Budget & Taxes

Economic Recovery Still Focused on Top One Percent

Justin Wolfers: “Emmanuel Saez, the economics professor who crunches these numbers based on data provided by the Internal Revenue Service, has just released preliminary estimates for 2013. The share of total income (excluding capital gains) going to the top 1 percent remains above one-sixth, at 17.5 percent. By this measure, the concentration of income among the richest Americans remains at levels last seen nearly a century ago.”

“The average of the past two years … supports the narrative that the economic recovery so far has only boosted the incomes of the rich, and it has yielded no improvement for the bottom 99 percent of the distribution. After adjusting for inflation, the average income for the richest 1 percent (excluding capital gains) has risen from $871,100 in 2009 to $968,000 over 2012 and 2013. By contrast, for the remaining 99 percent, average incomes fell by a few dollars from $44,000 to $43,900.”

“That is, so far all of the gains of the recovery have gone to the top 1 percent.”

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CBO Projects Deficit Decline But Warns of Tripling Interest Payments

Washington Post: “The federal budget deficit will ease slightly to $468 billion this year, the Congressional Budget Office said Monday, but the agency warned that the mounting level of federal debt over the next decade would mean a tripling of interest payments and new spending constraints.”

“The projected deficit, equivalent to 2.6 percent of the size of the economy, would be the smallest since 2007 and close to the 2.7 percent average deficit over the past 50 years.”

“While those deficits would remain stable through 2018, the CBO warned that they would rise after that.”

Obama ‘Turns the Page’ to a New Policy Agenda

Ezra Klein contends that “the most striking sentence in President Obama’s 2015 State of the Union came near the start: ‘Tonight, we turn the page.'”

“It is the seventh year of Obama’s presidency. But it’s the first in which the economy is no longer in crisis. And so it’s the first in which Obama’s State of the Union proposals no longer reeked of crisis.”

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“The ‘turn the page’ line wasn’t just rhetoric. It was policy, too. In every State of the Union since Obama took office, he has offered policy built for an emergency.”

“But not this time. The tax increases Obama proposed in Tuesday’s speech are simply there to pay for tax cuts for the middle class … It’s the kind of plan Democrats offer when the economy is doing well rather than when it’s doing poorly.”

“What’s notable, too, is what wasn’t in the speech: there was little about Obamacare … He could have directed people to the (smoothly functioning) HealthCare.Gov marketplaces and bragged about how many have already enrolled. The absence of any serious discussion of Obamacare was clearly intentional — and fit a speech in which Obama seemed intent on looking forward to new problems and policies rather than backwards to older ones.”

Obama Tax Plan Rekindles Debate on Income Gaps

“A White House tax plan released over the weekend promises to rekindle a long-simmering debate over how to use the tax code to close income gaps between the wealthy and the middle class,” the Wall Street Journal reports.

“At a minimum, the plan represents President Barack Obama ’s opening bid to congressional Republicans in a potential negotiation over a comprehensive rewrite of the tax code, including the rules for individual taxpayers. Sharply negative reactions from GOP lawmakers suggested it is unlikely that many of Mr. Obama’s ideas would become law in the current GOP-run Congress.”

“The plan—which Mr. Obama will highlight in his State of the Union address on Tuesday—would raise taxes on high-income households’ investments by raising top capital gains tax rates and imposing capital gains tax on many inherited assets. The plan also would create or expand a range of tax breaks aimed at boosting incomes for low- and middle-income earners, including a new $500 tax credit for two-earner households.”

Redistribution, American Style: Take From the Poor and Give to the Rich

E.J. Dionne: “You may think that government takes a lot of money from the wealthy and gives it to poor people. You might also assume that the rich pay a lot to support government while the poor pay a pittance.”

“It is thus a public service that the Institute on Taxation and Economic Policy (ITEP) has issued a report showing that, at the state and local level, government is indeed engaged in redistribution — but it’s redistribution from the poor and the middle class to the wealthy.”

“The institute found that in 2015 the poorest fifth of Americans will pay, on average, 10.9 percent of their incomes in state and local taxes and the middle fifth will pay 9.4 percent. But the top 1 percent will pay states and localities only 5.4 percent of their incomes in taxes.”

“This gets to something else we don’t discuss much: Public policies in most other well-to-do countries push much harder against inequality than ours do.  … After government transfers are taken into account, the good old USA soars to first in inequality.”

“There is also an unanticipated consequence of growing economic disparities: Because states and localities tax the wealthy less, ‘rising income inequality can make it more difficult for state tax systems to pay for needed services over time. The more income that goes to the wealthy, the slower a state’s revenue grows.’”

Does the Government Save by Being Stingy?

Eduardo Porter observes that “with a new Republican majority in Congress looking to further the cause of low taxes and less spending, it is easy to forget that tightfisted government imposes very real costs. That we can’t easily measure them doesn’t mean they don’t exist.”

“’Of course there are positive returns to spending on health, education, nutrition,’ said William Gale, a tax expert at the Brookings Institution. ‘They are saving a lot of money and generating revenues. The macro effects are big relative to the expenditures.’”

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“Some economists argue that public investment is often more productive than private investment. Even the International Monetary Fund, long an exponent of fiscal rectitude, argues that public infrastructure investment largely pays for itself, especially in periods of repressed economic activity and low interest rates like today.”

“Republicans’ attempts to recast budget rules might be portrayed as a political tactic of little consequence — an assertion of power with no economic or budgetary substance.”

“The stakes are high, though. Under current laws, the C.B.O. has projected that civilian government investment will shrink to roughly 1.3 percent of the nation’s gross domestic product by 2020. That is the smallest share since the government started keeping track in 1962.”

 

 

Which State Relies Most on Federal Aid?

Washington Post: “Nearly $1 in $3 in state revenue comes from the federal government, according to a new analysis.”

“While taxes are responsible for most state general revenues, the federal government is responsible for about 31.5 percent of the total, according to the nonprofit Tax Foundation.”

“Mississippi is most reliant on the federal government, with 45.3 percent of general revenue in the most recently available fiscal year coming from the feds. Oil-rich Alaska‚ whose revenue is highly volatile, is least reliant on the federal government.”

Republicans’ Support of Dynamic Scoring: Just Say No to Math

Jonathan Chait: “The first substantive act of the new, all-Republican Congress was a telling one: … In a rapid vote yesterday, the House directed the Congressional Budget Office to use “dynamic scoring” — a Washington term of art to describe imposing conservative ideology upon the once-neutral task of measuring the budgetary impact of legislation.”

“Congress voted yesterday to require the CBO’s measurement of the budgetary cost of legislation to incorporate assumptions about how it will affect economic growth. Specifically, the GOP’s assumptions.”

“The whole reason the Republican Congress is instituting dynamic scoring comes as a response to its attempt to write a tax reform bill last year. The idea was to lower tax rates while eliminating loopholes and preferences. But Republicans discovered that, while lowering rates is easy, eliminating preferences is hard.”

“Paul Ryan openly declared his plan to change the forecasting rules so that Republicans could cut tax rates without having to pay for every dollar by ending preferences. The first step was kicking out Douglas Elmendorf, the CBO director widely respected by both sides. The second step was yesterday’s vote.”

“The new, ‘dynamic’ CBO will be systematically biased to make conservative proposals appear misleadingly cheap and liberal proposals misleadingly costly to the public.”

Oil Prices are Plummeting. Time for a Carbon Tax

Lawrence Summers makes a case for carbon taxes, given the recent decline in oil prices.

“There is room for debate about the size of the tax and about how the proceeds should be deployed. But there should be no doubt that, given the current zero tax rate on carbon, increased taxation would be desirable.”

“Advocating a carbon tax is not some kind of argument for government planning; it is the logic of the market: That which is not paid for is overused. Even if the government had no need or use for revenue, it could make the economy function better by levying carbon taxes and rebating the money to taxpayers.”

“While the recent decline in energy prices is a good thing in that it has, on balance, raised the incomes of Americans, it has also exacerbated the problem of energy overuse. The benefit of imposing carbon taxes is therefore enhanced.”

“Now that … consumers have received a windfall from the fall in energy prices, it would be possible to impose substantial carbon taxes without them being burdened relative to where things stood six months ago.”

States Face a Massive Fiscal Crisis

A new GAO report finds “the economic recession that blasted huge holes in state and local government budgets and rapidly rising health care costs are combining to create a long-term budget crisis for states that is so bad it would require massive tax hikes or spending cuts,” the Washington Post reports.

“The Government Accountability Office said in a report issued Friday that tax revenues as a percentage of gross domestic product will not return to the historical high reached in 2007, just before the recession hit, until 2058, according to its models.”

“At the same time, rising health-related costs borne by state and local governments, especially those incurred by government employees and retirees, are putting pressure on state budgets. State and local Medicaid expenditures and employee-related costs both grow faster than the gross domestic product, the GAO said. It estimated health-related costs will grow from about 3.9 percent of GDP this year to 7.4 percent by 2060.”

Russian Tax Collectors Seize Cats

Russian tax collectors in Russia have found a new way of getting people to pay their debts: by threatening to take away their cats, the BBC reports.

“State collectors in the Siberian city of Novosibirsk recently succeeded in getting a resident to pay 12,000 roubles ($198; £127) he owed in unpaid taxes after threatening to seize his expensive pedigree cat, Interfax news agency reports. When bailiffs arrived at the student’s flat, they initially found nothing of value worth seizing – that is until they spied the British Shorthair cat he was holding and three of its kittens running around the place. “Because the animals are pedigree and expensive, the representative of the law decided to place the cat brood under arrest”, Interfax quotes a statement from the region’s court marshal’s service.”

Dropping Oil Prices is Crushing Louisiana Budget

“The continuing drop in the price of oil likely will require state government to change its spending plan for a second time to balance this year’s budget,” the Baton Rouge Advocate reports.

“And for next year’s budget, which is being drafted now, the collapsing oil prices are added to an already monumentally large shortfall in revenues. ‘We’re going to have to make some tough choices,’ Commissioner of Administration Kristy Nichols warned Friday in an interview.”

“The administration is chipping away at the size of next year’s budget hole, and decisions are still weeks away, but Nichols said everything would be considered, including the possibility of more cuts to higher education and the possibility of no merit pay raises for state workers. Nichols’ staff will start meeting with agency officials Monday. The executive budget proposal is due on Feb. 27. Then negotiations begin with legislators who will rewrite and vote the budget into law during their session that begins in April.”

Really interesting: “The general rule of thumb is about $12 million less available to state government for every $1 drop in the average annual price of oil.”

The Most Effective Tool to Cut Carbon Emissions

Eduardo Porter argues that despite advances in promising technologies designed to curb greenhouse gas emissions “civilization is mostly not yet on such a low carbon path. While promising technologies to get there have been developed, it is unclear whether nations will muster the political will and mobilize the needed investments to deploy them.”

“There is one tool available to trim carbon emissions on a relevant scale: a carbon tax. That solution, however, remains off the table.”

“If a carbon tax were to be imposed next year, starting at $25 and rising by 5 percent a year, the Energy Information Administration estimates, carbon dioxide emissions from American power plants would fall to only 419 million tons by 2040, about one-fifth of where they are today. Total carbon dioxide emissions from energy in the United States would fall to 3.6 billion tons — 1.8 billion tons less than today. By providing a monetary incentive, economists say, such a tax would offer by far the most effective way to encourage business and individuals to reduce their use of fossil fuels and invest in alternatives.”

The Solution to Stagnant Wages: A Tax Cut

David Leonhardt argues that “the Democratic Party’s short-term plan to help the middle class just isn’t very clear.”

“We’re living through the great wage slowdown of the 21st century, and nothing presents a larger threat to the Democrats’ electoral fortunes than that slowdown.”

“If Democrats can’t deliver rising living standards, many voters aren’t going to remain loyal. They’ll skip voting or give a chance to Republicans who offer an alternative, even a vague alternative.”

The best hope for doing so, in the immediate future, is probably the oldest and most obvious play in the book: a tax cut.

“A few years ago, a middle-class tax cut would have seemed a silly idea. Both Mr. Bush and Mr. Obama had already cut taxes, and the federal budget deficit was enormous. But the deficit has since fallen sharply, thanks in part to lower health costs. Meanwhile, middle- and lower-income families are reaping a disproportionately small share of economic growth. Having the government try to rectify the situation doesn’t sound so silly now — and probably won’t in the 2016 presidential campaign.”

“Because the long-term budget deficit remains a problem, any such tax cut could be paired with a tax increase for top earners.”