Budget & Taxes

Tax Freedom Day Late This Year

Tax Foundation: “Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for year. A vivid, calendar-based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income … This year, Tax Freedom Day falls on April 21, or 111 days into the year.”

“Tax Freedom Day is three days later than last year due mainly to the country’s continued slow economic recovery.”

“Higher-income and higher-tax states celebrate Tax Freedom Day later: Connecticut (May 9), New Jersey (May 9), and New York (May 4). Residents of Louisiana will bear the lowest average tax burden in 2014, with Tax Freedom Day arriving for them on March 30. Also early are Mississippi (April 2) and South Dakota (April 4).”

“The latest ever Tax Freedom Day was May 1, 2000, meaning Americans paid 33.0 percent of their total income in taxes. A century earlier, in 1900, Americans paid only 5.9 percent of their income in taxes, meaning Tax Freedom Day came on January 22.”

Harvard Students Look at Federal Spending

The Harvard Political Review – an undergraduate journal on politics and public policy supported by Harvard’s Institute of Politics – has released the FY 2013 Annual Report of the USA, a research tool offering an examination of the federal budget and challenges facing American taxation and spending policy.

Key findings from the report:

  • Without reform, Social Security beneficiaries will face a 23 percent benefit cut in 2033. By 2087, beneficiaries will receive 28 percent less than calculated under the current benefit formula.
  • Annual growth in Medicare costs has fallen from 7.1 percent between 2000 and 2005 to 3.8 percent between 2007 and 2010. Though experts disagree on why health costs have slowed, federal health care spending over the next 10 years will be $770 billion lower than current projections should the trend continue.
  • Many tax expenditures disproportionately benefit high-income taxpayers. For instance, taxpayers at the bottom of income distribution can only reap benefits from refundable tax credits, yet 81 percent of tax expenditures are non-refundable deductions or exclusions.

Extending Unemployment Benefits: A Logistical Nightmare

Ylan Mui: “State officials are warning that the bipartisan bill to reinstate federal benefits for the long-term unemployed that passed the Senate on Monday could be a logistical nightmare to implement and could expose the government to extensive fraud.”

“The move is being heralded as Washington’s last-ditch effort to stimulate the economy by helping the long-term unemployed. But the state agencies responsible for administering the benefits say actually helping that population could prove to be logistically difficult.”

pic_corner_121213_cbpp

“A few states have even warned that implementation could be so unwieldy that they may opt out of Labor Department program that provides the benefit to workers.”

“The bill faces an uncertain future in the Republican-led House. But even if it does pass — and even if states figure out how to implement the measure — the effort to renew the federal benefits comes too late for many workers. After the payments ended in December, some workers opted to file for early Social Security benefits. Others may have enrolled in school or simply stopped looking for a job, disqualifying them for retroactive payments.”

Where’s the Deficit-Reduction in Paul Ryan’s Plan?

Brendan Greeley questions Rep. Paul Ryan’s deficit reduction plan, embodied in Ryan’s lengthy annual report entitled, Path to Prosperity.

“This year’s Path is denser and full of details, although not ones that matter. As in the past, it contains none of the line-item cuts, program by program, that would make his ardently wished probity a reality.”

“This year, Ryan’s Path includes with each section an ‘illustrative policy option,’ one example of a potential cut … But in the section titled ‘Pro-growth tax reform,’ Path declines to provide even an illustrative policy option. ‘This resolution calls on comprehensive tax reform and lays out some principles,’ it concludes, ‘but it does not embrace any particular plan.’”

“This is funny. Last year’s plan, too, declined to lay out any specific tax breaks it would cut.”

“Next year … Paul Ryan will write his sixth budget proposal. Will this be the one in which he finally tells us exactly what he’s going to cut? Or will that have to wait until we finally just give in and make him president?”

Parents Deserve a Bigger Tax Break

Matthew Klein argues that parents, as “the world’s most important investors,” deserve a bigger tax break.

“People who don’t work depend on those who do … Workers also pay the taxes that support the elderly in retirement. This is why parents tend to make everyone better off when they have children.”

Klein points out that the childless benefit at the expense of parents because they “can use the money they don’t spend in raising kids to pay for a comfortable retirement.”

The chart below, featuring two hypothetical couples with identical financial profiles, illustrates the gap in net wealth resulting from having children.

Klein’s proposal: A “larger tax child tax credit that would more than offset a broader increase in tax rates.

“The advantage of a tax credit is that it could be claimed by the poor.”

“Another option: Adjust the rates paid for payroll taxes, which go toward entitlements, according to the number of children you have.”

Runaway Spending Under Obama? Look at the Facts

Jared Bernstein questions the common assumption of “runaway spending” under President Obama’s tenure.

“The figure [(Source: CBPP analysis of OMB and BLS data)] shows significant spending growth in only one year: 2009, as outlays rose to meet the deepest recession since the Depression … Since then, outlays have fallen, adjusting for inflation and population growth.  From 2009 to 2013, they’re down 12 percent … not quite the spending spree that is often suggested in partisan debate.”

“Moreover, as the figure below reveals, 77 percent of the savings that come from policy changes (i.e., excluding technical and economic changes) are from spending cuts to government programs; less than a quarter come from revenue”

 

Colorado Saw $2 Million in Marijuana Taxes in First Month

“Colorado collected slightly more than $2 million in taxes on the sale of recreational marijuana in the month of January,” the Denver Post reports.

“The numbers are the first official tally of the historic January sales, themselves a nationwide first. If the figures remain at that pace, sales and tax revenues would fall below previous estimates of what Colorado could reap from the sale of marijuana.”

State With the Highest Minimum-Wage Bests National Job Growth

Critics of raising the minimum wage argue that an increase will stifle economic growth. This is not what happened in Washington state, where residents voted in 1998 to raise the state’s minimum wage.

Bloomberg: “In the 15 years that followed, the state’s minimum wage climbed to $9.32 — the highest in the country. Meanwhile job growth continued at an average 0.8 percent annual pace, 0.3 percentage point above the national rate. Payrolls at Washington’s restaurants and bars, portrayed as particularly vulnerable to higher wage costs, expanded by 21 percent. Poverty has trailed the U.S. level for at least seven years.”

As the debate plays out on a national level, Washington’s example could be used by those who attest to the positive impact of a minimum wage increase on the economy.

Is Obama’s Budget Proposal Just ‘Empty Symbolism’?

The general consensus is that President Obama’s proposed $3.9 trillion budget is dead on arrival:

Lori Montgomery offers five reasons why Obama’s budget matters even less than usual, asserting that the December 2013 two-year budget deal, and Republicans’ refusal to entertain the White House agenda, makes the proposal ineffectual.

Ed O’Keefe concludes that the “proposal will [not] go anywhere — and that’s by design.”

As Sen. Charles E. Schumer (D-N.Y.) puts it: “Everybody realizes that both sides are going to continue to put out their message documents to show what they would do if they gained seats in the House or Senate.”

But Jonathan Cohn disagrees: “For one thing, some of Obama’s budget proposals could still become legislation, [perhaps] as scaled-down pilots or add-ons to other pieces of legislation.” Cohn cites funding for early childhood programs, expansion of the Earned Income Tax Credit, and a major highway bill as some possibilities.

“A budget unlikely to generate legislation can still have meaning, as a statement of priorities. In this case, the Obama budget is a preview of the agenda Democrats will adopt whenever full-scale fiscal negotiations start up again.”

Have Republicans Won the Budget Wars?

Screen Shot 2014-03-05 at 10.24.16 AM

Washington Post: “As the chart shows, the recent reduction of the deficit has come primarily due to spending cuts instead of revenue increases. Spending has shrunk 4.1 percentage points from 2009 to today, while revenue has grown only 2.2 percentage points in the same period. To put it another way, there have been nearly $2 in spending cuts for every $1 in revenue increases. On the surface, it would appear that Republicans won the budget wars.”

Obama Sees Dramatic Reduction in Deficits

Washington Post: “President Obama is just out with his newest budget request — which forecasts a dramatic reduction in deficits over the coming decade. The request paints a much rosier debt scenario than a report released by the nonpartisan Congressional Budget Office a month ago. In his budget request, Obama projects public debt as a percentage of gross domestic project falling to 69 percent by 2024, while the CBO has it rising to 79 percent — a difference of 10 percentage points, or roughly $2.7 trillion.”

“This is largely because Obama assumes the passage of legislation that the CBO doesn’t, and he assumes those laws will generate far more revenue over the next decade.”

rosy_budget_part_1

Warren Buffett: Economic Growth is ‘Remarkably Consistent’

Investor Warren Buffett predicts a steadily improving economy with growth that has been “remarkably consistent.”

The Hill: Buffett “said even if gross domestic product figures ‘bounce around a little’ that ‘in terms of what we see, I would say that it’s been almost a straight line but not at the kind of slope that people would like, but not flat, either.'”

Following on this observation, Bloomberg reports that the Obama administration’s proposed budget predicts an “accelerating economy,” and the “economy will grow this year at its fastest pace since 2005, helping reduce the annual average unemployment rate for a fourth straight year even as market borrowing costs rise.”

Obama’s Proposed Budget Targets Economic Inequality

President Obama released his $3.901 trillion budget proposal Tuesday, providing a benchmark of the principles of his party despite the prospect that little of it will become law.

Politico: “It seeks $651 billion in new revenue from the rich, would formalize in the tax code a rule named for billionaire investor … Warren Buffett, cuts the size and pay of the military, and expands or creates a series of social programs the president has long touted.”

According to The New York Times, Obama’s tax package will embody one of his central themes — economic inequality — through the proposal of expanding the Republican-inspired earned-income tax credit.

“By including the new tax-credit proposal and emphasizing its limited Republican pedigree, Mr. Obama is underscoring his struggle to set an agenda that stands a chance to become law, at least in part — in this case, to try to reduce inequality of incomes and economic opportunity.”

Obama: “Our budget is about choices. It’s about our values … As a country, we’ve got to make a decision if we’re going to protect tax breaks for the wealthiest Americans or if we’re going to make smart investments necessary to create jobs and grow our economy and expand opportunity for every American.”