The NYT ran a profile of House Republican Budget Committee Chairman Paul Ryan today. It misrepresented some important features of Representative Ryan’s budget plan.
For example, while it told readers that the plan would, “reduce domestic federal spending to its smallest share of the economy since World War II.” it failed to point out that it would essentially eliminate all areas of the federal government, except Social Security, Medicare and other health care spending, and the military.
The Congressional Budget Office analysis of the Ryan budget, which was done under his direction, shows all non-health care, non-Security Security spending shrinking to 4.5 percent of GDP by 2040 and to 3.75 percent of GDP by 2050. The military budget is currently over 4.0 percent of GDP and has never been less than 3.0 percent of GDP since the start of the Cold War.
Assuming that Ryan keeps military spending in its historic range (he has indicated that he would), this implies the elimination of almost the whole federal government. His budget would leave no room for federal support of education, roads, bridges and other infrastructure, the federal court system, the Food and Drug Administration, the national park system and everything else associated with the federal government. It would have been useful to point this fact out to readers in a lengthy piece that attempted to give readers a sense of Representative Ryan’s vision.
The piece was also misleading when it told readers that:
“he has proposed collapsing today’s six personal income tax rates into two, 10 percent and 25 percent.”
The number of tax brackets is trivial. The more important feature of Representative Ryan’s tax plan is that it would reduce the tax rate faced by the wealthy from 39.6 percent under current law to 25.0 percent. This implies an enormous tax cut for the wealthiest people in the country.
If this tax cut is offset by eliminating tax breaks, as Representative Ryan claims would be the case, then it would imply large increases on middle class families through the elimination of tax breaks such as the mortgage interest deduction and the deduction for employer provided health insurance.
It would have useful to tell readers that Representative Ryan wants to finance large tax cuts for the wealthy with big tax increases on the middle class. That is presumably an important part of his philosophy.
This past month, there was much outrage over the fact that General Electric, despite making $14.2 billion in profits, paid zero U.S. taxes in 2010. General Electric actually received tax credits of $3.2 billion from American taxpayers.
At the same time that General Electric was not paying taxes, many undocumented immigrants, who are typically accused of taking advantage of the system while not contributing to it by many on the right, paid $11.2 billion in taxes. A new study by the Institute for Taxation and Economic Policy shows that undocumented immigrants paid $8.4 billion in sales taxes, $1.6 billion in property taxes, and $1.2 billion in personal income taxes last year. The study also estimates that nearly half of all undocumented immigrants pay income taxes.
[…] TheNew York Times reported last March that for 2010, General Electric paid no taxes on $5.1 billion in U.S.-based profits. Behemoth Bank of America made $4.4 billion in 2009 and got back a very tidy tax return from the federal government — $2.3 billion. Most Americans are lucky if they can pay off an overdue credit card bill (probably from Bank of America) or treat themselves to a nice dinner out or weekend away with their tax returns. Verizon (can you hear me now?) “earned” $12 billion in 2010. That should mean a sizable tax burden here. But, as of 2011, the company has not paid anythingin taxes for two years running. The list goes on.
The corporate tax rate is supposed to be 35 percent. President Barack Obama is proposing lowering that to 28 percent. It kind of doesn’t matter, because it seems like no corporations pay anywhere close to 35 percent in taxes.
Check this out. What is the most patriotic sector of our economy? The military industry, right? Lockheed Martin has the slogan: “We Never Forget Who We’re Working For.” That is totally ungrammatical — although doesn’t “we never forget for whom we work” sound a little snooty?
But they put most of their patriotism in their advertising budget and avoid paying taxes to the country they love. In November 2011, Citizens for Tax Justice and the Institute on Taxation and Economic Policy looked at the tax rates of the top 280 companies in the Fortune 500. Here is what they have to say about the military sector, which is reaping billions in profits:
“Not only was the 2008-10 effective tax rate on the top 10 defense contractors less than half of the 35 percent official corporate tax rate, but the effective rate fell steadily from 2008 to 2010, from an already paltry 19.3 percent in 2008 to a tiny 10.6 percent by 2010.”
One interesting and behind-the-scenes strategy of American conservatives is to starve the beast. Under the Starve the Beast strategy, conservatives embed themselves into government and cut taxes as much as possible whether they can offset the tax cuts or not. The usually articulated goal of this strategy is to force the United States government to accumulate a massive amount of debt that will eventually force it to cut back on social programs and government spending.
The first time I heard this strategy articulated, it struck me as far-fetched and risky. After all, how can you be sure the country will react to a tax-cut-induced government debt by demanding cuts in social programs. They might just as reasonably (and I would argue more reasonably) demand that the tax cuts be rolled back instead.
But I realized later that my skepticism and confusion regarding Starve the Beast comes from an incomplete explanation of the strategy. For conservatives, it really does not matter one way or another whether the end consequence of the tax cuts is reduced social spending or not. Even if the public reacts by demanding a reinstatement of the tax cuts, the well-off still benefit.
The reason why the well-off still benefit is that tax cuts that are not immediately offset force the government to borrow money. It is generally the well-off who loan the government money because they are the ones with the money to invest in government bonds. When conservatives successfully cut taxes without reducing government spending by an equal amount, what they effectively do is swap taxing the rich with borrowing from the rich. They swap tax revenue from the rich with loans from the rich.
In the long run of course, this is beneficial to rich people no matter what. Even if taxes on the rich are reinstated later in order to pay down the federal debt caused by the tax cuts, the rich still benefit. In such a case, we will be taxing the rich in order to pay back the rich, with interest of course.
So really the Starve the Beast strategy helps conservative ends no matter what. If the response to the ballooning federal debt caused by tax cuts is to destroy social programs, then conservatives win. If the response is to reinstate the taxes on the rich, then the wealthy holders of government bonds still get a payday, and conservatives win. No matter what happens then, the Starve the Beast strategy redistributes money to the rich, which is the goal of many conservatives. In that sense, it is actually quite clever, even if nefarious and unjust.
About 100 million taxpayers — those whose income is entirely from wages and retirement funds, and who do not itemize deductions — should not have to file returns. The government already has the information it needs to calculate the taxes these people owe, once they supply their marital status and number of dependents. It would not take much to automate their income tax payments, as many other modern countries do. I put the chances of Congress taking such a sensible course at one in 84,000. That’s about the same as the odds of being indicted for a tax crime in 2011, based on an analysis of official data by Syracuse University’s Transactional Records Access Clearinghouse. Congress will not act because individual income tax returns, which for most people are make-work that creates a drag on the economy, provide tidy revenues for Intuit, the maker of TurboTax software, H&R Block and other legitimate corporations that profit from preparing tax returns.David Cay Johnston (via azspot)
Oil Change International estimates that fossil-fuel companies get $59 back for every dollar they spend on donations and lobbying, a return on investment that makes Bernie Madoff look shabby. It’s no different from sending a college financial aid officer a hundred-dollar bill in the expectation that he’ll give your daughter a scholarship worth tens of thousands of dollars. Bribery is what it is. And there’s no chance it will yield the best energy policy or the best student body.How You Subsidize the Energy Giants to Wreck the Planet
Capping off a week filled of politicking over high gas prices and energy policy, the Senate defeated a Democratic measure that repealed tax breaks for major oil companies.
The Senate voted, mostly along party lines, XX-XX, to defeat the legislation, which was sponsored by Sen. Robert Menendez, D-N.J. The bill needed to reach the 60-vote threshold to pass and avoid a GOP filibuster.
Its failure was always expected, but the debate throughout the week and vote on Thursday gives lawmakers a platform to air grievances about what the other party is doing (or not doing) to alleviate voters from pain at the pump.
The vote also provides each party political fodder to attack vulnerable members up for reelection this fall, including Republican Sens. Dean Heller of Arizona, Scott Brown of Massachusetts, and Richard Lugar of Indiana. Democratic senators eyed by the GOP as vulnerable include Claire McCaskill of Missouri and Jon Tester of Montana.
The Menendez bill would have put the money saved from the oil industry tax breaks—about $4 billion a year—toward expiring clean-energy tax incentives, including the production tax credit for wind, which is supported by some Republicans along with most Democrats, and a grant program for solar power, which is universally opposed by Republicans because it was created as part of Obama’s stimulus package.
Other programs, like Medicare, are provided by the government, but eligibility is mostly automatic, and recipients have paid into them. Beneficiaries of such programs are somewhat less likely to realize they’re on a government dole than beneficiaries of means-tested programs.
Then there’s what Mettler calls “the submerged state.” These policies are mostly, though not exclusively, tax breaks. They include the much-beloved home-mortgage interest deduction and the tax exclusion for employer-provided health care. Recipients of these policies — and there are tens of millions of them — are rarely cognizant that they’re benefiting from a government program.
But they are. “Indirect social policies offer benefits that are comparable to direct social benefits both in their purposes and in their costs,” Mettler and Koch write. “Both are targeted to specific groups of people, aimed to reward some kind of activity or some class of persons whom policymakers deem worthy of public support. From an accounting perspective, as well, both types have the same effect: They impose costs on the federal budget, whether incurred through fiscal obligations or lost revenues.”
The costs are significant. Huge, in fact. Tax expenditures now cost the federal government $1 trillion annually — more than Medicare and Medicaid combined. And they’re regressive.
There is also a pattern to these programs: The more a government social program benefits wealthier Americans, the less obtrusive it is. We design policies for the poor in ways that make it hard to escape the knowledge that the government is providing help. But richer Americans rely on programs that are “submerged.”
…the Romers’ elasticity estimate is lower than earlier empirical estimates that are largely based on the postwar period. To put this in perspective, an elasticity of 0.19 implies that tax revenues would be maximized with a tax rate of 84 percent; that is, you could raise taxes up to 84 percent before people’s reduced incentives to make money would compensate for the higher tax rates. […] Remember that this is a study of the super-rich: not the top 1%, but the top 0.05%. These are the people whom one would expect to have the highest income elasticity, precisely because they don’t need the marginal dollar. Elasticities tend to be lower for ordinary people because they need to cover their expenses.How Much Do Taxes Matter? | The Baseline Scenario
Creating a tax system that rewards the SLOWEST_Velocity use of money… letting it just sit… is the right thing when there’s raging inflation. It is the diametrically wrong thing to do in recession/depression when we need hi velocity. And banks that took our bailouts just to sit on it should have their boards ousted.David Brin (via azspot)
Returning the wealthiest Americans to Clinton-era tax rates while boosting demand to fuel eocnomic recovery isn’t at odds with reducing the deficit. That’s how we’ll reduce the deficit. That journalists at the supposedly ‘liberal’ New York Times have so internalized false conservative memes on macroeconomics that they present an Alice-in-Wonderland case against targeted taxes and spending as matter-of-fact apathy about the deficit is nothing short of terrifying.David Atkins | Spending vs. Deficit Reduction is a False Choice
Treat all income the same. Tax it all according to the same rate schedule. A dollar is a dollar, whether you got it from your labor or your inheritance or your hedge-fund fees or your stock sales. It isn’t the only thing we could do to improve the tax code, but it would be the most transformative, and it expresses a principle that few would be able to argue against.Beyond the Buffett Rule (via ryking)