April 16, 2014

Posts on tax policy

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Tuesday, November 27, 2012 - 11:50 AM

The long-standing impasse on tax policy has basically boiled down to this: Democrats want more revenue, raised entirely from households with incomes over $250,000. Republicans don’t want any new revenue, and especially not from higher tax rates on the rich. It seems like an irreconcilable difference.

But if you get beyond the predicable partisan rhetoric there is room for optimism that a deal can be reached.

Republicans have begun to shed their single-minded devotion to anti-tax advocate Grover Norquist’s “no new taxes pledge”. Notable examples are Senators Bob Corker (R-TN), Saxby Chambliss (R-GA) and Lindsey Graham (R-SC) along with Representative Peter King (R-NY).

Many Republicans aren’t so enamored with Grover’s “no new taxes” pledge these days, because they don’t agree with the “no new revenue” interpretation. These Republicans recognize the economic difference between raising revenue by raising marginal tax rates, and raising revenue by broadening the tax base and reducing “tax expenditures”– the subsidies in the tax code. The former increases the size and influence of government; the latter reduces it.

For any Republican who feels the same way that Corker, Chambliss, Graham and King do, the common ground they share with the Obama administration on tax policy and...

Wednesday, November 21, 2012 - 12:34 PM

At last week’s 105th annual conference of the National Tax Association in Providence, R.I., former Clinton Treasury secretary and Obama economic advisor Lawrence Summers explained that the tax reform needed today is very different from the Tax Reform Act of 1986.
 
"It seems to me that the tax community will fail the broader economic community if, at this crucial juncture that lies ahead over the next several years, it remains entirely preoccupied with its most traditional concerns," Summers said at the conference, which I attended. "There are a number of aspects about the current context that stand out as quite unique -- very different from where the world was in 1986 and at most other moments when tax reform has been a prominent area of work." Summers sorted these differences into four factors:
 
(1)    Now our economy is constrained on the demand side, operating below its full productive capacity so that we are looking for policies that can quickly boost the aggregate level of economic activity. That is in contrast to the full-employment economy of the mid-1980s, when the focus was mainly on improving efficiency in the allocation of economic activity to promote more longer-term, supply-side growth.

(2)    In recent years, the income...

Monday, November 19, 2012 - 11:50 AM

Signals from the first post-election budget meeting between the President and congressional leaders, which took place at the White House on Friday, were very good.

Congressional leaders of both parties appeared together after the meeting. There were no lines in the sand, no threats, and no impugning each other’s motives.

Beyond the low bar of politeness, President Obama and his guests appeared to be focused on the right priority -- achieving a long-term fiscal plan and not just a quick fix to the immediate pressure of the “fiscal cliff.”  

They spoke of a two-step process with a down payment on deficit reduction this year while putting together a framework for a long-term deal to be enacted next year along with a credible back-up mechanism -- more credible than a new cliff -- in case Congress fails to act. That basic approach has been recommended by many outside observers, including The Concord Coalition.  

Topping off the pre-Thanksgiving cheer was that a consensus seems to have been reached on the fundamental point that everything must be on the table, including revenues and entitlement spending.

We're still far from a long-term “grand bargain,” let alone a way around the fiscal cliff, but this is an essential starting point for fruitful negotiations.

Whether the...

Wednesday, October 31, 2012 - 9:31 AM

This is Part I of a two-part series of posts on the presidential candidates' fiscal policies. Part II examines President Obama's plans.

As election day approaches, it is appropriate to look at what we know and what we don’t know about the two candidates’ fiscal policy proposals -- especially since it is unlikely we will get any more details prior to election day.

In many respects, the crucial differences between the two candidates are defined by their fiscal policies, and it is almost certain that the winning candidate’s fiscal policy choices will be as immediately consequential as any president’s in history.

In this blog post, I will review Governor Romney’s proposals and in Part II, I will cover the President’s proposals looking at three key areas: The overall budget goal, tax policy and health care.

It is difficult to overstate how little we know about where Governor Romney’s policies will lead. The basic problem is that he has...

Monday, October 1, 2012 - 11:15 PM

As part of the Strengthening of America -- Our Children's Future project that The Concord Coalition is co-sponsoring, a forum was held last week in New York on the topic of pro-growth tax reform.  The video of the full event is available here.  In the first part of the forum Martin Feldstein, a former chairman of the Council of Economic Advisors and a Romney adviser, joined Lawrence Summers, former Treasury secretary and an Obama adviser, to discuss what they considered pro-growth tax policy. 

At the event, Feldstein and Summers made it clear that when it comes to this subject, there is a lot of common ground between Republican economists and Democratic economists.  Here’s what I heard as some of the main points of agreement between Feldstein and Summers (what Summers referred to as the "structure that Marty and I have converged on"):

1.      Pro-growth tax reform means structuring the tax system to encourage longer-term expansion in the productive capacity (or "supply side") of the economy.

2.      This...

Monday, August 13, 2012 - 9:59 AM

Last week the Tax Policy Center (TPC) released this distributional analysis of the Romney tax plan, exploring how the plan could be made revenue-neutral, as Romney has claimed it would be.  The TPC analysis found that it is impossible to pay for Romney’s proposed additional tax cuts (which are skewed heavily toward upper-income households ) with base-broadening revenue offsets (which according to the Romney plan cannot include increasing the taxation of capital income) without increasing tax burdens on net for most Americans.

What does the TPC analysis actually tell us about the Romney tax plan?  It’s well summarized in Figure 2 of the TPC paper, which decomposes the bottom-line conclusion that a revenue-neutral Romney plan would give generous tax cuts to households with incomes above $250,000, paid for with net tax increases on everyone else, into two parts:

(i) how much the tax cuts from the tax rate reductions are skewed toward wealthier households, and

(ii) how much the revenue offsets from (Romney-limited) base-broadening are skewed toward lower- and middle-income households.

 Combined, we would end up with a revenue-neutral (relative to a business-as-...

Friday, August 10, 2012 - 2:05 PM

Congressional procrastination could lead to chaotic decision-making on the federal budget after the November elections, but many economists believe this procrastination is already harming the economy.

The damage stems from widespread uncertainty over what elected officials will do, if anything, about the “fiscal cliff” – a combination of sharp “automatic” spending cuts and the scheduled expiration of tax cuts at year’s end.

The Wall Street Journal reported today on its survey of 47 economists, noting their widespread concern about the growing economic cost of congressional inaction. This “adds insult to injury to an economy already flirting with a stall rate,” said Diane Swonk of Mesirow Financial. Another analyst, Julia Coronado of BNP Paribas, said: “We are already feeling the effects in hiring and investment.”

The general expectation in Washington is that elected officials will not take action on the fiscal cliff until after the elections, despite encouragement throughout much of this year from The Concord Coalition and many other analysts and groups to work out a bipartisan action plan as soon as possible.

...
Tuesday, May 15, 2012 - 8:34 AM

Throughout this painfully prolonged economic recovery, economic developments as they are reported have often been confusing. They seem to send mixed messages about the best courses of action for fiscal policy.

Sometimes we are told that more personal spending (consumption) would be good, and sometimes we are told we need to save more. Sometimes we are told that we need to reduce the government budget deficit, and sometimes we are told that continued deficit spending is needed to avoid a double-dip recession.

So what should we be doing with fiscal policy right now -- consolidating or stimulating?

The most recent economic news is that the economy’s overall growth rate has slowed and is falling short of expectations (2.2 percent annual growth rate of GDP for first quarter of 2012 compared with 3 percent in the prior quarter and 2.5 percent expected). Personal spending has slowed as well (0.3 percent monthly growth in March, down from 0.9 percent the prior month and below the 0.5 percent expected). Job gains have also weakened and are not keeping pace with the natural growth in the working-age population.

This news suggests that more private consumption spending, encouraged by continued stimulative, deficit-financed government spending and tax cuts, is needed to further expand...

Monday, April 16, 2012 - 4:23 PM

On today's federal tax filing deadline, it just so happens that Congress and the Administration have been thinking of different ways to raise tax burdens on the rich. Last week I participated in a “Tax Day” event at the Tax Policy Center called “Should the Rich Pay Higher Taxes?”, speaking on a panel which also included TPC’s director Donald Marron, former CBO director and former McCain adviser Doug Holtz-Eakin (now president of American Action Forum), and economist rich guy (and a member of the “Responsible Wealth” coalition) David Levine.

TPC’s Howard Gleckman moderated the event (and blogged about it afterward, here) and at one point asked each of us “Who is rich?”  I at first didn’t know how to answer that; “rich” is a relative concept that depends on one’s personal “baseline,” of course!  But then I considered the focus of the event – what the tax burdens of “the rich” should be -- and I realized that in a sense, all of us, collectively at least, might be considered “rich,” in that U.S. taxes are quite low relative to our national...

Thursday, February 23, 2012 - 1:00 AM

In his Fiscal Year 2013 budget, President Obama proposes an array of tax proposals. Some of his suggestions are new and would move the country’s unfair, inefficient and overly complex tax system in a positive direction. But some of the most costly proposals are the ones we’ve seen many times before. Four points stand out in the tax proposals in the Obama budget:

(1)    The budget raises revenues only relative to the administration's policy-extended baseline and not relative to current law.

Under the Obama budget, revenues would rise from their current 15-16 percent of GDP to 19 percent by 2015, and to just over 20 percent by 2022. But under current law, all the 2001 and 2003 tax cuts are scheduled to expire at the end of this year -- so that revenues would exceed 20 percent of GDP by 2015, and 21 percent by 2022. Thus, relative to current law, the president is proposing a net reduction in taxes. Compared with the CBO's projections of the cost of extending all of the Bush tax cuts (and the “adjusted baseline” the administration prefers to start with), however, the president's proposals raise revenue. That’s because Obama proposes to let the high-income Bush tax cuts expire and to add some other tax increases on...