New Jersey, What Not To Do
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Cutting through the Tax Rhetoric Clutter
Some great fact checks have recently been run by several news organizations and watchdog groups decrying the distortions of Obama’s tax plan in several advertisements run by the McCain campaign.
First from FactCheck.org and Newsweek:
A TV spot claims Obama once voted for a tax increase “on people making just $42,000 a year.” That’s true for a single taxpayer, who would have seen a tax increase of $15 for the year – if the measure had been enacted. But the ad shows a woman with two children, and as a single mother, she would not have been affected unless she made more than $62,150. The increase that Obama once supported as part of a Democratic budget bill is not part of his current tax plan anyway…The TV ad claims in a graphic that Obama would “raise taxes on middle class.” In fact, Obama’s plan promises cuts for middle-income taxpayers and would increase rates only for persons with family incomes above $250,000 or with individual incomes above $200,000.
And on separate Spanish and English-language radio ads:
A Spanish-language radio ad claims the measure Obama supported would have raised taxes on “families” making $42,000, which is simply false. Even a single mother with one child would have been able to make $58,650 without being affected. A family of four with income up to $90,000 would not have been affected…The [English-language] radio ad claims Obama would increase taxes “on the sale of your home.” In fact, home-sale profits of up to $500,000 per couple would continue to be exempt from capital gains taxes. Very few sales would see an increase under Obama’s proposal to raise the capital gains rate.
Lots more analysis from FactCheck and Newsweek here (under “analysis”).
Really, this graph from the Urban/Brookings Tax Policy Center analysis is probably one of the best illustrations of the presidential candidates’ tax proposals because it illustrates the stark difference in priorities.
Sen. Obama’s tax relief is overwhelmingly focused on the lower and middle brackets while raising taxes on the wealthy (over $250,000). Sen McCain’s tax plan is sharply regressive, lowering taxes the most in percentage terms for the wealthy and the least for lower and middle-income brackets.
And how will the candidates’ respective proposals affect the federal budget deficit? The Washington Post ran an analysis under the misleading title “Obama’s Tax Plan Would Balloon Deficit, Analysis Finds.” While the article does discuss an interesting debate over whether it’s better to evaluate a spending proposal against a budget baseline (assuming current fiscal policy remains unchanged) or just compare proposals to one another in terms of their effect on the national debt, the headline will leave a misleading impression for casual readers who do not delve into the details of the article. This is because it’s actually the case that if all McCain’s tax proposals were implemented, they would balloon the national debt significantly more than Obama’s proposals.
As Media Matters for America notes:
The article stated in its third paragraph that “[a]ccording to a recent analysis by the nonpartisan Tax Policy Center, Obama’s tax plan would add $3.4 trillion to the national debt, including interest, by 2018.” The 10th paragraph stated that “[a]ccording to the Tax Policy Center, McCain’s tax plans would increase the national debt by at least $5 trillion over the next 10 years.”
So not until the 10th paragraph of the article did the Post see fit to tell its readers that McCain’s plan is actually worse for the national debt. There’s some “fair and balanced” journalism.
Wells Fargo Tax Giveaway (Finally) Attracting Some Notice
Better late than never?
The truth of this saying may be tested in coming weeks, as lawmakers and regulators grapple with the question of how to fix an under-the-radar corporate tax break for a few large banks (the federal tax cut for Wells Fargo alone has been estimated at over $20 billion, and the new tax break overall could cost US taxpayers $140 billion) that seems to have been approved without Congress agreeing to it.
A Citizens for Tax Justice report from last week outlines the story:
When one company buys another company that has tax losses, the law prevents the acquiring company from using the purchased company’s tax losses. There’s a very sensible reason for this rule: to ensure that companies don’t purchase other companies simply as a tax dodge.
But a little-noticed September IRS administrative ruling creates a specific, temporary exemption from this rule for banks acquiring other banks whose tax losses are attributable to bad loans.
It’s not that often that a new tax cut gets implemented without Congress ever lifting a finger, but that’s what happened when the Bush Administration’s Treasury officials decided to reinterpret an existing law in a way that would cut taxes dramatically for a few well-off banks. Senator Charles Grassley, who’s accustomed to being at the steering wheel (or at least in the car!) when the tax policy express hits the road, is very angry about it, although he’s stopped short of saying that the Administration’s move is illegal.
Yesterday’s Washington Post has a detailed story discussing how this came about, and today’s Los Angeles Times has this story noting that the state if California stands to lose a couple of billion dollars of its own corporate income tax revenue to boot.
This is obviously an important issue for Congress– the bailout was unpopular enough before it became widely known that it was being hijacked to benefit a few big corporations, so Congressional tax writers have a real incentive to clean this mess up in a way that makes it clear the bailout ultimately benefits America’s economy, not a few fat cats.
But, as Citizens for Tax Justice notes in its analysis of the problem, this is also something state lawmakers need to worry about:
Because states with corporate income taxes almost universally base their corporate taxes on federal rules, federal tax cuts for corporations generally result in state tax cuts as well. When affected states have rules making it difficult to enact tax increases (as istrue of California, whose budget deficit is already in the billions of dollars), state governments find themselves practically unable to avoid costly corporate tax cuts they never wanted… At least eighteen states that tax corporate profits will likely take a hitfrom the new IRS ruling—and any state that taxes the profits of financial companies is at riskof helping to fund the next bank that chooses to purchase another financial company.
With state budgets already going up in flames, this is a problem state lawmakers don’t need. Stay tuned…
Evaluating the National Retail Federation’s "Tax Holiday" Idea
Yesterday the National Retail Federation published an open letter to President-to-be Barack Obama urging that come January, Obama’s stimulus package should including a national “sales tax holiday,” three ten-day periods in 2009 during which states that normally collect sales taxes on retail purchases would stop collecting them.
A new Citizens for Tax Justice report takes the shine off this idea a bit, noting a few fairly important reasons why a tax holiday might be not the right answer for America at this time.
Among them:
- As with state sales tax holidays, it’s hard to know whether the benefits would go to consumers or retailers.
- To the extent consumers would be better off, the savings would go to even the very best-off families. No effort could be made to target these savings to families hit hardest by the current downturn.
- Even if Congress likes the idea, that’s not enough to implement it. Every state with a sales tax would have to pass legislation to make this work. And then every retailer in these sales-tax states would have to train workers and program computers to stop collecting state sales tax (but keep collecting local sales tax) during the holidays.
- Since the first proposed tax holiday would take place in March, the immediate effect of such a plan would be to… encourage people to spend less money right now, and wait until March. Which is an odd feature in a stimulus plan.
The CTJ report is here.
REASONS TO CELEBRATE
Americans have two reasons to celebrate today. .. First of all we can celebrate the fact that George W Bush is gone!
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While playwright David Mamet says he did not write his political satire NOVEMBER about George W one wonders. In the play the President has been abandoned by his party in his run for reelection. He asks his top advisor why and is told “You fu–ed up the country!”. Sounds like W to me.
The second reason to celebrate is the fact that America has progressed so far in my lifetime that a black man can be elected President.
There is a “Kennedy-esque” (John and not, thankfully, Teddy) feeling in the country as we embark on what can perhaps be called a new era of “Camelot”.
While I did not vote for BO I certainly give him my full support in the difficult task of undoing what George W and his cronies have done to us in the past 8 years and bringing respect and honor back to the office of the President.
Good luck and Godspeed, Barack!
Making Work Pay Enough : A Decent Standard of Living for Working Families
One-third of America’s families with children are low income, meaning their incomes fall below twice the federal poverty level. Although four in five of these families work, many don’t bring home enough to cover the everyday costs of living. In this essay, Acs and Turner outline their proposals to enhance low-income families’ purchasing power and reduce unusually high housing costs through a package of reforms and policy initiatives that tackle both the income side and expenditure side of family budgets.
Breaking News: Higher Energy Prices Will Cut Demand
Nice to see Tom Friedman on the energy tax bandwagon. As he wrote in his Dec. 27 New York Times column, “I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal—i.e., a tax—and there are no effective ones.”
Friedman needs to give his cranium a holiday break. Policymakers have been searching for this magic bullet for years, without success. They’ve tried government-mandated (CAFE) auto mileage standards, tax credits for the use of everything from hybrid cars to low-E windows, massive government subsidies for production of alternative fuels and sincere pep-talks from sweater-clad Presidents. Nothing has worked. Take a look at this chart from the Energy Information Agency:
As it shows, the only break in the steady growth of fossil energy use over the past half-century came with the oil price shocks of the 1970s and 80s. Friedman has discovered a pretty basic rule of economics: If you want people to buy less of something, raise the price.
For another example, take a look at some charts Diane Rogers over at Economistmom.com put together that show what happens, at least in the short run, when gasoline prices change dramatically. We’ve run a nice little natural experiment and the results are fascinating. When gasoline prices exploded last summer, demand plunged. You might say that $4-a-barrel gasoline focused the mind. Then, as prices plummeted over the past few months, consumption again rebounded, even with the economy in the tank.
It is a bit more evidence that consumers of energy will change behavior in response to price. Most economists think it takes a while for people to react, but react they do. CBO figures a sustained price increase of 10 percent will eventually cut consumption by about 4 percent. Others think the long-run response may be even stronger.
Sooner or later, however, if you use a tax to push up the price of energy, people will buy more fuel-efficient cars, appliances, and even homes. They may even think twice about buying that oversized mini-mansion 40 miles from work.
So far, Barack Obama’s transition team has been troublingly mum about raising energy taxes, even though he embraced a tax-like cap and trade program for fossil fuels during the campaign. Aides have dropped broad hints about a new round of big new government subsidies to develop alternative fuels and using a chunk of stimulus money to pay for mass transit. And, of course, Washington has made $25 billion available to automakers for energy R&D and pressed them to make new fuel-efficient cars in return for the additional bailout money they just got.
Giving away money to encourage green behavior is the easy stuff. But it will take more than that. I know, we are in a recession and can’t raise taxes right away. But with gas prices again south of $2.00 a gallon, it is folly to think many consumers will eschew a gasoline-powered $20,000 car for a $40,000 electric ride. Consumers are not dumb, and forcing automakers to build those cars in the absence of demand is madness. So is talking about energy independence without raising the price of fossil fuel.