Gallup: “Residents living in states with the highest aggregated state tax burden are the most likely to report they would like to leave their state if they had the opportunity.”

Percentage of Residents Who Would Like to Leave Their State, by State Tax Burden, 2015

“Nearly half (46%) of Connecticut and New Jersey residents say they would like to leave their state if they had the opportunity. At 13%, Montana has the smallest percentage of residents reporting they would like to leave the state.”

States Whose Residents Are Least Likely, and Most Likely, to Want to Leave, 2015

“States in the first, second and third quintiles have similar percentages of residents reporting they would like to leave their state; however, this percentage increases for residents living in states composing the fourth and fifth quintiles. These data suggest that even moderate reductions in the tax burden in these states could alleviate residents’ desire to leave the state.”

Welfare for the Wealthy

John Sides of The Washington Post interviews Syracuse University political scientist Chris Faricy on his newly published book “Welfare for the Wealthy.”

Faricy cites a few examples of how tax expenditures disproportionately benefit the wealthy: “One example is the collection of tax subsidies for private pensions. In 2015, the average household in the top 1 percent received pensions subsidies worth over $13,000 while the average benefit for a middle-class family was only $1,000. The main reason for this discrepancy is the progressive federal income tax structure.”

Faricy’s book shows the correlation between the growing polarization of the Democratic and Republican parties and the rise in private welfare spending like tax expenditures: “Political polarization relates to increased tax subsidies in three ways. First, polarization has increased the difficulty of passing new spending through the normal budget process and therefore privileges subsidies with fewer legislative veto points.”

“Second, as polarization has reduced the public trust in government, legislators have had to find a way to fund their policy priorities without being perceived as growing the government.”

“Finally, polarization has been asymmetric — with Republicans becoming more conservative than Democrats have become more liberal. Because of this, periods of divided government favor political compromises that use tax expenditures.”

“Most citizens, even educated ones, do not understand who primarily benefits from tax subsidies. The complexity of tax expenditures makes it easier to distribute federal money to unpopular groups such as the wealthy and corporations.”

The Rhetoric Behind the Presidential Candidates’ Tax Plans

Robert Litan in The Wall Street Journal writes that the winner of 2016’s presidential election may be forced by the score-keeping of the Joint Committee on Taxation and the Congressional Budget Office “to at least account for the fact that CBO has projected the steady retirement of baby boomers and increasing health-care costs, both of which will add to the federal deficit in absolute dollars and relative to gross domestic product.”

“None of the Republican candidates left in the race has put forward a plan to reverse this projection. To the contrary, there seems to be a bidding war among them to add to the deficit through their tax plans. Independent analysis of the plan of front-runner Donald Trump found that it would reduce revenue (in turn increasing the deficit) by $9.5 trillion over 10 years. The plan of former Florida governor Jeb Bush would cut revenue by $6.8 trillion over the same period.”

“An independent analysis found that Sen. Bernie Sanders’s proposed tax increases would fall short by at least $3 trillion over the next decade. Hillary Clinton’s spending and tax plans are much less ambitious, but what her campaign has proposed so far has not promised any cuts in the projected growth of the deficit.”

“Whoever wins the White House this fall will find that the JCT and CBO are watching closely. Voters might keep this in mind as they consider the promises coming from the campaign trail.”

Tax Rates Under Bernie

Vox: The chart, by Vox’s Javier Zarracina, shows Dylan Matthew’s estimates of how Bernie Sanders would change marginal tax rates on wages, both from payroll taxes and from income taxes.

Note that the Y axis does not increase linearly

“Most taxpayers would see a single-digit increase in their marginal tax rate. People with taxable income below $250,000 would see an 8.8 percentage point increase.”

“But the very rich would see eye-popping increases in marginal rates: from 36.8 percent to 62 percent for people with taxable income between $250,000 and $413,350. The big change here is applying the Social Security payroll tax, which adds another 12.4 points.”

“Even more dramatic are Sanders’s proposed increases to capital gains taxes … Bernie would hike the top rate to 64.2 percent and the rate for many making upper six figures to 49.2 percent.”

CBO Projections Highlight a Broken Budget Process

Wall Street Journal: “It should be no surprise that the Congressional Budget Office projections published this week are as bad as they have become. More than $100 billion was added to the deficit projection for this year alone, much of it from the spending-and-tax-cuts bonanza Congress and the president went on last year. Going forward, more than $10 trillion is projected to be added to the debt by 2026.”

“This makes putting together a meaningful budget resolution all the more difficult. Last year Republicans passed a budget resolution that got to balance by 2024. But it was so tough to stick to that policy makers ignored many of the major components of their own budget. They failed to follow through on any major entitlement savings and ultimately passed almost $700 billion worth of taxcuts that weren’t in their budget. The same lawmakers who agreed to a budget that had $5.8 trillion in savings over 10 years added $750 billion to the debt instead.”

“This year they will need to find an additional $2.2 trillion in savings if they want to get to balance in 10 years. Realistically speaking, that’s just not going to happen.”

Budget Deficit Slips as Priority

Pew Research: “As Barack Obama begins his final year in office, the goal of reducing the budget deficit, which the public once ranked among the most pressing objectives for his administration, has continued its recent decline in perceived importance.”

Budget deficit slips as public priority“Overall, 56% say that reducing the budget deficit should be a top priority for the president and Congress in 2016, down from 64% who said this last year. The emphasis given to the budget deficit peaked in 2013, the first year of Obama’s second term, when 72% called it a top priority. At that time, the deficit ranked behind only improving the job situation and the economy on the public’s to-do list. Today, reducing the budget deficit ranks ninth in priority out of 18 policy areas tested in the survey.”

“The latest national survey by Pew Research Center, conducted Jan. 7-14 among 2,009 adults, finds that strengthening the nation’s economy and defending the country from future terrorist attacks rank atop the public’s priority list: 75% each say these should be top priorities for the country. These also were the public’s two most important policy goals in 2015.”

Bernie Sanders’ Health-Care Plan and Its Magic Asterisk

Megan McArdle in Bloomberg asks how Sanders proposes to pay for his health-care plan.

“National Health Expenditure data … says we spent about $3 trillion on health care in 2014 from all sources … Now the government already spends $1.3 trillion, or thereabouts, so … that leaves us with about $1.7 trillion to go. Yet Sanders claims that his plan, despite providing vastly more generous health benefits than basically any plan in existence, will cost only $1.35 trillion a year. That’s a pretty big gap. How does he get there? ‘Reforming our health-care system, simplifying our payment structure and incentivizing new ways to make sure patients are actually getting better health care will generate massive savings.’”

Sanders “has proposed a Magic Asterisk worth a third of a trillion dollars a year … But of course, it would be DOA anyway … Sanders won’t easily persuade congressional Democrats to embark upon another such bruising, vote-losing political battle.”

“The very fact that Sanders relies on the Magic Asterisk shows us just how impossible single payer is in this country. Even Sanders — its fondest supporter, who never met a high-income tax he didn’t like — knows he can’t be upfront about the cost and raise taxes accordingly. If Sanders won’t do it, then no one else will either.”

“Single payer’s off the table, for now and for the foreseeable future. The only place you’re going to see it is on Bernie Sanders’s website.”

What Accounts for the Large Increase in State Spending?

Governing: “States increased their spending in fiscal year 2015 by the biggest margin in more than 20 years, but most of the increase was thanks to huge leaps in Medicaid spending under the first full year of the Affordable Care Act.”

“Spending increased last fiscal year, which ended on June 30 for most states, by 7.8 percent, according to new estimates from the National Association of State Budget Officers (NASBO). It’s the biggest boost since 1992 and was thanks to a 15.1 percent increase in Medicaid spending, much of that paid for via federal Medicaid funds. Illinois, Michigan, Kentucky, Nevada and Oregon saw more than 30 percent increases in federal funding because they expanded Medicaid under the ACA.”

“Still, all is not great for state fiscal health. On average, state revenues aren’t keeping pace with spending; NASBO estimates General Fund revenues will increase by just 3.8 percent. That is likely because some states are still having trouble balancing their budgets, as a handful transferred money from special funds or dipped into savings to close 2015 in the black, said Sigritz.”

Medicare Premiums to Increase by 16% not 52%, as Initially Projected

According to the most recent Kaiser Family Foundation newsletter, as a result of the recently enacted budget deal in Congress, “the 2016 Medicare Part B monthly premium will be $121.80, increasing by 16 percent over the 2015 amount—far lower than the increase initially projected by the Medicare actuaries, a new brief from the Kaiser Family Foundation explains. The Part B premium increase will affect 3 in 10 Medicare beneficiaries. The remaining 7 in 10 beneficiaries will pay the same $104.90 monthly premium in 2016 as they paid in 2015, thanks to protections in Social Security law that exempt them from the increase.”

Figure 1: Medicare Part B Monthly Premiums, 2015-2016

“The brief describes how the Medicare Part B premium and deductible are affected for 2016 by the Bipartisan Budget Act of 2015, including a new $3 per month fee for some beneficiaries to offset federal spending. It also lays out the connection between the Medicare Part B premium, the Social Security COLA, and the so-called ‘hold-harmless’ provision, and why, without the change in law, Medicare premiums would have increased by 52 percent for the 30 percent of beneficiaries not protected by the hold-harmless provision.”