Tag Archives: taxes

Taxes And Spending

I am not an economist, nor do I play one on this blog. But let’s talk about economics and Trump’s “Big Beautiful Bill.” 

As Heather Cox Richardson recently reported, despite the GOP’s pious (and entirely bogus) expressed concerns about the deficit, the speed with which Congressional Republicans are trying to pass this monstrosity is rooted in their effort to avoid widespread recognition of what it actually does. The bill blows the budget deficit wide open by extending the 2017 tax cuts for the wealthy and connected, and it does so by sticking it to the needy, via draconian cuts to Medicaid.

The Congressional Budget Office has estimated that extending the tax cuts for the already-rich will cost at least $4.6 trillion over the next ten years. (And in an especially despicable twist, the tax cuts would go into effect immediately but the cuts to Medicaid wouldn’t hit until 2029, after both the midterms and the 2028 election.)

The prospect of that debt explosion led Moody’s on Friday to downgrade U.S. credit for the first time since 1917, following Fitch, which downgraded the U.S. rating in 2023, and Standard & Poor’s, which did so back in 2011. “If the 2017 Tax Cuts and Jobs Act is extended, which is our base case,” Moody’s explained, “it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade. As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending and relatively low revenue generation.”

The difficulty in passing this monstrosity has been the insistence of hardline Republicans that the cuts to Medicaid and SNAP weren’t draconian enough.

It’s a standard Republican accusation that federal spending is out of control, but as Richardson notes, discretionary spending has actually fallen more than 40% in the past 50 years as a percentage of gross domestic product, from 11% to 6.3%. What has really caused rising deficits were the Bush and Trump tax cuts for the wealthiest Americans.

But rather than permit those tax cuts to expire— or even to roll them back— the Republicans continue to insist Americans are overtaxed. In fact, the U.S. is far below the average of the 37 other nations in the Organization for Economic Cooperation and Development, an intergovernmental forum of democracies with market economies, in its tax levies. According to a report by the Center for American Progress in 2023, if the U.S. taxed at the average OECD level, over ten years it would have an additional $26 trillion in revenue. If the U.S. taxed at the average of European Union nations, it would have an additional $36 trillion.

In a recent Substack, Paul Krugman described the Big Beautiful Bill as a “big tax giveaway to the wealthy combined with cruel cuts in programs that serve lower-income Americans,” writing that the measure’s cruelty is exceptional even by recent right-wing standards, and noting that it relies on

claims we know aren’t true and policies we know won’t work — what some of us call zombie ideas. And it’s hard to avoid the sense that the counterproductive viciousness is actually the point. Think of what we’re seeing as the attack of the sadistic zombies.

Krugman writes that this slashing of Medicaid will cause almost inconceivable hardship to the bottom 40 percent of Americans, especially to the poorest fifth. (Medicaid actually covers far more Americans than Medicare, including 39 percent of the nation’s children.)

Among the ways Republicans will slash Medicaid is by requiring that adult Medicaid recipients be gainfully employed — or, as Krugman points out, “more accurately, that they demonstrate to the satisfaction of government bureaucrats that they are gainfully employed, which is not at all the same thing.”

The belief that many Americans receiving government support are malingering, that they could and should be working but are choosing to be lazy, is a classic zombie idea. That is, like the claim that cutting taxes on the rich will unleash an economic miracle, it’s a doctrine that should be long dead. It has, after all, been proved wrong by experience again and again.

But right-wingers simply refuse to accept the reality that almost everyone on Medicaid is either a child, a senior, disabled or between jobs.

The evidence from state efforts to impose work requirements shows that–while such rules don’t get presumably “lazy” people to work–they do  take benefits away from people who are legally entitled to them through onerous paperwork and administrative barriers. 

If Republicans really cared about deficits, they’d tax the rich, not screw over the poor. They could begin by simply enforcing current tax rates, which our plutocrats evade to the tune of 150 billion dollars a year.

Your GOP at work…..

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The Unserious Party–Indiana Version

During her acceptance speech, Kamala Harris noted that Donald Trump is a deeply unserious man whose election would have very serious consequences. She might have broadened that observation by characterizing the GOP as an unserious political party.

I exited the Republican Party back in 2000, when the GOP’s transformation then underway was usually described as “rightward.” To the extent that “rightward” meant “toward fascism,” that description was accurate–but insufficient. It is equally accurate to note that the GOP has become increasingly unserious about governing.

Democrats do continue to focus on real governing issues–what should our foreign policy look like? What changes should be made to tax policy? What is government’s obligation to provide a social and physical infrastructure?  The GOP, in contrast, is focused on areas that are mostly off-limits to government under our Constitution: books they disapprove of should be removed from public libraries! Private companies should be forbidden from undertaking DEI activities! Women should be forced to give birth!

GOP priorities aren’t those that have traditionally been considered governmental.

 Indiana’s state tickets provide a picture-perfect example. The Republicans are all MAGA culture warriors, while the Democrats are focused on traditional governance issues: public education, taxation, the proper limits of government control over individuals.

The difference between the parties on issues of actual governance was recently explored by conservative economist Michael Hicks, who analyzed the seriousness of recent tax proposals. The headline was instructive: “Property taxes dominate the race for Indiana governor. Only 1 side has a real plan.” 

Indiana voters have now seen three separate property tax plans from candidates running for governor and lieutenant governor. All three offer insights into some of the fiscal philosophies of the candidates, the quality of their policy development process and the respect they have for Hoosier taxpayers.

Hicks began by discarding the plan offered by the Libertarian candidate for governor. 

Their proposal is to eliminate all residential property taxes, and instead tack on 7% sales tax to your home. I view their proposal as political posturing against the promiscuous use of tax abatements and tax-increment financing.

If you are tired of huge tax breaks for large companies, Indiana’s Libertarian Party is focused on your concerns. But their plan fails to consider things like the need to fund police protection, fire departments or provide heat to school buildings in winter.

In other words, it’s a very “unserious” plan.

Then Hicks took on MAGA Mike Braun’s plan.

The Republican — Mike Braun/Micah Beckwith — plan seems to have done two things. I say “seems” because it went through five major changes in three days after it was first announced. So, nailing down facts is not a trivial task.

The first thing this plan offers is the addition of a much larger exemption to homeowners. While this sounds alluring, it really has little or no effect on individual tax liability. Property taxes in Indiana are based on local government budgets, with caps placed on the value of the property, not the exemptions. So, for most Hoosiers, the first version of the Braun/Beckwith plan (or Beckwith/Braun plan according to the lieutenant governor candidate’s social media) had little or no effect on tax liabilities for most homeowners.

In response to major criticisms, the plan changed, but as Hicks noted, in its current iteration, it would either cut local government tax revenues or shift taxes to other taxpayers — primarily farmers and businesses.

Within farming communities, the property tax shift was enormous. Some farmers would see 70% tax increases…rural communities would see huge increases in farm taxes. Urban places would see big cuts in public services because of property tax caps, and suburban communities would need to pass school referendums to maintain bus service.

Hicks then turned to the Democrats’ plan, which would cut property taxes by roughly the same amount as the Braun/Beckwith plan, but in a way that doesn’t shift tax liability to farmers, renters or businesses. That plan

also ensured that local governments — schools, libraries, police and fire departments, and parks — would not face deep revenue losses.

Their plan had two distinguishing features. The first was that almost every element was analyzed by the Legislative Services Agency, with much of it taken from existing property tax proposals the legislature has been working on for the past 18 months. This means we know how much savings are to taxpayers, and how much and to whom the lost tax revenue flows.

The second key feature of the McCormick/Goodin plan was that most of the revenue losses were borne by state, not local government…  Notably, the Democratic plan actually caps property tax growth for individual taxpayers at a reasonable level.

Indiana Democrats want to govern. Unserious Republicans want the power to win the culture war. 

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A Bill Passes. Then What Happens?

Making policy–passing laws–requires a series of decisions. It begins with (and is often stymied by failure to reach) an agreement on the existence, nature and extent of the problem to be solved. When lawmakers do see the same problem, and agree on why something is a problem, they then have to come to some consensus on what action is needed to solve or ameliorate that problem. Then–in our age of “privatization”–they need to determine who should enforce the agreed-upon remedy. Should those empowered to deliver the new service or oversee compliance with the newly-passed regulation be government employees, or should that obligation be vested in the private or non-profit sector?

And finally, once the problem has been identified, a solution agreed upon, the means of enforcement determined, and the law passed, a sound policy process will vet how the new law performs–evaluate its effectiveness in actually addressing the original problem, and noting–and ideally correcting–any negative unanticipated effects.

This process will inevitably involve debate and discussion, and in an era of technological and social complexity, creating sound policy increasingly requires careful attention to sources of specialized expertise in the matter at hand.

Unfortunately, today’s Republicans and Democrats can’t even agree on what time it is, let alone what our actual problems are. The GOP buffoons who increasingly dominate America’s legislative chambers ignore virtually all the “grunt work” needed for sound policymaking. When they aren’t fundraising, preening for Faux News cameras or producing television ads blaming “others” for real and imagined social problems, they are using legislative tactics to block rather than produce policies.

(This is frustrating for all serious citizens, of course, but I spent the last 21 years of my career teaching policy, and watching the total abandonment of actual governance in favor of performative antics is beyond painful.)

It’s one thing to outline the steps of the policy process, as I’ve done above. But just as a (non-AI) picture can be worth a thousand words, a real-life example can be more illustrative than an abstract process outline. So let’s look at a tax bill that Trump still touts as evidence of…something.

As the Institute on Taxation and Economic Policy explains:

The tax overhaul signed into law by former President Donald Trump in 2017 cut the federal corporate income tax rate from 35 percent to 21 percent, but during the first five years it has been in effect, most profitable corporations paid considerably less than that. This is mainly due to loopholes and special breaks that the 2017 tax law left in place and, in some cases, introduced. Corporate tax avoidance occurs because Congress allows it to occur, and the Trump tax law in many ways made it worse.

Tax policy is one of many intractable dividing lines between Republicans and Democrats, and it is a given that the tax overhaul of 2017 was not a product of agreement over the nature of the problem. Republicans think the problem is that businesses have to pay too much; Democrats think the problem is that wealthy folks aren’t paying their fair share. Clearly, a tax cut for profitable businesses is not the result of agreement on the nature of the problem. But the linked report focuses on the part of the policy process that both parties–and the Keystone Kops in Congress–routinely ignore.

How is it working?

The Institute looked at taxes paid by profitable corporations.

  • The 342 companies included in this study paid an average effective income tax rate of just 14.1 percent during this five-year period, almost a third less than the statutory rate of 21 percent.
  • Nearly a quarter of the corporations in this study (87 companies) paid effective tax rates in the single digits or less during this five-year period.
  • Of these, 55 (16 percent of the total 342 companies) paid effective rates of less than 5 percent. This is particularly striking given that all these companies were profitable for at least five years consecutively. Companies paying less than 5 percent include T-Mobile, DISH Network, Netflix, General Motors, AT&T, Bank of America, Citigroup, FedEx, Molson Coors, Nike, and many others.
  • Twenty-three corporations paid zero federal tax over the five-year period despite being profitable in every single year. And 109 corporations paid zero federal tax in at least one of the five years.
  • At the other end of the spectrum, 50 corporations paid effective tax rates of more than 21 percent, but most of these companies were also the beneficiaries of large tax breaks because they were paying taxes from previous years that they delayed using depreciation breaks.

One obvious “fix” for this would be passage of the global minimum tax negotiated by the Biden administration that’s currently being blocked by GOP lawmakers more interested in currying favor with special interests than engaging in the policy process.

Americans deserve better.

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It Isn’t Just Tax Rates…

If voters ever wrest America’s government away from the Keystone Kops who are currently hijacking it, we might see a return to thoughtful policy discussions.

By “thoughtful,” I mean good-faith debates over the best way to approach various governmental tasks, conducted by people who actually understand the role and operation of government–and want it to work.

In other words, people other than Matt Gaetz and Marjorie Taylor Green and their ilk.

As readers of this blog know, I spent 21 years teaching classes in Law and Public Policy. Those classes explored both government’s policy processes and the legal and constitutional framework that constrains those choices. Ever since 2016, and the election of a buffoon whose entire administration was blatantly and proudly ignorant of both, I’ve missed the exploration of genuine policy differences –and the approach taken by public servants like former Senator Richard Lugar, who often referred to policy differences as “something about which people of good will can disagree.”

I thought about the current absence of “good will” when I read this paper issued by the Brookings Institution.The paper addressed the thorny issue of taxes, and how the American tax system distinguishes between–and differentially taxes– sources of income.

As the paper begins,

In a famous conversation, the author F. Scott Fitzgerald is credited with saying that “the rich are very different than you and me,” to which Ernest Hemingway replied “Yes, they have more money.”

Our work highlights another key difference: the most affluent Americans not only have more income; they receive it—and pay taxes on it—in vastly different ways than the rest of us.

For policy makers concerned about long-term fiscal shortfalls and high levels of economic inequality, our work reinforces the notion that raising the tax burden on the wealthy requires a special focus on how those households gain wealth and skirt taxes. We highlight four ways to effectively raise taxes on the wealthiest Americans.

The research focuses on an issue that serious policymakers understand, but that all-too-often is missing from public conversations about taxes. Those conversations tend to feature politicians appealing to voters with unrealistic promises to reduce the “tax burden” or eliminate certain taxes. ( Worse, when most voters think about taxes, they focus primarily on tax rates–and a not-inconsiderable number of Americans fail to understand the way  marginal rates work. They think the highest marginal rate is applied to the taxpayer’s entire reportable income.)

The Brookings report focuses upon a related element of the tax system: the different ways in which we tax income generated differently.

Most Americans receive almost all their income through wages and retirement income (pensions, 401(k)s, social security, and individual retirement accounts). The most recent available IRS data (2014) shows that wages and retirement income made up 94% of adjusted gross income (AGI) for households in the bottom 80% of the income distribution. Even for households in the 98th to 99th income percentile, wages and retirement income accounted for 71% of AGI.

At the very, very top, though, these sources are less important, accounting for just 15% and 7% of the income of the top 0.01% and the top 0.001% of households, respectively. These households  receive most of their income from investments (interest, dividends, and especially realized capital gains) and businesses (including sole proprietorships, partnerships, and S corporations). These items constituted 82% of income for the top 0.01% and 88% for the top 0.001%, compared to just 7% for the bottom 80% of households.

These patterns are robust over time and data sources. And in practice, the tilt toward capital income at the top is even larger than these figures suggest because AGI does not include the massive unrealized capital gains and very sizable inheritances that accrue to many affluent households.

The researchers proceed to suggest changes to the tax code that would have the effect of reducing the disparities that have contributed to our current gilded age, and I encourage you to click through and see whether you agree or disagree with their particular policy recommendations.

My point in highlighting this study, however, isn’t to endorse–or rebut–particulars.

This research –and similar investigations of the economic realities of American governance–is a welcome reminder of the way lawmakers should conduct policy debates: examining the evidence (what are we doing now, and what are the outcomes of what we are doing?); highlighting problems that such examination discloses (here, the widening gap between the rich and the rest); and considering policies that might solve or ameliorate those problems.

Budgeting and taxation are complicated issues about which people of good will can differ. But instead of people of good will–and thanks primarily to gerrymandering,–we have elected profoundly ignorant (and arguably crazy) people who think they were sent to Washington to destroy the federal government.

I miss policy…

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The Philosophy of Taxes

It’s April. Tax month.

Americans are notoriously anti-tax. (In fact, “tax” may be the only four-letter word that only has three letters).  I’m no different; it’s  April, and I’ve  reluctantly remitted what I owed, while thinking about all the other things I could do with those dollars. But I also know  that reaction is intellectually indefensible, because taxes pay for the kind of world rational humans want to inhabit.

Taxes are the dues we pay for living in a civilized society.

Those well-to-do people protesting their tax burdens would never treat their country clubs and other membership organizations the way they treat/cheat their governments. (How would the Orange Menace react iff Mar-A-Lago members declined to pay their dues?) Those manicured 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.

The people who presumably understand the need to pay dues adequate to keep their clubs and organizations functioning need to acknowledge that–as members of the polity–they have similar obligations to their country.

I think we all agree that government should be efficient–that our tax dollars shouldn’t pay for (frequently hypothesized) “fraud and waste.” And it’s entirely legitimate to argue about whether we really need this or that government program. Most legislative efforts to ease the tax burdens of wealthy folks, however, are based on justifications that have consistently proved to be unfounded.

A recent article from Governing analyzed the effects of two decades of tax cuts in Ohio.

Tax reform is a politically charged issue, with conservatives saying lower income taxes help drive economic prosperity, and progressives saying tax cuts have functioned as handouts to the rich, while defunding crucial public services.

Despite those stark differences, both right- and left-leaning groups who spoke to cleveland.com said the impact of Ohio’s income tax cuts on the state economy overall throughout the past 20 years has been minimal.

“The theory behind it is that cutting these taxes will spur on extra growth and get extra investment,” said Jonathan Ernest, an assistant professor of economics at Case Western Reserve University’s Weatherhead School of Management. “You would expect after some number of years to start seeing growth, and we haven’t necessarily seen that.”

Ohio’s experience is not an anomaly, but–as with so many other elements of our highly politicized policy process–evidence has been swamped by ideology.

 We need to see the majority of anti-taxation arguments for what they really are: rejections of the importance–or even the existence– of the common good, and a disinclination to help maintain important social goods accessible to their fellow citizens. (Let’s call that disinclination what it is: selfish. It isn’t “self-interested,” because genuine, long-term self-interest requires the maintenance of a stable, flourishing society–and highly unequal societies are notoriously unstable.) 

Anti-tax Republicans push back against progressives who want to move the U.S. policy in the direction of Scandinavian countries–despite the fact that those countries score far higher on measures of happiness and social cohesion– by warning against “confiscatory” tax rates.

Actually,despite the mythology, Scandanavian taxes aren’t much higher than our own, once we combine Americans’ local, state and federal burdens–and their citizens get much more value for their money, including relief from the enormous costs of higher education and health care.

As the author of the linked article wrote,

US critics say that Swedes pay 56 percent — so the government takes over half of your money. This is not true — 56 percent is the marginal tax rate, i.e. what high earners pay on income over a certain amount in both state and local taxes. Only 15 percent of Swedes pay tax at this rate. It turns out the average Swede pays less than 27 percent of his or her income in direct taxes. As I’ve written elsewhere, my wife and I pay about 22 percent of our US income in taxes. Our Swedish income tax was 31 percent. So, yes, our income taxes in Sweden were higher than in the US, but we still paid less than one-third in tax.

And you get far more for your taxes than you do in the US. In Sweden, college is free and students get a housing stipend….

The 33 million Americans who are still not covered by health insurance don’t have much choice when they get sick, unless you think, “Your money or your life?” is a choice. Paradoxically it turns out the bloated, heavily lobbied, privatized US system spends more tax money ($4,437) per person than Sweden’s socialized health care ($3,184).

Eradicating medical and educational debt would do a lot more to boost America’s economy than adding tax loopholes for the wealthy.

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