May 5, 2013
An honest look at corporate tax rates, 2008-2010.  From McIntyre et al. (2011). h/t TheFreeLioness / PriceofLiberty

An honest look at corporate tax rates, 2008-2010.  From McIntyre et al. (2011).

h/t TheFreeLioness / PriceofLiberty

2:29pm  |   URL: http://tmblr.co/ZMMjnxkIdsLY
(Notes: 13)
  
Filed under: politics taxes corporate taxes taxation tax rates corporations 
September 21, 2012
On The 47%, And Short Memories

It appears that Mitt Romney’s bit about the 47% of Americans who pay no federal taxes is exploding.  Much to Romney’s chagrine, a critical mass of people appear to have realized that there are multiple ways in which a person can end up with no federal tax liability despite, e.g., working full time, or in the case of 35,000 American households, even making upwards of $200,000/year. 

What is ironic about this state of affairs is the fact that many of the tax incentives in the federal tax code are things that we theoretically want to reward people for doing.  So the fact that 47% of Americans have no federal tax liability is also theoretically something we should be celebrating.*

But what should shock people about this particular “attack” is not the fact that it overreaches and encompasses folks who are clearly not lazy, unemployed individuals that are content to suckle at the government teat.  What is more shocking is the short memory of Republicans who have used this line of attack before.  As I wrote back in June, the patron saint of the Republican party, Ronald Reagan, was actually trying to get as many people off the tax rolls as possible when he signed the Tax Reform Act of 1986, because he believed that taxing poor people was a central factor in increasing the gravity of their poverty.  Here are the words of the Legislative Committee that recommended the bill to Congress:

An overriding goal of the Committee is to relieve families with the lowest incomes from Federal income tax liability.  Consequently, the Bill increases the amounts of both the personal exemption and the standard deduction…so that the income level at which individuals begin to have tax liability will be raised sufficiently to free millions of poverty-level individual from Federal income tax liability.

The entire point of Reagan-era tax reforms was to make it precisely so millions of Americans would be taken off the tax rolls completely.  It takes an extraordinary act of cognitive dissonance to praise Reagan dogmatically out of one side of your mouth—as Romney has (though he rejected Reagan’s policies in his former life)—and then proceed to complain about the inevitable and intentional result of Reagan’s signature policy reforms. 

To be fair, one could reasonably object by pointing out that Reagan’s reforms also eliminated tax loopholes, which now exist in spades.  But Romney’s attack was not directed at middle class and wealthy people who utilize tax loopholes to eliminate their federal tax liability.  He was attacking an archetype of the American poor; the same individuals who Reagan believed would be helped by eliminating their federal tax liability.  Notably, Reagan also believed eliminating federal tax liability for low-income Americans would help incentivize people on public assistance to re-enter the workforce, by allowing poor Americans to keep more of their already modest paycheck.  Here again, Romney misses the mark by failing to understand Reagan’s intent and methodology, all the while counter-intuitively praising his example whenever the opportunity presents itself.

*theoretically, of course.

10:04pm  |   URL: http://tmblr.co/ZMMjnxTqf1DH
(Notes: 53)
  
Filed under: politics mitt romney taxes tax policy tax cuts ronald reagan 
April 5, 2012
Tax-Hike Apostates

Morgen Richmond from Hot Air moves towards the center on tax reform.  He believes that the GOP should be open to tax increases as part of a budget compromise if it means finally putting a concrete budget deal in place that gets entitlement spending under control:

 …I think there is one key issue where the GOP is making a tactical mistake in conceding ground to the President, and that is the insistence on ruling out any tax increases as part of a comprehensive budget reform deal. Now before you write me off as just another RINO, I’ll hold up my track record as a conservative activist against anyone. And as a successful business owner in California, I deal first-hand with the challenges of one of the nation’s most onerous tax and regulatory regimes.

But I am mystified why the GOP has adopted such a hard line when it comes to tax policy, particularly within the framework of a budget deal which would include a major re-structuring of federal entitlement programs. I get the arguments. That a pro-growth approach of lowering rates, and eliminating deductions and loopholes, would actually be the most effective means of generating revenue in the long run, by expanding the tax base. I can also appreciate that from a political perspective it makes sense to stake out an initial bargaining position as far to the right as can be reasonably defended. And the Ryan plan is reasonable, by any fair assessment, considering the enormity of the fiscal imbalances it seeks to redress.

…[G]iven what may be a once-in-a-lifetime opportunity to finally deal with entitlements, personally, as a member of the near-1%, I would at least grudgingly accept a moderate tax increase knowing that we’ve set the nation on a sustainable path. Further, I would gladly – enthusiastically! – support the possibility of a moderate tax increase as part of the 2012 GOP budget platform, as long as it’s clear that this would only be on the table as part of a comprehensive deal which included entitlement reform, along the lines proposed by [Paul] Ryan…

…

Apostasy, I know… but at least consider the merits of the argument. Are we really willing to jeopardize our future freedom and prosperity over the principle that we will never, ever under any circumstances accept a tax increase? This seems like folly to me, and I shudder to think what the fiscal outlook will look like if the status quo continues for another four years.

This sounds familiar.  In fact, I think a certain President’s National Committee on Fiscal Responsibility and Reform already came up with such a plan.  Could it be….the ghost of Simpson-Bowles?

3:55pm  |   URL: http://tmblr.co/ZMMjnxJ8NRDT
(Notes: 2)
  
Filed under: politics Simpson-Bowles Taxes taxation tax policy gop 
March 4, 2012
Daily Question

huskerred:

I’m going to ask this until I get some responses. It seems to be widely acknowledged that the US tax code is in shambles. What should be done to improve the system? Do we need different tax brackets, tax rates, etc? Do we need to throw out the entire system and start from scratch?

LTMC: From my standpoint, there are multiple solutions.  A flat tax on personal income with all credits and deductions replaced by an exemption up to a statutory percentage of the federal poverty line would simplify the code while creating inherently progressive tax rate that provides relief to the poor.

For example, let’s assume a federal rate of 35% on all income.  The federal poverty line for 2012 is roughly $11,000.  Let’s say we set the exemption at 133% of the federal poverty line.  That’s just about $15,000.  So let’s look at the tax burden of a few different taxpayers with different incomes:

1. $15,080 (minimum wage)

Income Tax burden: $80*.35 = $28 = <1% 

2. $25,000

Income Tax burden: $10,000*.35 = $3500 = 14% 

3. $35,000

Income Tax burden: $20,000*.35 = $7000 = 20% 

4. $45,000

Income Tax burden: $30,000*.35 = $10500 = 23.33% 

5. $55,000

Income Tax burden: $40,000*.35 = $14000 = 25.45% 

6. $550,000

Income Tax burden: $535,000*.35 = $187250 = 34.04%

As you can see, the functional rates are naturally progressive, but they increase at a decreasing pace as your income goes up, towards the limit of 35%.  And everyone always pay zero taxes on their first $15k of income.  

Now the numbers I’m using are just for demonstration purposes only.  You could easily tweak the numbers to one’s preference, whether you want to craft a proposal that would be roughly revenue neutral, increase revenue, or reduce it. But even a revenue neutral proposal of this sort would shrink the size of the federal bureaucracy.  You don’t need an expansive IRS when anyone who knows multiplication could figure out their individual federal tax burden.

This is just one proposal, of course.  And again, I stress that the numbers are for demonstration only, and don’t necessarily reflect a realistic breakdown of how the numbers would look in practice.  But the concept is there, and could conceivably be a solution that simplifies the code without sacrificing the poor on the altar of a horribly regressive tax system.

(Source: jgreendc)

1:09pm  |   URL: http://tmblr.co/ZMMjnxHSoGoE
(Notes: 40)
  
Filed under: politics taxes taxation tax policy progressive taxation flat tax 
January 31, 2012
Tax Justice

A reader asks:

I am in a A.P Language and Composition class and last semester we were told to pick a current topic; i am now doing my research topic of The injustice of Taxes in the United States. I’m sixteen and i’ve never been able to understand the depth that people feel towards this topic. I’d just like to hear your take and opinions on this, could you help me, please?


When you say “The Injustice of Taxes in the United States,” I’m assuming you mean one of two things: a) taxation tends to constitute an unfair financial burden on American citizens, or b) that the tax system as it stands is inequitable, such that certain groups or people in society get to maintain an unfair share of the country’s wealth.  Either way, see the links below for more on my approach to taxation.

Personally I’m very much a supporter of a progressive tax system, for a variety of reasons.  Unfortunately that’s a massive oversimplification, because I’m not necessarily married to any one vision of our tax system.  But you should be able to glean those reasons from the posts below.

Here’s quick links to most of the keepers on that front:

Redistribution and Voluntary Taxation

Americans and Inequality

The Tragically Hilarious “We are the 53%” Movement

More Examples of the Absurd Injustice of DOMA (unequal federal tax treatment of same-sex couples)

Making the case for Redistribution Through Progressive Taxation

25 Polls Show overwhelming Support for Tax Increase to Resolve Budget Crisis

25 Top Companies Pay CEO’s More Than They Pay the Government in Taxes

Reagan: Champion of Tax Reform for the Poor(?)

Taxing the Poor in Texas

Redistribution: It Works!

400 richest American households could pay off every student loan in the United States (and would still be richer than everybody else)

U.S. in State of Denial over Taxes?

The Miseducation of Adam Smith

Who Pays Taxes?

Will Higher Taxes Tank the Economy?

Do Taxes “Kill Jobs?”

Study: the Rich Don’t Flee High-Tax States

Top Marginal Rates vs. Share of Income Taxes Paid by Top 1% of Earners

America’s Tax System: Not as Progressive as You Think

Corporate taxes: Why do we have High Rates, but Low Revenues?

Federal Tax Receipt

Why Progressive Taxation?

Tax Brackets 101

Andrew Carnegie on the Estate Tax

The Top 5% Pay a Greater Share of Federal Taxes Because They’re (a lot) Richer Than the Rest of Us

Also, take a gander at the negative income tax (alternatively known as a “basic income guarantee” or “universal basic income.”).  For lack of a better word, that’s my jimmy-jam.

1:22pm  |   URL: http://tmblr.co/ZMMjnxFgwybO
(Notes: 12)
  
Filed under: taxes taxation tax policy 
January 23, 2012
The Liberal Reagan

Responding to Right-wing criticism of his NewsWeek piece about Obama, Sullivan points out that Ronald Reagan signed more tax hikes into law in 1982 than Obama allegedly did when he signed the ACA:

As for the proposed future Obamacare tax hikes, they amount to around one-third of the tax hikes signed by Ronald Reagan in 1982, according to Bloomberg. Reagan also doubled the gas tax. So I think I win that round. Obama’s first term was marked by tax reductions, not increases, even as revenues sank to 50-year lows. If he were what Romney and Gingrich now say he is, that simply would not have happened.

Indeed.  Painting Obama as a tax-hiking socialist is pure fantasy.  Let’s get back to Clinton-era marginal rates first, then we can talk about Obama’s non-existent tax-hike fetish.

4:39pm  |   URL: http://tmblr.co/ZMMjnxFFXv-Z
(Notes: 10)
  
Filed under: politics obama taxes taxation tax policy 
January 22, 2012
The Gingrich Tax Policy Difference

Yglesias points out that Gingrich is the only GOP candidate whose tax plan doesn’t effectively raise taxes on the poor, using this graph from the Tax Policy Center to illustrate the point:

Essentially, everyone’s tax burden goes down under Gingrich’s plan.  But if you’re looking for a solution to income inequality, you’re still out of luck.  The Gingrich plan, as you can see, is still no different than his GOP colleagues in that respect.  But it does go to show you how radical the modern GOP has become: when it comes to contemporary GOP tax policy, Newt Gingrich is the moderate.  

11:31am  |   URL: http://tmblr.co/ZMMjnxFB7j78
(Notes: 4)
  
Filed under: politics newt gingrich gop republicans taxes taxation tax policy 
December 21, 2011
Subjective Value, Redistribution, And The Ghost Of Christmas Welfare Enhancement

Slate discusses the economics of Gift Exchange:

In a system of monetary exchange, everything has more or less one price. In that sense, we can say that a Lexus or a pile of coconuts is “worth” a certain amount: its market price. But I, personally, would have little use for a Lexus. I live in an apartment building near a Metro station and above a supermarket; I walk to work; and driving up to New York to visit my family is much less practical than taking a bus or a train. So while of course I won’t complain if you buy me a Lexus, its value to me will be low relative to its market price. Similarly, I don’t like coconuts and I’m not on the verge of starvation. If you dump a pile of coconuts in my living room, all you’re doing is creating a hassle for me. The market price of coconuts is low, but the utility I would derive from a gift of coconuts is actually negative.  

In the case of the Lexus, the sensible thing for me to do would be to sell the car. But this would be a bit of a hassle and would doubtless leave me with less money in my pocket than you spent.  

This gap between what something is worth to me and what it actually costs is “deadweight loss.” The deadweight loss can be thought of in monetary terms, or you might think of it as the hassle involved in returning something for store credit. It’s the gap in usefulness between a $20 gift certificate to the Olive Garden and a $20 bill that could, among other things, be used to buy $20 worth of food at Olive Garden. Research suggests that there’s quite a lot of deadweight loss during the holiday season. Joel Waldfogel’s classic paper (later expanded into a short book) suggests that gift exchange carries with it an average deadweight loss of 10 percent to a third of the value of the gifts. The National Retail Federation is projecting total holiday spending of more than $460 billion, implying $46-$152 billion worth of holiday wastage, potentially equivalent to an entire year’s worth of output from Iowa.  

However, this value loss isn’t necessarily a bad thing, because it redistributes wealth to those that would otherwise have little:

Partially rescuing Christmas is the reality that a lot of gift-giving isn’t exchange at all. Rather, it’s a kind of Robin Hood transfer in which we take resources from (relatively) rich parents and grandparents and give them to kids with little or no income. This is welfare enhancing for the same reason that redistributive taxation is welfare enhancing: People with less money need the stuff more.   

This leads to my first guideline for efficient giving: Gift-giving should be redistributive. Reciprocity is a lovely sentiment, but the holidays are an excellent time to rebalance the overall family or friend group portfolio in favor of its needier members.

I think there’s two points to take away from this: 1) Value loss occurs in private exchanges as well (not just government programs).  2) If you don’t support redistribution, you clearly hate Christmas.

11:39am  |   URL: http://tmblr.co/ZMMjnxDaGsLT
(Notes: 21)
  
Filed under: politics christmas taxes taxation tax policy progressive taxation redistribution 
December 14, 2011
"Think Apple looked at tax rates before it decided to open their stores ? Did McDonalds bring back McRibs because the tax rate was low enough ? Companies make strategic decisions every day. They invest because they want to grow the company. They invest because they are competitive and they want to win. They invest because they want to make more money. They don’t invest because they just had their tax rates lowered."

—

My Views on Corporations & Taxes — Mark Cuban (via apoplecticskeptic)

Apple is keeping 2/3rds of its massive cash reserves off-shore because it doesn’t want to pay taxes on them here.  That’s money that the company could invest here, but isn’t.  So Cuban is spectacularly wrong.

And as for McDonalds, there is evidence that the McRib reappears in correlation to downward fluctuations in hog prices.  Which suggests that McDonalds’ decisions are extremely price sensitive.  Taxes are a price.  McDonalds gets that.  That’s why their CEO just recently called for tax cuts as a way to repair the economy.

(via jeffmiller)

I need to call you out on the first link Jeff.  At no point in that article does the CEO or CFO of Apple claim that they are keeping cash reserves off-shore to avoid tax rates in America.  Whether that is empirically true is up for debate.  But at no point does Rosenman quote language in which Apple’s Executive Officers claim that their holdings ratios are a result of U.S. Tax rates.  Here is the portion of Rosenman’s article where he quotes Tim Cook and Peter Oppenheimer:

New CEO Tim Cook isn’t opposed to a dividend payout. He said as much in Apple’s conference call: “That said, I’m not religious about holding cash or not holding it. I’m religious about a lot of things but not that one.”

However, dividend-yearning shareholders’ hopes were instantly crushed by CFO Peter Oppenheimer’s dose of reality:

“I’d like to add to Tim’s answer, just to remind everybody that a little over $81 billion of cash that we ended in the September quarter were a bit more than $54 billion or [two-thirds] of that was offshore.”

Why are so much of Apple’s cash reserves offshore?  Rosenman himself points out the answer:

Although Apple’s wealth is burgeoning, it’s the foreign money that is really booming. More and more, earnings have been socked away in yen, euros and the real as Apple moves into overseas markets. Currently, over two thirds, or $54 billion, lies offshore, a development that has profound implications for Apple and shareholders. Notice that cash is growing much faster overseas than in the United States because Apple’s rest of world business is on fire. At this rate, Apple’s foreign money will tower over its U.S. holdings, probably reaching a 3:1 ratio by 2013.

This, of course, is to the benefit, and not the detriment, of Apple’s American shareholders.  Growth in foreign holdings increases the value of Apple’s shares.  The same thing was pointed out by GE CEO Jeffrey Immelt when he was asked by Lesley Stahl for CBS News why 60% of GE’s revenue was earned overseas:

Stahl: Sixty percent of GE’s revenue is foreign.

Immelt: When I became CEO it was 30. Now, I wish all our customers were in Chicago. I mean everything about the U.S. is easier than doing business [overseas], but this is where the growth is.

Apple is keeping cash reserves overseas because that’s where the growth potential (i.e. market share) is, not because tax rates are lower.  Reducing America’s corporate tax rate would not encourage Apple to bring their cash reserves back to America because their decision to invest (or not invest) in Apple’s business enterprise has more to do with demand and less to do with their tax rate.  And if Jeffrey Immelt’s account is to be believed, then it’s actually easier to do business in America than in Europe or Japan.  But they aren’t investing that money in America because the growth potential is simply not there.

Now we can argue about whether this growth potential is a function of structural consequences inuring from our tax policy writ large.  But the specific conclusion that Apple’s business decisions are a function of quibbles over tax rates is Rosenman’s own conclusion, not that of Apple’s executive leadership.  And to the extent that his analysis may be valid, he contradicts himself by pointing out that Apple’s overseas investment is a function of growth potential in overseas markets, rather than flight from America’s corporate tax rates.

As far as Mcdonald’s CEO is concerned, a recent survey of small business owners suggest that taxes are the least of their concerns when it comes to their hiring decisions.  NPR discovered the same thing when they contacted medium-sized firms about their economic concerns.  The assertion of McDonald’s CEO that business taxes are what’s slowing the economy sown are contradicted by the broader business community he is a part of.

(via jeffmiller)

1:54pm  |   URL: http://tmblr.co/ZMMjnxDFlWB4
(Notes: 67)
  
Filed under: politics taxes taxation tax policy corporations corporate taxes 
December 9, 2011
GOP Says Millionaire Tax Would Hurt Small Businesses, Small Business Owners Say: "Not Really."

Ever since the idea of the [Millionaire] surtax was introduced weeks ago, Republicans in Congress have railed against it, arguing that it is a direct hit on small-business owners and other job creators.

…

We wanted to talk to business owners who would be affected. So, NPR requested help from numerous Republican congressional offices, including House and Senate leadership. They were unable to produce a single millionaire job creator for us to interview…

So next we put a query on Facebook. And several business owners who said they would be affected by the “millionaires surtax” responded.

“It’s not in the top 20 things that we think about when we’re making a business hire,” said Ian Yankwitt, who owns Tortoise Investment Management.

Tortoise is a boutique investment firm in White Plains, N.Y. Yankwitt has 10 employees and in recent years has done a lot of hiring.

As a result, Yankwitt says he’s had many conversations about hiring, “both with respect to specific people, with respect to whether we should hire one junior person or two, whether we should hire a senior person.”

He says his ultimate marginal tax rate “didn’t even make it on the agenda.”

Yankwitt says deciding to bring on another employee is all about return on investment. Will adding another person to the payroll make his company more successful?

For Jason Burger, the motivation is similar.

“If my taxes go up, I have slightly less disposable income, yes,” said Burger, co-owner of CSS International Holdings, a global infrastructure contractor. “But that has nothing to do with what my business does. What my business does is based on the contracts that it wins and the demand for its services.”

Burger says his Michigan-based company is hiring like crazy, and he’d be perfectly willing to pay the surtax.

And they’re not alone.

“I, like any other American, especially a business owner, I want to make as much money as I can and I want to keep as much money in my pocket as I can, but I also believe in the greater good,” says Deborah Schwarz, who owns LAC Group, an information management firm with offices nationwide and in London.

Surtax or no, Schwarz says she hopes to keep hiring.

“We’re going to keep on writing proposals, going after contracts, hopefully winning them, and when we do we’re going to continue to hire people,” says Schwarz.

LTMC: Every dollar in wages paid to an employee is tax deductible.  And insomuch as a millionaire surtax would affect executives, they will use their bargaining power to gross up salaries anyway. Which are also tax deductible for the corporation to the tune of $1 million.  

The only way that higher marginal rates would impact hiring is if demand decreased as a result of high earners having less expendable income.  But you know what also has an impact on demand?  When the government crowds out loanable investment funds by borrowing to finance public spending.  Of course, when the government pays interest on these loans, it’s just paying them right back to the same lenders anyway.  The question is: what are we getting for that money?  To the extent that we’re buying guns instead of butter, we are not doing ourselves any favors.

A balanced package of tax increases and spending cuts which target programs that have the least positive net impact on aggregate wealth production (e.g. defense spending) will get the government right with its debt, and put us back where we need to be.  Frankly, I think the millionaire’s tax is a tiresome half measure, just like the Volcker Rule.  But in terms of getting to an ideal, simplified progressive tax code that makes any sort of fiscal or economic sense, it’s one of the few politically possible steps in the right direction towards a saner tax policy.

1:36pm  |   URL: http://tmblr.co/ZMMjnxD0-NCz
(Notes: 13)
  
Filed under: politics taxes taxation tax policy 
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