November 25, 2015

Posts on tax policy

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Wednesday, April 24, 2013 - 12:52 PM

Last Thursday, the Bipartisan Policy Center’s (BPC) Health Care Cost Containment Initiative released a comprehensive plan to increase efficiency and reduce costs while reorienting the nation’s health care system to become more patient-centered. That combination would ideally lead not only to a more sustainable fiscal future but to better health care as well.

The plan targets the largest health care levers that federal policymakers have: Medicare and the tax code -- specifically the exclusion of employer-provided health care from taxation. The plan, as scored by health policy experts, would reduce budget deficits over the next 10 years and then continue to lower the trajectory of the federal debt.

Medicare would be transformed into a system that rewards value and coordination instead of the quantity of services, and the tax code would no longer encourage overspending on health care. Furthermore, these changes at the federal level are meant to encourage and incent a more rational private health care system.

These lofty goals were heralded by BPC’s health care leaders: former Senators Tom Daschle, Bill Frist and Pete Domenici, along with Dr. Alice Rivlin. Their agreement after a year of...

Tuesday, March 26, 2013 - 10:22 AM

Most plans to put the federal budget on a more sustainable path make a crucial assumption: That today’s younger workers will pay more of their own retirement costs than previous generations have.

By setting aside more money for retirement, the thinking goes, these younger workers can enable the federal government to reduce the high projected growth of Social Security and Medicare. They should theoretically be able to do this because they have more time to save large amounts of money and to let those savings compound.

As The Concord Coalition has often noted, however, Washington already favors older generations in many ways. And younger Americans face a number of financial hurdles and future challenges that must be kept in mind.

Many of them have been hit hard by the last recession, struggling with a poor job market and – thanks to skyrocketing tuition costs -- large amounts of student debt. With companies cutting back on retirement and health care programs, many younger people who have jobs  do not receive the compensation or employee benefits that their parents did.

The large and growing federal debt, meanwhile, means that younger Americans can expect higher taxes and less assistance from the federal government...

Friday, March 1, 2013 - 10:19 AM

Back in August of 2011, with the nation’s debt bumping up against its statutory limit and an election year looming, President Obama and Congress made a deal.

They would empower a special committee (the “super committee”) to reach a long-term budget deal worth $1.2 trillion to $1.5 trillion in deficit reduction and give that deal a fast-track path to enactment. All options for cutting spending or raising revenues would be on the table.

To provide an incentive, other than simply doing the right thing, they agreed that if the super committee failed, or if Congress rejected its plan, a fallback mechanism known as “sequestration” would initiate spending cuts worth $1.2 trillion from non-exempt programs over 10 years. Half of the cuts would come from defense spending and the other half from domestic programs. The idea was not to craft rational policy but to install a back-up so arbitrary that no one would want it to go into effect.

The deal provided a grace period throughout 2013 during which a more comprehensive plan could be reached, if the super committee failed.

Here we are, 18 months later, still awaiting a “grand bargain.” The committee failed to produce a plan, nothing has been done to replace the 2011 deal, and the sequester...

Tuesday, February 26, 2013 - 9:22 AM

In his State of the Union Address President Obama declared: “Our government shouldn’t make promises we cannot keep, but we must keep the promises we’ve already made.”

It was good applause line, but it glossed over a key point: The promises we’ve already made are the ones we cannot keep.

It is widely accepted that current fiscal policy is unsustainable. By definition, that means something has to change. Yet, if we decide that all promises must be kept, we can’t change anything without “breaking a promise.”

The dilemma for policymakers in Washington is that for years they have made unfunded promises and there is no politically convenient way to reverse this.

The first thing to do is just face up to it.

That’s why a bipartisan group of former members of Congress included this warning among their findings from their Strengthening of America forum series last fall: “We cannot put our debt on a sustainable path without reductions in the projected cost of entitlement programs, cuts in discretionary spending and higher revenues.”

Strictly speaking, any of those things could be characterized as breaking a promise.

It could be argued, for example, that...

Monday, December 17, 2012 - 8:56 PM

With the latest exchange of offers, President Obama and House Speaker Boehner have moved closer to a deal that would reduce the deficit by about $2 trillion over the next decade.  On the surface, the split between spending cuts and tax increases seems relatively even and this is likely to be a point of resistance for those who argue for greater spending cuts.  Lost in the rhetoric, however, is that some policies traditionally defined as “tax increases” are really “spending cuts.”

If that fact could be acknowledged by both sides, they might find that bridging the gap is an easier task.

The current tax code is riddled with "tax expenditures" -- exemptions, deductions, credits, exclusions and preferential rates that function much like entitlement spending.

At a recent public forum convened by Strengthening of America – Our Children’s Future, former Treasury Secretary Larry Summers explained, "There are long-standing privileges in the tax code that perhaps should be thought of as misguided entitlements and...reform of entitlements should also extend to the tax entitlements that benefit many of those who are best off. If we take that approach and we recognize that the idea of expenditure, like the idea of entitlement, is a notion that applies both to what has traditionally been the spending side of...

Tuesday, November 27, 2012 - 10:50 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 - 11:34 AM

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 - 10:50 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 - 8:31 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 - 10:15 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...