Budget & Taxes

The Very Interesting Thing That Happened When Obama Raised Rich People’s Taxes

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Washington Post: “Just after President Obama won reelection four years ago, he and Congress increased taxes abruptly on the wealthiest Americans. In response, the rich paid up — and then went on with their lives as before, according to a new working paper.”

“Economist Emmanuel Saez estimated that, in the three years since the tax hike took effect, strategies used by the rich to reduce their reported income eliminated about 19 percent of the revenue the government could have collected from the tax increase had the wealthy not changed their behavior. This relatively small figure suggests the 2013 tax hike didn’t significantly affect rich Americans’ drive to make money, and Saez’s analysis of tax data shows the reported incomes of the wealthiest Americans, as a share of all Americans’ incomes, has continued to rise.”

Restructuring Subsidies Could Help Fix ObamaCare

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Sarah Kliff: “For as long as I’ve covered Obamacare, I’ve always found Caroline Pearson to be an exceptionally smart and honest observer of the law. Pearson is a senior vice president at the research firm Avalere Health, and I called her up Tuesday morning to talk about Obamacare’s spiking premiums.”

Pearson: “I think what you have to do is rethink the subsidy structure and benefit design structure to make coverage more appealing for people between 200 and 300 percent of the poverty line.

If you look at the report that [the Department of Health and Human Services] put out on Monday, the average income of the marketplace population is 165 percent of the poverty level. It is a very low-income population.

The mandate penalties are not working to compel people into the market, but the subsidies are in. Absent higher mandate penalties, which even in a Democratic Congress is hard, you might see getting rid of the subsidies for people between 300 and 400 percent of the poverty line and doubling down on the people between 200 and 300 percent. If you could get better enrollment among that group, it might stabilize the market.”

A Child Born Today Comes Into the World With More Debt Than You

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Bloomberg: “Under current law, U.S. inflation-adjusted debt per person is expected to reach the $66,000 milestone by April 2026, based on Bloomberg calculations of Congressional Budget Office and Census Bureau data.”

“So what would the debt path look like under either a Hillary Clinton or Donald Trump presidency? It would be pretty bleak in either case, according to a report released by the Committee for a Responsible Federal Budget.”

“The committee projects debt held by the public to grow by $9 trillion over the next decade under current law. Economic proposals put forth by both presidential candidates would add to the national debt, and Trump’s would add even more than Clinton’s. The report estimates that Clinton’s policies would increase the national debt by $200 billion over the next decade, while Trump’s proposals would add $5.3 trillion.”

By 2025, the Majority of Donald Trump’s Tax Cuts Would Go to the Wealthiest 1% of Americans

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Washington Post: “By 2025, about 51 percent of the benefits of Trump’s tax plan would accrue to the wealthiest percentile of taxpayers, according to the Tax Policy Center’s analysis. Those wealthy taxpayers would save $317,000 on average each year, increasing their incomes by more than 14 percent.”

“Reducing taxes on the grand scale that Trump has proposed would mean far less revenue for the federal government. The government would have to either reduce spending, or borrow more to make up the difference.”

Why Thousands of Millionaires Don’t Pay Federal Income Taxes

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Washington Post: “About 46 percent of all tax filers (individuals or households) pay no federal income taxes each year because of various exclusions. High-income tax filers make up a tiny portion of that number, but they are by far the biggest beneficiaries. More than half of the tax revenue lost to the most common tax exclusions stays in the pockets of the richest one-fifth of Americans, according to an analysis by the Congressional Budget Office.”

“While it’s rare for high-earners to pay no federal income tax, it’s not unheard of. In 2011, for instance, about 433,000 tax filers with incomes over $100,000 paid no federal income tax, according to estimates based on limited IRS data by the Tax Policy Center, a nonprofit think tank. That number includes approximately 4,000 filers with an income of $1 million or more.”

The most costly loopholes: individual retirement accounts not subject to federal taxes, interest on municipal bonds, and reduced tax rates on capital gains.

Sweden Wants To Fight Our Disposable Culture With Tax Breaks For Repairing Old Stuff

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Fast Company: “How often have you taken a gadget or a pair of shoes in for repair and found out that fixing it will cost more than buying a new version? Too often, that’s how often. And Sweden is trying to fix this, by halving the tax paid on repairs and increasing taxes on unrepairable items.”

“The proposed legislation would cut regular tax on repairs of bikes, clothes, and shoes from 25% to 12%. Swedes would also be able to claim half the labor cost of appliance repairs (refrigerators, washing machines and other white goods) from their income tax. Together, these tax cuts are expected to cost the country around $54 million per year. This will be more than paid for by the estimated $233 million brought in by a new ‘chemical tax,’ which would tax the resources that go into making new goods and computers.”

Americans Appear Willing to Pay for a Carbon Tax Policy

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New York Times: “The stumbling block in Congress for confronting climate change has perpetually been the economic challenge. There has been little support for paying to reduce greenhouse gas emissions.”

“But now, there is some evidence of a quiet undercurrent of support for a carbon policy, whether it be a tax, cap-and-trade or regulations.”

“The Energy Policy Institute at the University of Chicago (EPIC) — which, in full disclosure, I direct — and The Associated Press-NORC Center for Public Affairs Research released a poll Wednesday on how Americans feel about various issues related to climate and energy.”

By 2025, 99.6% of Paul Ryan’s Tax Cuts Would Go to the Richest 1% of Americans

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Washington Post: “The House Republicans’ proposal for tax relief could force the government to borrow trillions of dollars to continue operating and might even weaken the economy, according to a new analysis from the nonpartisan Tax Policy Center.”

“By 2025, when the reductions would be fully implemented, 99.6 percent of the tax cuts would benefit the wealthiest 1 percent of Americans, according to the analysis. This group would enjoy the greatest relief as a share of their income (increasing their incomes after taxes by 10.6 percent on average) and in terms of dollars (an average annual savings of $240,000 for each household).”

Is the Answer to Poverty the Negative Income Tax?

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Martin Feldstein: “The United States government now spends more than $600 billion a year on programs to help the poor. That’s about 4% of America’s total GDP.”

“But, despite this large expenditure, the proportion of the population living in poverty is officially estimated at 15%, about the same as it was 50 years ago. Experts agree, however, that the government’s poverty measure doesn’t correctly reflect the progress that has occurred, because official statistics focus only on cash income and ignore almost all of the government’s transfer payments.”

“The existing approach to helping the poor needs reform.”

“The best way to help the poor is the negative income tax plan originally proposed by both Milton Friedman (the conservative economist at the University of Chicago) and James Tobin (the liberal economist at Yale University). All households below the age of 65 would receive an amount of money that would keep them out of poverty if they had no other income; but the amount of the transfer would decline gradually as their household income rose. Above a certain threshold, the household would pay an income tax as they do today; below that level, the ‘tax’ would be negative.”

 

Donald Trump’s New Tax Plan Could Have a Big Winner: Donald Trump’s Companies

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Washington Post: “A little-noticed provision in Donald Trump’s tax reform plan has the potential to deliver a large tax cut to companies in the Republican presidential nominee’s vast business empire, experts say.”

“Trump’s plan would dramatically reduce taxes on what is known in tax circles as ‘pass-through’ entities, which do not pay corporate income taxes, but whose owners are taxed at individual rates on their share of profits.”

“They are also a cornerstone of the Trump Organization. On his 2015 presidential financial disclosure report, Trump listed holdings of more than 200 limited liability corporations, which is a form of pass-through.”

“‘It’s a really nice deal’ for Trump and pass-through owners like him, said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center.”

Trump’s Childcare Plan Fails Low-Income Taxpayers

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American Enterprise Institute: “In his economic speech yesterday, Donald Trump suggested an outline of his childcare plan: allow parents to fully deduct the average cost of childcare spending from their taxable incomes.”

“One problem with this approach is that in 2015, according to the Tax Policy Center, about 45% of all taxpayers had zero or negative individual income tax. In other words, a large fraction of low and middle income taxpayers already have no tax liability, so providing them an additional deduction on their taxable income to further reduce their tax liability is unlikely to have any impact.”

“If this deduction is not capped, the benefits of this policy will likely be concentrated among upper-middle and higher income taxpayers, who can already reduce their tax liability with the Child Tax Credit and the Child and Dependent Care Credit.”

“Since those with higher incomes are more likely to itemize deductions than lower income taxpayers, tax credits would more effectively help low income taxpayers. Even so, unless tax credits are made refundable, they are unlikely to bring any additional benefits to lower income households who already pay no tax.”

Trump’s Stimulus Looks Just Like Obama’s

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Commentary Magazine: “Yesterday, Trump spoke on the Fox Business Network about his plans for the economy and what he said ought to sound very familiar to both liberals and conservatives. He advocated a massive increase in federal spending on infrastructure that would cost anywhere from $800 billion to $1 trillion. Trump calls this a jobs program that will put America back to work. But if you ignore the rhetorical flourishes and stick to what he is actually advocating and how he proposes to pay for it you can call it by another name: stimulus.”

“It was only seven years ago that the newly elected Barack Obama got a Democratic-run Congress to approve his plan to revive the economy. It cost around $800 billion and was supposed to provide “shovel-ready jobs” that Americans needed.”

“So the question for Trump acolytes who now pose as the arbiters of what it means to be a conservative, what is it about Trump’s stimulus that should make it more acceptable to Republican voters than Obama’s?”

The Fiscal Challenges of the Post-Obama Era

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Real Clear Policy: “As President Barack Obama approaches the end of his time in office, the United States is approaching a fiscal day of reckoning. That’s apparent in two startling reports on the budget outlook released in July that have gone largely unnoticed in a political season dominated by purposeful distractions and peripheral issues.”

“The first is the Obama administration’s mid-session review — an updated budget projection produced each summer by the Office of Management and Budget… This year’s review shows that from 2017 to 2026, the federal government will run a cumulative deficit of $8.8 trillion under current law.”

“The second important budget forecast released last month, from the Congressional Budget Office … A key fact: the U.S. is in the beginning stages of a massive and unprecedented demographic transformation. Between 2010 and 2040, the number of Americans age 65 and older will double, from 41 million to 82 million. In 2000, there were 4.7 working age Americans (ages 20 to 64) for every person 65 or older. By 2040, there will be only 2.6 people of working age for every person 65 or older… This surge of older Americans will swell enrollment in Social Security and Medicare.”

“What’s needed is a plan no politician wants to promote — one that reforms the major entitlement programs to bring promised benefits in line with a realistic expectation of federal revenue over the long-run.”