Tag Archives: taxes

Paying Our Way

Complaining about taxes is more American than mom and/or apple pie. People clearly resent having to pay them, work hard at minimizing and/or evading them, and use sayings that yoke their payment to death (“nothing is sure but death and taxes..”)

Dissing taxes is just deeply embedded in the culture. That negativity obscures what would otherwise be obvious; taxes are the “dues” we pay for our membership in society.

I have always wanted to do a cost/benefit analysis, comparing what we get for paying those dues with what we would pay on the open market for the same services. (Garbage collection versus scavenger services, police versus private security, etc. etc.) I lack the data and the expertise to perform that analysis (how do I value paved roads or public parks?), but I look longingly at Scandinavian countries with tax burdens that are not–despite the mythology- much higher than our own combined burden, while relieving citizens from the costs of higher education and health care.

Admittedly, America’s tax system is manifestly unfair–and for the obscenely rich who can afford the very best accountants and lawyers, U.S. taxes are easy to evade.

If taxes are–as I insist–our dues for membership, the assessment of those dues should be equitable–and the system should be transparent enough to persuade taxpayers that everyone is paying a fair share. As economists and pundits never tire of pointing out, the American tax system is both ridiculously complex and wildly tilted in favor of the wealthy.

One of the most vocal of those critics is Robert Reich. Reich was Labor Secretary under President Bill Clinton; he now teaches at Berkeley, and he is among the many economists who have pointed out the folly of those repeated tax cuts for the rich.  Such cuts remain a GOP article of faith, despite the fact that the supposed benefits of such cuts have never materialized.

Last year, Reich penned an essay advocating increased taxes on the rich, and providing 7 ways those taxes might be levied. As he said in his introductory paragraphs

Income and wealth are now more concentrated at the top than at any time over the last 80 years, and our unjust tax system is a big reason why. The tax code is rigged for the rich, enabling a handful of wealthy individuals to exert undue influence over our economy and democracy.

Conservatives fret about budget deficits. Well, then, to pay for what the nation needs—ending poverty, universal health care, infrastructure, reversing climate change, investing in communities, and so much more—the super-wealthy have to pay their fair share.

Reich followed up with “seven necessary ways to tax the rich,” including such items as repealing the Trump tax cuts, imposing a wealth tax on those he designated as the “super wealthy”, raising the top marginal rate, taxing stock transactions (he says a tax of just $1 per $1,000 trade would raise $777 billion over a decade), and closing various loopholes.  (Just closing the carried interest loophole is estimated to raise $14 billion over a decade.)

Biden has already taken one of the seven steps Reich enumerated–giving the IRS sufficient funding to conduct audits and go after the federal income taxes currently being evaded by the rich. He calculates that just going after  the richest 1 percent would generate $1.75 trillion over the decade.

As Elizabeth Warren has long argued, a wealth tax imposed on the super-wealthy should be a no-brainer.

Wealth is even more unequal than income. The richest 0.1% of Americans have almost as much wealth as the bottom 90 percent put together. Just during the pandemic, America’s billionaires added $1.3 trillion to their collective wealth. Elizabeth Warren’s proposed wealth tax would charge 2 percent on wealth over $50 million and 3 percent on wealth over $1 billion. It would only apply to about 75,000 U.S. households, fewer than 0.1% of taxpayers. Under it, Jeff Bezos would owe $5.7 billion out of his $185 billion fortune—less than half what he made in one day last year. The wealth tax would raise $2.75 trillion over a decade, enough to pay for universal childcare and free public college with plenty left over.

I’m not so naive as to think these changes to the tax code would make the rest of us sing happy songs as we paid our taxes, but a system where everyone is obviously paying a fair share would go a long way toward mollifying a lot of us.

I’m also not sufficiently naive to think that these changes have a chance in hell of passing a GOP-majority House.

Eventually–if the culture wars subside, and we elect people actually interested in governing–we might emulate countries with better cost/benefit ratios.

We can hope…

 

 

GOP’s Targeted Messages

Republicans’ skill in “messaging” has been a consistent theme of comments on this blog.

One of those skills is the ability of the GOP to tailor its communications–telling one group of people one thing , while assuring a different group (wink, wink) that the party has absolutely no intention of doing precisely what it is promising others it will do.

A recent illustration can be seen in an exchange between Rick Scott (The Florida Senator with a private-sector history of engineering Medicare fraud) and Mitch McConnell, aka the smarter but most evil man in America.

Recently, Scott  unveiled an 11-point plan that he identified as the GOP’s agenda–the party’s “to do” list once it retakes control of Congress. As Dana Milbank introduced a discussion of Scott’s plan in the Washington Post,

Suppose, for a moment, that the head of the Democratic Senatorial Campaign Committee, the group overseeing the 2022 campaigns of all Democratic senators and Senate candidates, announced that Democrats, if they keep congressional majorities after November’s elections, would enact a plan that would raise taxes on working families more than $1 trillion over 10 years.

Further suppose that this top Democratic official also pledged that the Democratic majority would “sunset” laws that provide Americans with Social Security and Medicare, military retirement benefits, veterans programs, unemployment compensation, student loans, deposit insurance and more. Additionally, the Democrats would require U.S. businesses to shut down $600 billion a year in foreign trade and abandon countless billions in overseas investments.

The cry from Republican officials and the Fox News echo chamber would be deafening. Socialism! Defund! Tyranny! They might not even have time left to blame President Biden for Russia’s Ukraine invasion or high gas prices.

Of course–as Milbank proceeds to document–that’s really a description of the bulk of the Republican agenda Scott outlined. (Anti-gay, anti-CRT measures comprise most of the rest.) It is worth noting that Scott is hardly a “rogue”–he heads the National Republican Senatorial Committee. However, the agenda he unveiled was so politically toxic that McConnell disavowed it.

Scott’s plan would eliminate (sunset)  all federal legislation over five years. Scott assures voters that “worthy” laws would then be reenacted; presumably, policies that Republicans find  “unworthy” would stay dead. As various pundits have pointed out, that would probably mean the end of Social Security, Medicare, Medicaid, and numerous other social programs that offend today’s GOP.  

As Milbank writes,

Don’t just take my word for it. Here’s how McConnell recently described the Scott plan: “We will not have as part of our agenda a bill that raises taxes on half the American people and sunsets Social Security and Medicare within five years.”

About that provision raising taxes on half the American public: Analysis of Scott’s tax plan by the Brookings Tax Policy Center and the Institute on Taxation and Economic Policy found that the “Republican plan would raise taxes by $100 billion a year, or more than $1 trillion over the standard 10-year budgeting time frame. Almost all of it would be shouldered by households with income of $100,000 or less.”

As a column in Common Dreams explained, Scott introduced his tax proposal by saying “All Americans should pay some income tax to have skin in the game, even if a small amount. Currently over half of Americans pay no income tax.”

To the mega-rich Scott — and his fellow Americans of ample means — this proposal no doubt seems entirely reasonable. To Americans who understand how our overall tax system works, Scott’s proposal just seems cruel.

All Americans, for starters, pay some taxes. They have “skin” in the game. They may not pay any federal income tax. But if they work, they pay federal payroll tax. If they don’t work, they still pay sales tax on goods they purchase. They face other state and local taxes as well.

Analyses of the plan found it would “increase taxes by more than $1,000 on average for the poorest 40 percent of Americans.”

“Low-income families with children would pay the most,” notes the Tax Policy Center analysis, “Achieving Scott’s goal would slash their after-tax incomes by more than $5,000, or more than 20 percent.”

Meanwhile, points out a Patriotic Millionaires analysis, those “uber-wealthy Americans who avoid federal income tax thanks to a series of loopholes that allow them to claim little to no income” would continue to face no more than a minuscule tax on their mega millions under the Scott “11 Points.”

“In the end,” the Patriotic Millionaires sum up, Scott’s plan amounts to “a wink and a nod to his wealthy donors to keep stealing.”

No wonder McConnell wanted to shut Scott down–the official GOP message machine keeps telling people that Republicans will cut taxes. Poor people don’t understand that only wealthy folks will see those cuts–and that they are the ones who will pay for them.

 

Games Republicans Play With Taxes

Media sources have begun warning of a “tax nightmare” ahead for April–filing delays and other administrative headaches , delayed refunds and a variety of mistakes likely to make us crazy.

“Things might be more challenging even than what we anticipate — and what we anticipate is very, very challenging,” a Treasury official told Axios, using the phrase “death spiral” to refer to one set of issues.

Why the warning? Why the situation? Funding. Actually, the lack of adequate funding.

The IRS raises the money America needs. According to official reports, the IRS collects 95 cents of every dollar in federal revenue. So you would think that giving the agency the resources to do its job, and do it efficiently and well, would be a high priority.

It isn’t. Instead, the agency is routinely described as being “in crisis.” Its budget has declined by 20% since 2010, while the number of taxpayers has increased by 19%.

The agency relies on software built in the 1960s, and it is facing a big backlog of paper filings including 6.2 million unprocessed 1040 forms.It doesn’t even have scanning technology– humans open the mail and manually enter information into its system.

According to one report, last year the agency answered only 29 million of the 282 million phone calls it received. And although the vast majority of taxpayers got their refunds fairly promptly last year, the agency was depending upon a significant increase in funding
from the Biden administration’s Build Back Better legislation.

Good luck with that.

So–why has Congress gutted the IRS? Pro Publica tells us in the subhead:

An eight-year campaign to slash the agency’s budget has left it understaffed, hamstrung and operating with archaic equipment. The result: billions less to fund the government. That’s good news for corporations and the wealthy.

The article begins with an example of what we are losing–money that must be made up by law-abiding taxpayers. Us.

In the summer of 2008, William Pfeil made a startling discovery: Hundreds of foreign companies that operated in the U.S. weren’t paying U.S. taxes, and his employer, the Internal Revenue Service, had no idea. Under U.S. law, companies that do business in the Gulf of Mexico owe the American government a piece of what they make drilling for oil there or helping those that do. But the vast majority of the foreign companies weren’t paying anything, and taxpaying American companies were upset, arguing that it unfairly allowed the foreign rivals to underbid for contracts.

Pfeil and the IRS started pursuing the non-U.S. entities. Ultimately, he figures he brought in more than $50 million in previously unpaid taxes over the course of about five years. It was an example of how the tax-collecting agency is supposed to work.

But then Congress began regularly reducing the IRS budget. After 43 years with the agency, Pfeil — who had hoped to reach his 50th anniversary — was angry about the “steady decrease in budget and resources” the agency had seen. He retired in 2013 at 68.

Because the cuts have come over an 8-year period, the utter collapse of the agency has escaped widespread notice. But at this point, according to Pro Publica, the bureaucracy is on life support, and America is losing tens of billions in revenue. (ProPublica estimates a toll of at least $18 billion every year, but admits that the true cost could easily run tens of billions of dollars higher.)

Tax obligations expire after 10 years if the IRS doesn’t pursue them. Such expirations were relatively infrequent before the budget cuts began. In 2010, $482 million in tax debts lapsed. By 2017, according to internal IRS collection reports, that figure had risen to $8.3 billion, 17 times as much as in 2010. The IRS’ ability to investigate criminals has atrophied as well.

And who stands to benefit? Need I share the following paragraph?

Corporations and the wealthy are the biggest beneficiaries of the IRS’ decay. Most Americans’ interaction with the IRS is largely automated. But it takes specialized, well-trained personnel to audit a business or a billionaire or to unravel a tax scheme — and those employees are leaving in droves and taking their expertise with them. For the country’s largest corporations, the danger of being hit with a billion-dollar tax bill has greatly diminished. For the rich, who research shows evade taxes the most, the IRS has become less and less of a force to be feared.

There is much, much more at the link, and it is all depressing. The GOP’s constant insistence that all of America’s ills can be solved with tax cuts is dishonest–and stupid–enough. But tax cuts aren’t the only way the party plays tax games to help its donors–and screw over the rest of us.

Taxes And Growth

One of the most reliable laments I post to this blog is the absolute refusal of many policymakers  to base their decisions on evidence. We live in a time when experience and reality are no match for the preferred ideologies of our lawmakers. (In all fairness, that phenomenon is probably not new, but it has certainly become more obvious.)

Marketwatch is a business publication that focused upon that disconnect in an article from early May. The title was”Texas, California and Indiana offer surprising lessons about low taxes and economic growth” and the subtitle–which trumpeted the basic conclusion–was “Indiana slashed taxes. Yet wages have fallen even further behind the national average.”

If the subtitle was insufficiently clear, the introductory paragraphs left no doubt:

Among the most common claims of state economic development officials is that higher taxes drive down growth and cause businesses and people to relocate to low-tax states. If you listen to cable news, you are likely to hear dire stories of people fleeing high-tax states in droves.

Yet the high-tax parts of both California and Texas are growing faster than the low-tax parts of both states. And growth in Indiana, which has cut corporate and personal income taxes in the past decade as well as put a cap on property taxes, is dismal.

I tend to foam at the mouth whenever I encounter a reference to Indiana’s property tax cap–not only is the cap bad policy, not only does it disproportionately strangle urban areas in our rural-privileged state, but in an unconscionable move to elevate political game playing over responsible governance, former Governor Daniels constitutionalized the cap–ensuring that, even if subsequent evidence of its counter-productivity emerged, the measure would be virtually impossible to reverse.

The article wasn’t aimed at the multiple flaws of the tax cap, however, so I will leave my extended diatribe for another day.

Why is it that prescriptions for lower taxes, like other seemingly obvious economic “cause and effect” formulations, turns out to be contradicted by real-world evidence?

Modern economic research consistently reports that lower taxes tend to promote growth and migration, but only when all other factors are held constant.

Here’s the rub: It is straightforward to create a model holding all these other factors constant, but in the real world, they never are constant. So the role of taxes has to be weighed against the value of what tax dollars provide.

It took me a long time to recognize the importance of that insight. I used to think it was obvious that a higher minimum wage would depress job creation–until I realized that such a result required all things being equal–and all things are rarely, if ever, equal. The “obvious” result ignored–among other things–the effects of low-wage workers’ increased buying power. We now have real-world evidence from jurisdictions that raised the minimum wage that the “obvious” result isn’t necessarily the actual result.

In the case of economic growth, the article looks at the rivalry between Texas and California, and finds (surprise!) that the popular rhetoric doesn’t reflect reality.

Stories about people “fleeing” California for Texas are common, and Elon Musk’s high-profile announcement that he was moving to Texas fuels the anecdote-driven news cycle. Taxes per capita are higher in California than in Texas, giving weight to the story that low taxes are driving this migration.

In fact, in the last year for which we have data, two out of every 1,000 Californians departed for Texas, while 1.2 of every 1,000 Texans moved to California. This is hardly a notable exodus, and it hardly explains why a rational Texan would head to California. Something else has to be going on.

Furthermore, as the article notes, people are more likely to move from city to city within a state than they are to move out of state, and tax rates vary far more between local governments than between states.

In California, the total state and local taxes in the highest-taxed place were more than three times that of the low-tax county. In Texas, the difference is three times as large as in California.

Further contradicting the preferred story, it turns out that population growth in both California and in Texas is concentrated in the higher-tax places. That’s because–as city planners have long insisted–what matters most isn’t the tax rate (although it certainly factors in) but the quality of life. It’s value for the dollar.

 Taxes represent one price for living in a particular city or town, but value — not price — is the key decision variable.

For the average family, value comes from tangible amenities like safe, livable neighborhoods, high-quality schools and great parks and trails. They go far beyond natural amenities such as beaches and mountains.

That’s a lesson I doubt Indiana’s gerrymandered legislators will ever learn.

 

 

 

Pay Your Dues!

I recently saw yet another study that attempted to quantify just how much money is lost to national treasuries by reason of what is politely called “tax avoidance.” 

The report, from an organization named the “Tax Justice Network,” is touted as the first study to thoroughly measure how much money each country loses each year to corporate tax abuse and private tax evasion. Its calculations were based upon data that had been self-reported by corporations to tax authorities.

I realize that one person’s loophole is another person’s policy choice, but with that caveat…

The research found–unsurprisingly–that wealthy countries are the primary drivers of tax revenue loss. (I say “unsurprisingly” because you have to have money to evade taxes.) Wealthy countries contributed most to the total of $427 billion in losses annually. Those losses, as the report noted, affect the ability of countries all over the world to provide services to the public.

This report puts numbers to the problem, but any sentient citizen is aware of the arguably pathological aversion to taxes displayed by many wealthy citizens and corporate entities. Certainly that’s true in the United States, where politicians with straight faces equate taxation with theft, and bemoan the extraction of dollars from presumed self-made “makers” to support those they dismiss as “takers.”

Probably the best response to this mischaracterization was Elizabeth Warren’s smackdown  a few years ago:

There is nobody in this country who got rich on their own. Nobody. You built a factory out there – good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory… Now look. You built a factory and it turned into something terrific or a great idea – God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Economists are quick to point out that economic growth–and the ability of wealthy Americans to prosper in an economy heavily dependent on consumption–requires that those at the bottom of the income distribution have disposable income sufficient to spend in the marketplace. Corporate bigwigs don’t create jobs–job creation is a function of demand. (No one is going to be hired to produce more widgets if few people have the resources to buy those widgets.)

What I always wonder, however, is whether these “captains of industry” treat their country clubs and other membership organizations the way they treat their countries. How would the Orange Menace react if members of Mar-A-Lago declined to pay their dues?

Those golf courses need tending. The clubhouse roofs and mechanical systems require maintenance. The properly servile “help” won’t be there to bring you your Scotch and soda if they aren’t being paid. Etc. Why don’t the same people who presumably understand the need to pay dues adequate to keep these organizations functioning acknowledge that–as members of the polity–they have similar obligations to the country?

Because they do know better.The loss of those billions of dollars isn’t accidental.

“A global tax system that loses over $427 billion a year is not a broken system, it’s a system programmed to fail,” said Alex Cobham, chief executive of the Tax Justice Network.

The ability to evade paying one’s membership dues–the chutzpah required to be a “free rider” on the contributions of others– doesn’t mean that a businessperson is “smart.”  To the contrary, it demonstrates just who the real “takers” are.