Will Missouri’s Incoming Republican Lawmakers Eliminate The State’s Income Tax?

November 12, 2010 · Posted in The Capitol · Comment 

On election day, as the New York Times’ David Leonhardt put it, “voters mostly chose the status quo [regarding taxes], rejecting measures that would have raised new taxes but also those that would have repealed existing ones.”

However, one state may be facing an incoming class of lawmakers ready to blow a hole in its tax base. Last year, a bill to eliminate Missouri’s income tax (and replace it in part with regressive hikes in the sales tax) passed the state House but flopped in the Senate. However, huge pickups by the state GOP means that elimination of the income tax is back on the docket:

Gleeful Republicans in the Missouri House of Representatives said Wednesday that they will use their historic majority to make state government smaller and Missouri more business-friendly. Speaker-elect Steve Tilley said their agenda will include a measure eliminating the state income tax and replacing it with a higher sales tax.

Completely eliminating the Missouri income tax would cost the state about $ 6 billion, when the state is already facing a nearly $ 1 billion shortfall in its 2012 budget. Missouri business groups are also pushing the new GOP legislature to repeal the state’s corporate income tax, costing another $ 500 million.

Missouri already has a slightly regressive state tax system; those in the lowest income quintile can expect to pay about 10 percent of their income in state and local taxes, while those in the top one percent will pay about 5.4 percent. So why implement a change that will make the tax code even more regressive?

Well, in addition to furthering the general conservative goal of having marginal tax rates be as low as possible, regardless of their effect on government deficits, Citizens for Tax Justice says it’s a matter of following the Missouri GOP’s money:

Speaker-elect Steve Tilley has said that this plan to weaken and undermine the state’s tax structure is one of his top priorities. Not surprisingly, this proposal is strongly supported by Rex Sinquefield (bankroller of Proposition A — which eliminated the right of local governments to have local income taxes). Sinquefield reportedly gave Speaker-Elect Tilley $ 200,000 in campaign contributions even though Tilley ran unopposed in both the primary and the general election.

Wonk Room

‘Its like my accountant telling me how much my income should be’

November 10, 2010 · Posted in The Capitol · Comment 

Perhaps the oddest feature of the report from the co-chairs of the deficit commission is its cap on the amount of revenues the federal government can raise. It would’ve been one thing to propose a tax plan bringing revenues up to 21 percent of GDP — we were at 18.5 percent in 2007 — but instead, the co-chairs say that revenues shouldn’t be allowed to go above 21 percent of GDP. One of Josh Marshall’s readers smartly noted that this is pretty far afield from the commission’s purpose:

Doesn’t that exceed the mandate here? We are looking to these guys to tell us how to bring the budget into balance, not what the role and size of government ought to be. I would think liberals and conservatives ought to be able to agree in saying, who the hell are these guys to put their finger arbitrarily on the number 21% and tell us that’s where it should be (I’d assume conservatives would like to see it lower, and I don’t necessarily disagree with the number, but don’t know why we’d set it in stone)? Its like my accountant telling me how much my income should be, in addition to how I should balance my family budget.

From a deficit reduction perspective, it would’ve made more sense to say that revenues shouldn’t be allowed to go under 21 percent of GDP. So why’d the co-chairs add this provision? It’s not explained anywhere in the proposal, but I’d guess that it’s a too-clever-by-half attempt to get the GOP to accept a tax increase. The hope is that the GOP’s smart budget people will go back and tell them that given the look of the federal budget over the next few decades, locking taxes in at 21 percent of GDP is actually quite shrewd, as it’ll mean we don’t raise taxes to 23 or 24 percent of GDP when we hit a fiscal crisis and pass a bunch of emergency measures to cut the deficit all at once.

The odds that such a subtle political ploy will work are very low, and the odds that it’ll antagonize liberals who think taxes should be a bigger part of the mix going forward are very high.







Ezra Klein

Bank’s From Sword to Shield: The Transformation of the Corporate Income Tax

November 9, 2010 · Posted in The Capitol · Comment 

My friend and colleague UCLA Vice Dean Steven Bank has posted to SSRN an excerpt from his book From Sword to Shield: The Transformation of the Corporate Income Tax:

Abstract: The U.S. corporate income tax – and in particular the double taxation of corporate income – has long been one of the most criticized and the most stubbornly persistent aspects of the federal revenue system. Unlike in most other industrialized countries, corporate income is taxed twice, first at the entity level and a second time at the shareholder level when distributed as a dividend. The conventional wisdom has been that double taxation was part of the system’s original design over a century ago and it has survived despite withering opposition from business interests. In both cases, history tells another tale. Double taxation as we know it today did not appear until several decades after the corporate income tax was first adopted. Moreover, it was embraced by corporate representatives at the outset and in subsequent years businesses have been far more ambivalent about its existence than is popularly assumed. This excerpt is the introduction from a book entitled From Sword to Shield: The Transformation of the Corporate Income Tax, 1861 to Present (Oxford University Press 2010). The book – the first historical account of the evolution of the corporate income tax in America – helps to explain its origins and the political, economic, and social forces that transformed it from a sword against evasion of the individual income tax to a shield against government and shareholder interference with the management of corporate funds.

Keywords: history of corporate taxation, taxation of corporate income, federal revenue system

JEL Classifications: H20, H25




ProfessorBainbridge.com

Personal income drops for first time in 14 months, spending slows

November 1, 2010 · Posted in The Capitol · Comment 

Waves and crashes.


Notice that the White House stopped talking about “Recovery Summer” a while ago?  Today’s new releases from Commerce may help explain why.  Personal income dropped for the first time since the technical beginning of the recovery in July 2009.  Not surprisingly, consumer spending slowed even with the back-to-school sales season: Americans slowed their spending in […]

Read this post »

Hot Air » Top Picks

60 Minutes Promotes Washington’s 1098 Income Tax Initiative, Stahl Hails Stockman as ‘Brave’ for Wanting Tax Hikes

November 1, 2010 · Posted in The Capitol · Comment 

Barely 36 hours before Washington State voters go to the polls, CBS News aired a 14-minute unregulated in-kind campaign expenditure on behalf of “Yes on 1098" and its chief cheerleader, Bill Gates Sr, sandwiched by Lesley Stahl hailing rogue Reagan adviser David Stockman as “brave” for advocating the end to the Bush tax rates and imposition of a 15 percent national income surtax. Stahl trumpeted:

One Republican brave enough to go public is David Stockman, President Reagan's budget director. He says all the Bush tax cuts should be eliminated — even those on the middle class. And he says his own Republican Party has gone too far with its anti-tax religion.

She segued to how “many of the states are in the same boat, facing huge deficits with few prospects for cutting, which is why Washington State is joining the movement across the country to tax the rich,” championing how “Bill Gates Sr., has poured his own money into backing Initiative 1098. The tax would bring in $ 3 billion a year, to be spent mainly on education, which has suffered cutbacks as the state reels under a massive deficit.”

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NewsBusters.org – Exposing Liberal Media Bias

Should we get rid of the corporate income tax?

October 28, 2010 · Posted in The Capitol · Comment 

By Dylan Matthews

The Obama administration is gearing up to overhaul the corporate income tax by lowering rates but cracking down on loopholes that allow offshore sheltering of profits. Megan McArdle argues that liberals should want to scrap the tax altogether, and tax the people corporate profits go to, rather than the corporations themselves:

The “employer half” of the payroll tax, for example, is thought by most economists to fall pretty much entirely on the worker; corporations compensate for the extra cost by lowering the wages they offer. Taxes on corporate profits are exactly the same for middle-class families who have some shares in a 401(k), and multimillionaire heiresses.

Without the corporate income tax, a lot of the incentive for lobbying would go away. Not all of it, by any means — I am not trying to paint some halcyon future here. But an enormous amount of effort goes into lobbying for tax laws, and politicians often reward favored constituent businesses with little sweetheart fillips to the tax code.

A few months back, Uwe Reinhardt looked at the evidence about tax incidence for corporate taxes, and is less convinced:

Other economists, including the authors of the surveys cited above (Jane Gravelle, Jennifer Gravelle and Thomas Hungerford), are persuaded by the available empirical evidence on the five factors I note that the burden of the corporate tax ultimately rests mainly on the owners of capital. That also appears to be the operative assumption of the Congressional Budget Office, the Treasury and other agencies when they analyze the distributional impact of various forms of taxation.

If the profits of corporations were not taxed, the corporate form of enterprise would become one more major tax shelter through which wealthy people could shield their income from taxation. That probably is the main reason why abolishing the corporate tax has never had any political traction, in the United States or abroad.

McArdle counters that there are already sufficient incentives for the rich to use corporations to shelter money, but that the IRS has sufficient resources to ensure that does not happen. Given that, I would happily support a deal in which the corporate income tax was abolished in exchanged for an increased IRS enforcement budget and a much bigger personal income tax, complete with cuts in deductions favoring the rich (mortgage interest, charitable donation, etc.) and more steeply progressive rates.

Somehow, though, I doubt conservatives backing corporate income tax abolition would be willing to make that deal. Personal income tax hikes are easy to demagogue. You’re raising taxes for actual people, not accounting fictions, and I’m sure many Republicans in Congress would rather defend low taxes for rich people than low taxes for rich corporations.

Of course, defending corporate tax cuts, as the Obama administration looks prepared to do, isn’t easy either. But it’s hard to see Republicans fighting a pure tax cut plan harder than a mix of cuts and hikes, and so Obama’s plan probably has better prospects than an abolition deal.

Also, I think McArdle underestimates the degree to which sweetheart deals in the corporate tax code can be translated to sweetheart deals in the personal income tax code. Suppose there’s a deduction in the corporate tax code for linen companies. You could insert a deduction or credit in the personal income tax code for income coming from textile industries. If anything, that replacement would have a less progressive incidence, as the deduction would only be claimed by people who itemized their deductions, whereas the savings on the corporate income tax would go to low-income workers too.

– Dylan Matthews is a student at Harvard and a researcher at The Washington Post.







Ezra Klein

One Reason We Don’t Hear about Income Inequality: Media Execs Among the Richest

October 26, 2010 · Posted in The Capitol · Comment 

David Cay Johnston has a must-read piece on what the most recent payroll tax data shows about growing income inequality.  He shows that total wages have fallen 5% since 2007, largely because so many fewer people are making any income.

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold.

[snip]

Measured in 2009 dollars, total wages fell to just above $ 5.9 trillion, down $ 215 billion from the previous year. Compared with 2007, when the economy peaked, total wages were down $ 313 billion or 5 percent in real terms.

The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year. Because the population grew by about 1 percent, the number of idle hands and minds grew by 6 million.

He also notes how the very rich are getting very richer.

The number of Americans making $ 50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story.

The average wage in this top category increased from $ 91.2 million in 2008 to an astonishing $ 518.8 million in 2009. That’s nearly $ 10 million in weekly pay!

[snip]

In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.

At the same time, he notes that this story-which should have been told after the numbers were released on October 15-went unmentioned.

Not a single news organization reported this data when it was released October 15, searches of Google and the Nexis databases show. Nor did any blog, so the citizen journalists and professional economists did no better than the newsroom pros in reporting this basic information about our economy.

Now, Johnston doesn’t provide a list of who those 74 people are that make as much as the 19 million lowest paid Americans. But for shits and giggles, I wanted to see who Fortune-which loves to idolize these people-lists. Mind you, they’re clearly measuring different things, because Fortune’s numbers are smaller than the payroll tax numbers (presumably, this excludes a bunch of executives of privately held companies). But take a look at what industries are dominating Fortune’s best-paid men, plus the two women whose salaries match those of the men in the top 25.

  1. Greg Maffei, Liberty Media, $ 87.5 million
  2. Lawrence Ellison, Oracle, $ 70.1 million
  3. Fred Hassan, Merck, $ 49.7 million
  4. Carol Bartz, Yahoo, $ 47.2 million
  5. Mario Gabelli, GAMCO Investors, 43.6 million
  6. Mel Karmazin, Sirius, $ 43.5 million
  7. Leslie Moonves, CBS, $ 43 million
  8. Safra Catz, Oracle, $ 36.4 million
  9. Michael Jeffries, Abercrombie & Fitch, $ 36.3 million
  10. Robert Bertolini, Merck, $ 35.1, million
  11. Marc Casper, Thermo Fisher Scientific, 34.1 million
  12. Philippe Dauman, Viacom, $ 34.0 million
  13. John Hammergren, McKesson, $ 33.9 million
  14. J. Raymond Elliott, Boston Scientific, $ 33.4 million
  15. Ray Irani, Occidental Petroleum, $ 31.4 million
  16. Stephen Burke, Comcast, $ 31 million
  17. Charles Phillip Jr., Oracle, $ 30.1 million
  18. Glen Senk, Urban Outfitters, $ 29.9 million
  19. Thomas Montag, Bank of America, $ 29.9 million
  20. Dennis Strigl, Verizon, $ 29.0
  21. Thomas Kurian, Oracle, $ 28.5 million
  22. Ralph Lauren, Polo Ralph Lauren, $ 27.7 million
  23. Thomas E. Dooley, Viacom, $ 27.0 million
  24. Thomas M. Rutledge, Cablevision, $ 26.0 million
  25. Raymond Plank, Apache, $ 25.8 million
  26. Daniel H. Mudd, Fortress Investment Group, $ 25.7 million
  27. Timothy Armstrong, AOL, $ 25.6 million

Now, obviously, this is not an apples to apples comparison to the 74 richest people Johnston is talking about. Indeed, it’s not even clear how many of these, calculated using payroll tax data, would be in Johnston’s group; perhaps only Maffei and Ellison would be (Fortune’s list of top CEO compensation is another list, though only 8 of them make more than Johnston’s $ 50 million threshold; that list is dominated much more by energy and medical companies). So these are really a snapshot of the paupers among the richest of the rich.

But it provides a list of who the top paid executives in public companies were in 2009.

And 10 of the 27 top paid executives, according to Fortune, were in media.

There’s a reason why no one is telling the story of America’s increasing income inequality. That’s because the people telling the story work for some of the people most benefiting from it.

Related posts:

  1. Top Culprits for Income Inequality? Exec Pay and Educational Failures
  2. We Can’t Restore Our Country If We Underpay the Folks Restoring Our Buildings
  3. Blackwater Served as Monsanto’s Intelligence Arm

Emptywheel

The IRS’s Tax Rate on Google’s Foreign-Source Income Is 2.4 Percentage Points Too High

October 22, 2010 · Posted in The Capitol · Comment 

By Daniel J. Mitchell

There’s been considerable attention to the news that the IRS only managed to grab 2.4 percent of Google’s overseas income. As this Bloomberg article indicates, many statists act as if this is a scandal (including a morally bankrupt quote from a Baruch College professor who thinks a company’s lawful efforts to lower its tax liability is “evil” and akin to robbing citizens).

Google Inc. cut its taxes by $ 3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting — involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries. …Google, the owner of the world’s most popular search engine, uses a strategy that…takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax. The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the U.S. government struggles to close a projected $ 1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros. …U.S. Representative Dave Camp of Michigan, the ranking Republican on the House Ways and Means Committee, and other politicians say the 35 percent U.S. statutory rate is too high relative to foreign countries. …Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” said Abraham J. Briloff, a professor emeritus of accounting at Baruch College in New York who has examined Google’s tax disclosures. “Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?” Briloff said. “It was paid for by the United States citizenry.”

Congressman Dave Camp, the ranking Republican (and presumably soon-to-be Chairman) of the House tax-writing committee sort of understands the problem. The article mentions that he wants to investigate whether America’s corportate tax rate is too high. The answer is yes, of course, as explained in this video, but the bigger issue is that the IRS should not be taxing economic activity that occurs outside U.S. borders. This is a matter of sovereignty and good tax policy. From a sovereignty persepective, if income is earned in Ireland, the Irish government should decide how and when that income is taxed. The same is true for income in Bermuda and the Netherlands.

From a tax policy perspective, the right approach is “territorial” taxation, which is the common-sense notion of only taxing activity inside national borders. It’s no coincidence that all pro-growth tax reform plans, such as the flat tax and national sales tax, use this approach. Unfortunately, America is one of the world’s few nations to utilize the opposite approach of “worldwide” taxation, which means that U.S. companies face the competitive disadvantage of having two nations tax the same income. Fortunately, the damaging impact of worldwide taxation is mitigated by a policy known as deferral, which allows multinationals to postpone the second layer of tax.

Perversely, the Obama Administration wants to undermine deferral, thus putting American multinationals at an even greater disadvantage when competing in global markets. As this video explains, that would be a major step in the wrong direction. Instead, policy makers should junk America’s misguided worldwide system and replace it with territorial taxation.

The IRS’s Tax Rate on Google’s Foreign-Source Income Is 2.4 Percentage Points Too High is a post from Cato @ Liberty – Cato Institute Blog


Cato @ Liberty

Income Effects and Incentives

October 20, 2010 · Posted in The Capitol · Comment 

Michael Kinsley delivered a pretty righteous smackdown of Greg Mankiw on Obama’s tax policies that reminded me of a point that I think too often goes missing in these discussions of incentives: income effects.

Specifically, while it’s true that if you cut my income tax rates I would have more monetary incentive to pitch new freelance pieces, I would also have more money than I currently have. And if I had more money, I’d feel less incentive to pitch new freelance pieces. Indeed, I might decide that I should take advantage of my higher level of take-home pay by doing less work and enjoying more leisure time.

Now of course if we set a new tax bracket with a cutoff right around my current income point, then fiddling with that rate would purely impact by incentives in a forward looking sense. But that’s a pretty special case. For a guy with $ 500,000 in taxable income, the Bush tax cuts didn’t just mean a reduction in his marginal tax rates they meant a giant increase in his post-tax income. I’m trying to picture a guy with that kind of income, someone who presumably already works long hours, coming home one day and saying to his wife “good news, honey, thanks to Bush’s tax cuts not only are we more financially secure than ever before but I’m going to respond to that change in our status by working even longer hours and spending less time with you and the kids!” That’d be weird, right?


Yglesias

Americans Prefer Social Security Upper Income Benefit Reductions to Tax Hikes

October 19, 2010 · Posted in The Capitol · Comment 
style=”float: right; margin-bottom: 1px; margin-left: 1px;”> href=”http://www.heritage.org/budgetchartbook/entitlements-double-tax-rates”> class=”alignnone size-full wp-image-45198″ title=”entitlements-double-tax-rates-600″ src=”http://blog.heritage.org/wp-content/uploads/entitlements-double-tax-rates-600.jpg” alt=”” width=”425″ height=”350″ />

The Washington Post’s Ezra Klein has used a href=”http://www.gallup.com/poll/143705/Americans-Disagree-Fix-Entitlement-Programs.aspx?utm_source=tagrss&utm_medium=rss&utm_campaign=syndication&utm_term=All%20Gallup%20Headlines”>new Gallup poll showing that 77% of Americans believe “the cost of the government’s major entitlement programs, including Social Security and Medicare, will create major economic problems for the U.S. in the next 25 years” to produce the following headline: href=”http://voices.washingtonpost.com/ezra-klein/2010/10/americans_prefer_tax_increases.html”>

href=”http://voices.washingtonpost.com/ezra-klein/2010/10/americans_prefer_tax_increases.html”>Americans prefer tax increases to benefit cuts.

Problem is, that just is not the choice respondents were given. Here are the href=”http://www.gallup.com/poll/File/143702/Social_Security_and_Medicare_Oct_15_2010.pdf”>actual top line questions produced by Gallup: id=”more-45165″>

If the cost of major entitlement programs does create major economic problems for the U.S., do you think the /> government should or should not do each of the following to deal with the situation? How about – /> [RANDOM ORDER]? /> A. Raise taxes 42% Yes, should – 56% No, should not /> B. Cut benefits 32% yes, Should – 66% No, should not

The first thing to notice is that more than 100% of respondents said no to both items. This shows that respondents were not offered an opportunity to prefer one option over the other as Klein’s headline implies.

But more importantly “cut benefits” is a very blunt question that misses many ways Congress could cut Social Security spending. For example, Congress could “limit benefits for wealthy retirees.” And when Gallup href=”http://www.gallup.com/poll/141611/Americans-Look-Wealthy-Help-Save-Social-Security.aspx”>asked Americans if they supported that policy back in July of this year, 63% of Americans said they would support those spending cuts. On the contrary, 64% of Americans thought it was a bad idea to increase Social Security taxes for all workers.

The Foundry: Conservative Policy News.

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