Category Archives: taxes

by | February 12, 2012 · 9:01 PM

Americans: Please Raise Our Taxes!

By Luke Brinker

This Sunday’s New York Times features results from a poll addressing issues related to the social safety net and the size of government. Unsurprisingly, the poll found that 85 percent of respondents supported increasing taxes on the wealthy as part of a deficit-reduction strategy. Much more striking, however, is that a substantial majority of respondents- 70 percent – endorsed increased taxation on everybody, not just the wealthy.

In late 2010, President Barack Obama extended the Bush-era tax cuts for an additional two years as part of a compromise with congressional Republicans. In exchange for increased stimulus (including the much-ballyhooed payroll tax cut), Obama agreed to renege on his 2008 campaign pledged to raise the rate of taxation for households earning above $250,000 annually. Obama has consistently supported maintaining the reduced rates for all other Americans, but the Center on Budget and Policy Priorities calculates that allowing the tax cuts for all income groups to expire would reduce the federal deficit by $3.9 trillion over ten years. As Ezra Klein has written, four-fifths of the total cost of the tax cuts went toward cuts for those earning less than $250,000. The Obama proposal to only extend most of the tax cuts would reduce the deficit more than the GOP proposal to extend all of them, but having everybody return to Clinton-era tax rates would do far more to put a hole in the deficit. Come December 31, 2012 – the date of the Bush tax cuts’ expiration – the best thing Congress and President Obama can do to reduce the deficit is simply to do nothing.

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by | January 5, 2012 · 6:07 PM

Romney’s Regressive Tax Plan

By Luke Brinker

As Brian Beutler reports, the Urban Institute-Brookings Institution Tax Policy Center has released its study of the Romney tax plan. Its verdict: the Romney plan is skewed to the wealthy, reserving the biggest cuts for those earning more than $1 million annually.

Mother Jones includes this nifty chart comparing effective federal tax rates under current law and under Romney’s plan:

With voters paying more attention to income inequality and declining economic mobility, Romney’s tax plan ignores mounting sentiment for more equitable economic policies. Of course, Willard wears skinny jeans, so he’s still one of the “folks.”

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by | December 22, 2011 · 9:29 AM

Who Loses if the Payroll Tax Cut Expires?

By Luke Brinker

Ezra Klein makes the case that even though it’s House Republicans who are stonewalling the extension of the payroll tax cut, President Barack Obama will ultimately pay the political price if lawmakers can’t come to an agreement. He’s right. Consider:

  • Voters do not make their choices at the ballot box based on process. Tea Party Republicans in the House of Representatives manufactured the gridlock over the tax cut, just as they did over the summer when it came time to raise the debt ceiling. But aside from Beltway insiders and policy wonks, who remembers that? Come November 6, 2012, there’s little reason to believe that the average voter will be voting according to her opinions about Washington squabbles that occurred months ago.
  • As Neil Irwin reports in the Washington Post, economists expect the failure to extend the payroll tax cut to reduce economic growth by 1 percent to 1.5 percent. That will mean between 500,000 and 750,000 fewer jobs created. Voters will focus on the headline jobs and growth numbers, and credit or blame the president for them.

None of this is to say that House Republicans’ stalling tactics won’t temporarily boost Obama’s standing in the polls. In fact, his approval rating is already on the rise. But if the economy remains torpid in 2012, it won’t last. And who honestly believes that the typical voter will much care how much of a poor economy is attributable to Republicans’ failure to extend the payroll tax cut? All she’ll notice is that the economy is poor.

 

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by | December 20, 2011 · 3:55 PM

The Debate is About (Insert Here)

By John Stang

The house just rejected the senate’s proposal to extend the payroll tax cut for a 2 month period and wanted to call a conference committee to settle the details.  The senate passed the bill and its members went home for the holidays.  So, of course none of them want to return to iron out a deal.  The problem is that the debate is not just about the payroll tax cut, but other measures.  Ezra Klein opines:

Rather, Democrats and Republicans are arguing over the price Democrats are willing to pay and Republicans are willing to accept in order to extend the payroll tax cut for a full year. Republicans want, among other things, the Keystone XL Pipeline and further cuts to discretionary spending. Neither of those things, you’ll notice, is “a payroll tax cut.” Democrats oppose resolving big environmental questions through a rider to a must-pass tax bill, and they’re against some of the cuts Republicans are proposing. Neither of those concerns, you’ll notice, are concerns about a payroll tax cut. What’s happening right now is that Senate Democrats and Senate Republicans came up with a mutually acceptable bill to kick the can down the road for two months, but House Republicans are saying that’s unacceptable to them. So now the two sides are negotiating over how best to negotiate over the non-payroll tax cut elements of this deal.

Exactly!  Both sides want to extend the payroll tax cut for a year and that’s what the president wants.  However, just like the government shutdown debate from earlier this year, extra policy riders on bills (i.e. defunding planned parenthood and public television and radio) prevent that negotiation from happening.  This masks the debate in the form of a tax debate, but is really more of an ideological one.  Republicans want the Keystone XL Pipeline for domestic energy resources and think it will create jobs.  Democrats see it as a problem for the environment and, symbolically, it does not look that great  on matters of reducing the impacts climate change.  Oddly enough, this is the way social issues get talked about, in an unrelated tax policy bill or spending appropriations setting.  Welcome to Washington!

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by | December 19, 2011 · 6:44 PM

Is Extending the Payroll Tax Cut a Good Idea?

By John Stang

I’ve written on this topic before, but there are several factors to consider in whether to extend the payroll tax cut.  First, the short term extension, that was accepted by the Senate and rejected by the House may not be the best idea because it could hurt consumer confidence.  The Wall Street Journal reports:

First, the two-month extension imposes a high degree of uncertainty on the consumer sector. Come March, workers would either face a big tax hike (to 6.2% of earnings from the current 4.2% rate), or endure yet another period watching Congress bickering over extending the cut. (That time would be better used to debate the long-run budget reforms needed in the U.S.)

Second, extending the payroll tax cut could impact those who want to buy a home, especially when certain rate hikes are expected.  Suzy Khimm notes:

That said, if the payroll tax is ultimately extended for a full year, it could save American households an average of $1000, including those affected by mortgage insurance rate hike. But if it’s only a two-month extension, someone buying a $200,000 home through an FHA loan could be coughing up $204 extra every year for housing insurance and saving only $163 in return through the payroll tax cut.

Finally, the debate is quite complicated, for both labor and consumer markets.  Matt Yglesias says:

In economic terms, the payroll tax measure is interesting because it acts on both the AD and AS sides of the equasion. Employed people get more money in their pockets, which presumably leads to a higher level of consumption or a faster process of debt-deleveraging. But payroll taxes are also a way to manipulate unit labor costs (how many dollars does an employer need to spend per dollar’s worth of output) without trying to get people to accept lower wages. The logic of those two ways of looking at it isn’t identical in terms of the implication for policy design but it comes out pretty similarly (especially since the kind of people inclined to emphasize AS are also the kind of people inclined to say that ultimately workers pay both the worker-side and the employer-side of the payroll tax) and thus should be fruitful terrain for compromise on all fronts.

It should be noted that other topics, such as the Keystone Pipeline and extending unemployment benefits are wrapped up in this bill to, just to make matters more complicated.

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