Budget & Taxes

Kansas Avoids Massive Budget Cuts

“Kansas will avoid massive budget cuts after a tax plan crawled to passage in the Legislature on Friday, but some lawmakers who voted for the plan say the state has failed to right its financial ship,” according to The Kansas City Star.

“Republicans, who hold supermajorities in the Kansas House and Senate, found themselves bitterly divided on taxes for weeks in the face of a $400 million budget hole as the legislative session stretched to 113 days, the longest in state history. The House scraped together the 63 votes needed for passage at 4 a.m. Friday, passing a plan that raises $384.4 million in tax revenue, after working around the clock since Wednesday night.”

“Little more than 12 hours later, the Senate approved the plan with 21 votes, again the bare minimum for passage… Brownback had warned that if lawmakers did not pass a tax plan before Monday, then he would make massive budget cuts — either issuing a 6.2 percent across-the-board cut costing schools nearly $200 million, or line-item vetoes of budgets for the state’s regents universities.”

Washington Post: How Kansas keeps making life harder for the poor

Both Parties Face Pressure to Raise Taxes

“Pressure to raise taxes, at least on the wealthy, is rising,” writes the New York Times.

“Several developments are fueling that pressure. The Tea Party push to slash spending has lost steam and generated a backlash. Defense hawks want more money for the Pentagon, while other Republicans seek additional cash for highway projects. The largest potential targets for further cuts, Social Security and Medicare for the elderly, are hardly politically inviting.”

“Moreover, both parties, at least rhetorically, have embraced the need for Washington to address stagnant middle­class wages and rising income inequality. Enacting significant remedies — whether through new middle­class tax benefits or spending programs — requires cash Washington doesn’t have.”

How Obama Can Make the Tax System More Progressive

Ike Brannon argues that President Obama should propose “a radical tax reform that goes far beyond what’s currently being contemplated by congressional Republicans.”

“Along with reducing the tax break for inherited wealth — an idea already floated by the White House — it would include eliminating the deduction for mortgage interest as well as state and local taxes while also capping the deductibility of charitable contributions and retirement savings. The proposal would also have a much lower cap for the deductibility of employer-provided health insurance than the one coming down the pike and eliminate lower tax rates for carried interest as well.”

“These tax deductions (actually, all tax deductions for that matter) go overwhelmingly to the wealthy… The problem is that most deductions have large lobbies dedicated to protecting them. If Senate Finance Chair Orrin Hatch (R-Utah) or Ways and Means Chair Paul Ryan (R-Wis.) were to propose these reductions, congressional Democrats would allege they are harming the middle class with their cuts and lobbyists would reward them for doing so. But if it’s the White House that’s proposing it, Messrs. Ryan and Hatch would leap at the deal and work furiously to round up votes, knowing there is no other way to come up with enough rid tax expenditure savings to finance anything worthy of being called a ‘fundamental’ tax reform.”

Which States Rob From the Poor to Give to the Rich?

Christopher Ingraham: “We don’t usually think as much about the impacts of state taxes on inequality. A team of researchers at the Federal Reserve recently released a paper exploring the topic and found something, if not surprising, discouraging.”

Many states “actually undermine the federal government’s anti-inequality measures.”

“In essence, they take from the poor and give that money to the rich. I’ve mapped each state’s contributions to inequality reduction below. States in green have tax policies that build on the federal tax code, making the gap between rich and poor smaller. States in purple have tax laws that undo federal measures to address inequality.”

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“In some cases, the magnitude of the effects are quite large. The tax code of Tennessee, for instance, decreases federal anti-inequality efforts by nearly one-third.”

“‘State-levied taxes, on average, work to exacerbate income inequality.’ There are a number of factors driving this, including state-level gas taxes, which tend to be regressive (everyone pays the same rate) and serve to moderately increase inequality.”

Can Republicans Avoid Romney’s Tax Proposal Problem?

“President Obama accused Mr. Romney of proposing to cut taxes on the rich at the expense of the middle class,” according to the New York Times. “There are a few ways the 2016 Republican candidates can avoid the Romney middle­class tax trap.”

”They can break with party tradition and abandon the position that there should be significant tax­rate cuts for top earners. They can forthrightly defend the idea that people with low and middle incomes should pay more. They can abandon the promise of revenue neutrality — so a tax cut for the rich does not need to be offset by tax increases elsewhere. They can be as vague as possible.”

“So far, we have seen contenders use all these options except the first… The question is whether G.O.P. primary voters, used to promises of deep tax cuts, yet desirous of higher military spending and wary of old­age entitlement cuts, will allow a candidate to dance around their unreasonable expectations — or whether they will push their nominee into promises that prove unpopular in a general election.”

When GOP Resistance to Obamacare Hurts Republicans

Greg Sargent in the Washington Post: “There’s been yet another twist in the seemingly endless battle over the Medicaid expansion in Florida: Rick Scott has now flatly stated that the GOP split over whether to accept it is probably going to cost the state its tax cuts and cost its students higher per-pupil spending.”

“It’s worth reiterating that Scott and state House Republicans want federal money for health care, but only if it’s not part of Obamacare, and this is what is putting all of these other GOP budgetary goals, including tax cuts, at risk. They’ve argued that the feds could reneg on their commitment to fund the Medicaid expansion, putting the state on the hook for it. But Senate Republicans counter that their expansion bill has explicitly been drafted to end the state’s participation if that happens.”

“Either way, this once again shows that the depth of GOP resistance — the determination to accept federal money for health care on the grounds that it isn’t Obamacare — runs so deep that Republicans are willing to sacrifice their other priorities to it.”

Raising State Revenues a Bipartisan Cause

“About a dozen states—including several led by Republican governors—are considering significant tax increases this year, despite the success of antitax conservatives in the 2014 elections,” according to the Wall Street Journal.

“State revenues generally have returned to prerecession levels, adjusted for inflation. But a number of governors and legislatures are wrestling with how to address growing demands for services in areas of the budget that were squeezed during the downturn. Proposals for tax increases are proliferating, in particular, efforts to fund transportation and education.”

“Lawmakers in several states are seeking ways to make up for revenue disappointments. Louisiana is among the states that face serious budget shortfalls due to a loss of oil-tax revenue. But several states that aren’t dependent on energy revenue also have come up short of forecasts.”

Corporate Tax in Need of Reform

Steve Hanke argues that it is about time for the United States to reform its tax code, particularly the corporate tax rate.

“The Tax Foundation released its inaugural ‘International Tax Competitiveness Index’ (ITCI) on September 15th, 2014. The United States was ranked an abysmal 32nd out of the 34 OECD member countries for the year 2014… The poor showing of the U.S. resulted from other countries recognizing the need to improve their competitive position in an increasingly globalized world.”

“Indeed, the only OECD member countries not to have cut their corporate tax rates since the onset of the new millennia are Chile, Norway, and, yes, the United States. The high U.S. corporate tax rate not only raises the cost of doing business in the U.S., but also overseas. The U.S., along with just 5 other OECD countries, imposes a ‘global tax’ on profits earned overseas by domestically-owned businesses.”

Working Capital Review: A Q&A with House Ways and Means Committee Member Rep. Jim Renacci

Stop Calling the Estate Tax a ‘Death Tax’

Barry Ritholtz explains why it is “misleading” to use “the phrase ‘death tax’ to describe the levy on the estates of deceased multimillionaires.”

“In 2013, 2,596,993 Americans died, according to the Centers for Disease Control and Prevention. About 5,000 of them paid a tax after that mortal event. To be more accurate, their estates paid whatever tax was owed. That means 2,591,993 Americans died that year without paying any tax.”

“In other words, just 0.19 percent of all deaths in 2013 resulted in a tax. When 99.81 percent of all deaths don’t create a taxable event, calling it a death tax is mathematically nonsensical. What is the actual trigger for this taxable event? If your estate is worth less than $5.43 million dollars in 2015 (or $10.86 million dollars for a couple), you are exempt from the federal estate tax. Over that and your estate pays, which by the way is why the Internal Revenue Service calls it an estate tax.”

Majority Would Support a 10-Cent Gas Tax Hike

The Hill: “A majority of voters would support a 10-cent increase in the federal gas tax if the money is used for specific transportation improvements, according to a new poll released on Wednesday.”

“The poll, which was conducted by the San Jose, Calif. Mineta Transportation Institute, found that 71 percent of voters would be willing to pay a dime more than the current 18.4 cents-per-gallon gas tax if the money is spent on ‘projects to maintain streets, roads, and highways.’”

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The director of the study said the findings show voters are willing to support a gas tax increase if they can be assured the money will be used to pay for transportation projects.

“’Conventional wisdom says that Americans strongly oppose any increase in the federal gas tax,’ Dr. Asha Weinstein Agrawal said in a statement. ‘However, this survey shows that significant majorities want the government to provide better transportation infrastructure, are willing to pay for improvements, and want gas tax revenue spent on public transportation as well as on roads and highways.’”

Republicans’ Secret to Boosting the Economy: Tax Cuts for the Rich

Washington Post: “If taxes didn’t exist, Republicans would have to invent them so they could say that cutting them would solve  our problems.”

“With the exception of Marco Rubio, it seems like almost every presidential hopeful on the Republican side has come out in favor of some kind of flat, or at least flatter, tax as the secret to boosting the economy. Ted Cruz wants one, Rand Paul does too, and now even Chris Christie is saying that ‘in the Obama years, I think you’ve had no attention paid to the things that create economic growth, like a flatter, simpler tax system.’ There are only two problems with this: it’s not true in theory, and it’s not true in practice.”

“The first problem is that while tax cuts help growth in the short-run by putting money in people’s pockets, they only help in the long-run if they’re paid for.”

And, “if you broaden the tax base by getting rid of credits, deductions, and exemptions so much that lower tax rates still bring in the same amount of tax revenue, then, as Alan Viard and Alex Brill of the American Enterprise Institute point out, you haven’t really changed people’s incentives all that much.”

“Every problem, Republicans think, is an opportunity in disguise for a tax cut. Well, make that a tax cut for the rich.”

Save Social Security By Eliminating the Payroll Tax

“The best way to reform Social Security is to eliminate the payroll tax,” argues Dean Clancy.

“Social Security is going bankrupt, but official Washington can’t agree on how to fix it. Payroll tax receipts are insufficient to pay promised benefits… The most practical, and in my view, the best way to restore system balance would be to simply supplement the payroll tax from other revenue sources, and in particular from the general fund (i.e., income taxes). That would make the program solvent forever. Presto! No more bankruptcy threat. Which leads to a further idea: Why not supplant the payroll tax altogether, and as soon as possible?”

“The payroll tax is the biggest tax most Americans pay, and regressive. It falls hardest on low-wage workers. Eliminating it would provide meaningful relief to every American wage-earner, with the greatest relief going to those who need the the help the most. Abolishing it would be economically beneficial and politically popular. To avoid increasing the deficit, we could raise or impose other taxes that are less regressive – although, to be honest, I’m not sure we really need to. If anything, America’s less-than-stellar economy could stand a tax cut right now, and what better kind of tax cut than one that reduces burdens on job creation?”