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Published: Sun, 18 Mar 2018 00:00:00 -0400

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Larry Kudlow Is a Big Upgrade for Trump's White House

Fri, 16 Mar 2018 00:30:00 -0400

President Donald Trump will reportedly name Larry Kudlow head of the White House National Economic Council. For fans of pro-growth policies—deregulation, low taxation, and open trade—it's great news for obvious reasons. Kudlow has been a decades-long champion of these ideas, and those with coherent philosophies tend to offer some stability and continuity. This administration could use more of those things, not less.

Kudlow is also a noticeable upgrade over the outgoing Gary Cohn, not only because he has been a far more consistent voice for free markets—Cohn's support of carbon tax and a value added tax, and rumored moderating disposition on tax reform were all worrisome clues—but also because the syndicated columnist and former TV host is better equipped to sell those ideas to the public and lawmakers.

Kudlow, it's been reported, also played a role in persuading senators to support tax reform despite the intense political opposition, and hysterical warnings about the bill's homicidal intent and supposed enduring unpopularity. His problem with the Trump tax bill was that it wasn't cut enough on the individual side.

Of course, the hardest sell might be the president himself. "We don't agree on everything, but in this case I think that's good," Trump said of Kudlow this week. "I want to have a divergent opinion. We agree on most. He now has come around to believing in tariffs as a negotiating point." Trump hired Kudlow even though he co-wrote a piece for National Review only two weeks ago arguing that imposing tariffs on steel and aluminum imports is tantamount to imposing sanctions on your own country—"a crisis of logic." Kudlow, a former White House budget aide for President Ronald Reagan, has long held positions on NAFTA and trade in general that are diametrically opposed to the president's, which undermines the idea that Trump is rigidly opposed to any dissent within the administration.

And if tariffs are indeed merely a "negotiating point," that's good news.

While Kudlow immediately restores some balance in a White House that has picked up the protectionist rhetoric lately, it's highly unlikely that the propelling idea of Trump's electoral success will be shelved simply because he tapped a new adviser, no matter how convincing or compelling his arguments might be. It's worth considering, however, that Kudlow might mitigate some of the worst inclinations of the protectionist wing. Certainly, his presence doesn't hurt.

It's worth noting that tariffs, though important, aren't everything. And on most issues, Trump has displayed a surprisingly traditional fiscal conservatism. Cohn, it seems, would have been much more liable to push Trump toward acquiescing on economic issues in pursuit of deals.

So, the hardest hits by the news have been liberal pundits who are, despite all the talk of the Trumpocalypse, far more predisposed to being fans of the president's big-government inclinations than that of old-school fiscal conservatism. Many liberal columnists have already lined up to point out that Kudlow has made some bad predictions in the past. It's worth remembering that this puts him on par with just about every other economist who's ever appeared on TV or written a column or worked for government. Kudlow's rosy predictions seem predicated on an optimistic view that fails to consider the unpredictability of markets and world events. Economists—all of them—should stop trying to be seers.

The idea that anyone who's failed to forecast a recession but been right about the big ideas should be disqualified from a job in Washington seems to be reserved exclusively for fiscal conservatives. And watching the agitated reaction from proponents of high taxes and highly regulated top-down economics should imbue conservatives with optimism that Trump has made the right choice.

Larry Kudlow, Trump’s New Economic Adviser, Is a Longtime Advocate for Low Taxes and Free Trade

Thu, 15 Mar 2018 10:30:00 -0400

On Thursday, economist and CNBC contributor Larry Kudlow was named the new director of the National Economic Council at the White House. Kudlow is a longtime advocate for low taxes, free trade, and looser immigration restrictions. Although he has softened slightly on the last two, I am hopeful he will use his new perch to continue to advocate forcefully for all of these positions. To many in Washington and New York, Kudlow is known for being one of first supply siders. He was a supply sider when supply side wasn't even a thing, and he has remained loyal to that way of thinking. In other words, he likes his and everyone else's taxes low—especially as they apply to capital. Needless to say, he was happy with the tax reform plan passed and signed into law last December, especially the reduction of the corporate tax rate from 35 to 21 percent. Kudlow is more politically savvy than I am, so he probably had more tolerance than me for the "middle class tax relief" part of the plan. In my humble opinion, if Congress and the president won't cut spending, they shouldn't implement tax cuts with no apparent economic growth payoff. When you are engaged in a tax policy battle, having Larry Kudlow on your side is an asset. He was, for example, quick to oppose the misguided Border Adjustment Tax last year, even if it meant going after longtime allies like House Ways and Means Chairman Kevin Brady (R-Texas) and Speaker Paul Ryan (R-Wis.). For months he was relentless in working his contacts here in Washington to stop the measure, as well as educating viewers on CNBC. His input on taxes will be welcome in the White House, since there is still a lot that can be done to make improvements to the recently passed tax plan. Making permanent some of the provisions which are currently set to expire should be one important priority. Hopefully, Kudlow will also remind the president and members of Congress to cut spending to pay for tax reform this time around. I assume he will also use this influence to address one of his longtime pet peeves: indexing the basis of capital gains to inflation. As he said on CNBC last summer: Consider this: You invest $1,000 and, after ten years, you sell that investment for $1,200. But if inflation averaged 2.5 percent in that period, the $1,200 you receive will be worth less in real terms than the $1,000 you invested. And yet, under current law, you will pay a tax on your $200 capital gain. The results of this policy can be perverse. "As has been well documented," writes Alan Auerbach, University of California economist, "realized capital gains may be subject to tax rates that easily exceed 100 percent of real gains in the presence of inflation." If he decides to use his influence to push for that change, he will get lots of support from the free-market tax movement. There are many good things to say about Larry Kudlow. But as it relates to this job, the best news of all might be that he is no Peter Navarro—the anti-trade Trump advisor. Unlike Navarro, who has said that he believes it's his job to confirm Trump's worst anti-trade instincts, Kudlow has been a consistent advocate for free trade. When he worked at the White House under president Reagan he used to call free traders like him The White Hats. As such he didn't hesitate to express publically his opposition to the president's recent decision to impose punishing tariffs on steel and aluminum. If there's a reason to worry, it's Kudlow's recent endorsement of targeted tariffs for China—a country he sees as a gigantic problem for the U.S. Kudlow recently said that he is "not opposed to targeted tariffs" against the country, which he called a "Trumpian way of negotiating." One can recognize the tremendous challenges posed by China and still reject a policy solution that Kudlow himself rightly identifies as being equivalent to a tax hike that hurts consumers more than it helps the protected industry. And even though he now argues that the tariff are simply a shrewd negotiation tactic against China, I still question the soundness[...]

Home Pot Delivery Is Cool, but California's Taxes and Regulations Are Still Onerous

Fri, 02 Mar 2018 15:15:00 -0500

U.S. News recently ranked California's "quality of life" the worst in the nation, much to the delight of Fox News. (That metric was just one of eight used by the magazine, and California actually came in 32nd overall.) U.S. News assessed quality of life based on measures of the "natural environment" and the "social environment." One factor that was conspicuously excluded: Can you order marijuana online and have it delivered to your home or office that day? Stoney, based in Santa Ana, delivers cannabis products throughout the state, generally overnight. Delivery is free for orders over $50; otherwise it costs $8. In Orange County and Los Angeles, the company offers same-day service for $15. All you need is a credit card and an ID proving you are 21 or older. The website has a decent flower selection of about two dozen strains, plus concentrates, shatter, prerolled joints, edibles, and vape pens. It is not exactly an Amazon for pot, but it's the closest thing I've seen. California is one of just three states that currently allow home delivery of recreational marijuana. The other two are Oregon, which legalized recreational marijuana in 2014 and began allowing deliveries to consumers a year ago, and Nevada, which legalized recreational marijuana in 2016 and allowed home delivery under temporary regulations that lapsed at the end of last year but were renewed as of yesterday. Delivery to consumers is still banned in Colorado and Washington, the two states where voters approved legalization in 2012, although that may change in Colorado as soon as this fall. Alaska, which legalized recreational marijuana in 2014, does not allow home delivery either. In Massachusetts, where legal sales of recreational marijuana are expected to begin this summer, home delivery will be delayed at least until the fall and possibly later. In Maine legislators have yet to establish a system for licensing and regulating recreational sales. In Vermont and the District of Columbia, recreational use is legal, but sales are not. The home delivery option is one of the most consumer-friendly aspects of California's marijuana regulations, along with the allowance for on-site consumption at marijuana stores (subject to local approval). The taxes, by contrast, are decidedly unfriendly. They include $9.25 per ounce sold by growers, a 15 percent excise tax collected by retailers, local marijuana taxes, a 6 percent state sales tax, and local sales taxes. Taxes totaled 31 percent on my Stoney order, not including the levy on growers. At LAX CC, a marijuana shop in Los Angeles that has a big selection (77 strains and 40 concentrates on the day I visited), taxes add 35 percent to the retail price. If you include the wholesale tax, the effective rate on an eighth of an ounce, which was priced at $45 for most strains, is roughly 39 percent. According to new report from the California Growers Association (CGA), which represents small cannabis cultivators, "taxes were identified as the single greatest barrier to entry" in a survey of the group's members. The report argues that "current cannabis tax policy is propping up the illicit market, preventing compliance from good-faith operations, and contributing to price increases for patients and consumers." A legal eighth in California may cost two or three times as much as a black-market eighth. Taxes are not the only reason street dealers undersell state-licensed marijuana suppliers, who also bear regulatory costs that their illegal competitors escape. The CGA, which complains that "barriers to entry are impracticably high," says one problem is the sheer volume and complexity of state and local regulations. Seven state agencies, local building and fire codes, and local regulatory and tax ordinances "all have at least some rules which apply to any given business." All together, "there are hundreds of pages of relevant regulations." In the CGA survey, 57 percent of members "indicated that lack of clarity on regulations and compliance was either a 'significant' or 'very [...]

Thoughts on the New Constitutional Case Against Obamacare

Wed, 28 Feb 2018 23:35:00 -0500

On Monday, twenty Republican-controlled states filed a lawsuit challenging the constitutionality of the Affordable Care Act's individual mandate, which requires most Americans to purchase government-approved health insurance. The full text of the complaint is available here. The lawsuit contends that, if the mandate is invalidated, the Court must also strike down the entire Affordable Care Act, because the rest of the ACA cannot be "severed" from the mandate. The red state plaintiffs are right to argue that the mandate is unconstitutional. But they are probably wrong to conclude that a ruling against the mandate requires the court to eliminate the rest of Obamacare along with it. Back in 2012, Supreme Court ruled that the mandate is constitutional in its highly controversial decision in NFIB v. Sebelius. But Chief Justice John Roberts' controlling opinion for the Court only reached this conclusion by reinterpreting the mandate as a tax, thereby saving it from being declared unconstitutional. Roberts concluded that the mandate was not authorized by Congress' power to regulate interstate commerce, or by the the Necessary and Proper Clause, which gives Congress the authority to enact legislation that is "necessary and proper" for the execution of other federal powers granted by the Constitution. Thus, it could only be saved by ruling that it qualifies as a tax, authorized by the Tax Clause of the Constitution. Roberts listed several factors that led him to conclude that the mandate can be considered a tax. But a crucial one is that the violators were subject to a fine collected by the IRS. As Roberts put it, "the essential feature of any tax [is that] it produces at least some revenue for the Government." In December 2017, the GOP Congress enacted a tax bill that, among other things, abolished the fine previously imposed on people who disobeyed ACA health insurance mandate. The mandate itself remains on the books. But violators are no longer subject to any penalty. For this reason, the state plaintiffs in the newly filed case argue that the mandate can no longer be considered a tax. In the absence of a financial penalty, it no longer "produces" any "revenue for the Government." Indeed, it no longer even tries to do so. And if the mandate is not a tax and is not authorized by the Commerce Clause or the Necessary and Proper Clause (as the Court ruled in NFIB), then it is no longer within the proper scope of federal power authorized by the Constitution. The plaintiffs are absolutely right on this point. A tax that does not require anyone to pay anything is like a unicorn without a horn. It is pretty obviously not a tax at all. In fairness, the requirement of a monetary payment was not the only circumstance that Chief Justice Roberts considered in determining that the mandate qualifies as a tax. He also claimed that several other factors were relevant, such as that the mandate did not include a scienter requirement, that the penalty was not so high as to be "prohibitory," and that those who violate the mandate were not considered to be lawbreakers if they paid the fine. But, while the requirement of a monetary payment may not have been sufficient to prove that the mandate was a tax, it surely was necessary. You don't have to be a constitutional law scholar to understand that there can be no taxation without some kind of payment. In my view (see here and here), Roberts was wrong to conclude that mandate qualifies as a tax, even when it did impose a fine on violators. It was more akin to a penalty imposed for violation of a law, similar to fines imposed for violateing any number of other laws, such as those banning speeding or jaywalking. But it is even more clear that the mandate cannot be considered a tax once the fine is removed and violators no longer have to pay anything. While the state plaintiffs are right to argue that the individual mandate can no longer be considered a tax, they are wrong to claim that the fall of the mandate should take [...]

New Federal Charges Filed Against Manafort, Gates

Thu, 22 Feb 2018 18:15:00 -0500

(image) Paul Manafort, former campaign leader for Donald Trump, and business partner Rick Gates face a new raft of federal charges in Special Counsel Robert Muller's Russia-related probe for the Department of Justice.

A grand jury indictment filed this afternoon accuses the two men of hiding millions of dollars in income from Manafort's lobbying on behalf of Ukraine and not reporting it to the IRS. Then, after that money dried up (when the Ukrainian president Manafort had been representing fled to Russia after being removed from office), the two men obtained millions in bank loans on their real estate by falsely inflating Manafort's income and failing to disclose debts.

All told, the grand jury included 32 charges in this new indictment. This is on top of the previous indictment of the two men in October for concealing their ties with the Ukrainian government and failing to properly register as agents of a foreign official.

As with the previous indictment, nothing in these charges directly entangles Trump into any allegations of election manipulation with the Russian government. For that matter, the charges don't even accuse Manafort or Gates of participating in any sort of election manipulation scheme. These charges are all accusing the two men of concealing from the government the millions of dollars Manafort made from Ukraine and then engaging in fraudulent claims to get bank loans.

Read the indictment yourself here.

If You Owe the IRS Over $51,000, It Can Trap You in the United States

Thu, 15 Feb 2018 11:05:00 -0500

The IRS wants you to know: If you owe it more than $51,000 in back taxes, penalties, and interest, then under most circumstances it can and will instruct the State Department to not issue you or renew your passport, leaving you stranded in the open-air prison known as the United States of America. (Full passport revocation is also possible.) The rule is part of 2015's Fixing America's Surface Transportation (FAST) Act, and the IRS intends to begin enforcing it now. You won't necessarily be trapped in the U.S.A. instantly. When you apply to acquire or renew a passport, the tax attorneys at Caplin & Drysdale explain, "the State Department will generally hold such application open for 90 days to allow the taxpayer a chance to resolve his or her tax delinquency or any other certification issues before denying a passport." So you've got that going for you. A passport is very important indeed (even though it shouldn't be in a free country). Since 2009 it has been necessary even to return from our northern and southern neighbors. And if you want to hold two such precious documents, either to hedge your bets or just to share significant parts of your life between two different sets of arbitrary lines drawn by different regimes, governments are more and more likely to target you. The righteously salty Kevin D. Williamson at National Review points out something especially awful about this policy: It doesn't even require that your tax liability be in any way criminal. You don't have to have been convicted or even charged with tax evasion or fraud. You merely must owe enough in back taxes plus penalties to cross the $51,000 line. (That threshold will rise with inflation.) Williamson reminds the IRS and its supposed masters in Congress that "Americans as free people have a God-given right to come and go as they please, irrespective of the preferences of any pissant bureaucrat in Washington. Yes, we curtail people's rights in certain circumstances—when they have been charged with a crime and convicted after due process. Tax fraud is a crime; having unpaid taxes is not." "Suspending passports in the course of a civil dispute—a civil dispute that may well be in litigation or soon to be in litigation—is banana-republic, totalitarian stuff," he adds, and he's right. Robert W. Wood at Forbes gives some advice on what to do if you find yourself approaching the threshold of being denied a working passport. "Before a tax debt gets to this stage, the IRS usually sends multiple notices, so you should respond, and keep protesting," he notes. "If you receive an IRS Notice of Proposed Deficiency or Examination Report, prepare a protest before the deadline....A tax debt does not become final if you keep your tax dispute going." If this eventually fails, then consider "striking a deal with the IRS. It is often not too difficult to get an installment agreement with the IRS to pay your tax debt over time. If you sign one, stick to its terms. Even if your debt is huge, the IRS doesn't call it "seriously delinquent" if you are paying the installments on time." The Taxpayer Advocate Service, an internal ombudsman of sorts within the IRS, has criticized aspects of the program, after noting (as Matt Welch did at Reason in a 2004 feature) that the IRS has since 1996 been able to do the passport-snatching thing against those who are even $5,000 overdue on child support. As that ombudsman writes on the IRS's own website, there are serious issues with this sort of thing: Courts have long recognized that the right to travel internationally is a liberty right, protected by the Due Process Clause. See e.g., Kent v. Dulles, 357 U.S. 116 (1958). In the context of passport denial for unpaid child support, courts have found the statute meets due process requirements because it provides for notice and an opportunity to be heard prior to the state agency certifying the unpaid child support to the federal government.... In the [...]

Happy Valentine's Day! Here's Why You Shouldn't Get Married If You Earn About as Much as Your Partner!

Wed, 14 Feb 2018 16:05:00 -0500

In honor of the one day every year when even the most wonkish tax policy nerds can set aside the calculators and spreadsheets for a bottle of wine and some red roses, here's some cold, hard, unemotional data about the financial consequences of government-recognized matrimony. The upshot: If you earn about the same income as your would-be spouse, your bank account will be better off if you don't get married. According to a new analysis from the Tax Foundation, couples who earn roughly the same amount of money are most likely to face a tax penalty for getting hitched, and couples at both ends of the income spectrum are more likely to be penalized for tying the knot than middle-income earners. For example, two people who each earn $15,000 and are jointly raising one child would end up paying more than $600 in extra federal taxes if they get married. At the higher end of the scale, a couple that earns more than $250,000 jointly would have to pay an additional Medicaid surtax if they get married, but the same surtax only kicks in at $200,000 for individuals. Under the tax reform bill passed in December, tax rates for married couples are exactly double the tax rates for unmarried individuals (a significant change from the old tax code)—until you hit the top marginal bracket of 37 percent, which kicks in at $500,000 for singles but $600,000 for couples. That means most people won't see any significant marriage penalty at lower income levels, but couples earning well into the six figures could end up paying thousands in additional taxes after their wedding. Besides draining away any romantic inclinations you might have been feeling today, marriage bonuses and penalties have real consequences for public policy and the economy. "These penalties and bonuses potentially affect people's behavior, especially whether to work," says the Tax Foundation's Amir El-Sibaie, who wrote the report. Tax status isn't a deal-breaker for most couples deciding whether to get married, but financial incentives do matter in the search for love. Aside from wishy-washy greeting card nonsense about "meeting the right person," the most common reason never-married adults give for not being married is that they are "not financially stable," according to the Pew Research Center. Not surprisingly, low-income individuals are much more likely to avoid marriage for financial reasons, Pew found. Low-incomes couple can get whacked by a secondary marriage penalty because some government welfare programs are means-tested differently for individuals than for married pairs. And if your marriage falls apart? Well, the tax bill may have made your divorce more expensive too, by eliminating a deduction for alimony payments. Madeline Marzano-Lesnevich, president of the American Academy of Matrimonial Lawyers, says that change "removed a powerful negotiating tool and turned it into a difficult stumbling block for spouses trying to settle a divorce." But that's exactly the type of reform that Congress should have done more of when it rewrote the federal tax code late last year. Specialized deductions and exemptions—whether for having children, for paying alimony, or for putting solar panels on your roof—only distort incentives. The tax code should not be used for social engineering. And the tax code should not treat married individuals differently from single people. Eliminating married couples' ability to file taxes jointly would be one way to solve the problem, says El-Sibaie. But, like other possible solutions, that's politically difficult. Not everyone ends up paying more for the privilege of being married. Under current tax law, a couple earning $60,000 jointly would be on the hook for $8,560 in federal income and payroll taxes this year, according to the Tax Foundation's analysis. Getting hitched wouldn't reduce the payroll taxes, but it would allow this theoretical couple to pay $31 less in federal inc[...]

The Philadelphia Eagles Won the Super Bowl, but They'll Lose on Tax Day

Mon, 05 Feb 2018 09:55:00 -0500

The Philadelphia Eagles won the Super Bowl when they defeated the New England Patriots last night. But it's the tax man who really always wins. Because the game was played in Minneapolis, the $112,000 bonuses paid to each player on the winning team (and the $56,000 bonuses paid to the losers), will be taxable in Minnesota, which has some of the highest personal income tax rates in the country. Each member of the Eagles will end up paying about $7,200 of their Super Bowl bonus to the state of Minnesota. That comes on top of an estimated $23,500 federal tax hit for each of the winning player's shares. And that's just the start. Minnesota also imposes a so-called "jock tax" on athletes that visit the state for practices and games. Income earned during the days leading up to Sunday's big game will be taxed at the state's top marginal rate of 9.85 percent. Only California has a higher jock tax, and even states with no personal income taxes—like Texas and Florida, both frequent Super Bowl hosts—still hit up professional athletes, coaches, and team staff with special taxes. Robert Raiola, chief of the sports and entertainment group at PKF O'Connor Davies, a New York–based accounting firm that specializes in working with athletes, tells that most players on the two teams would have spent about a week in Minnesota during the lead-up to the Super Bowl. That works out to about 3 percent of their total working time for the year, and their tax bills will vary depending on how much they earned during the season. Raiola told Time that Patriots quarterback Tom Brady, who earned about $15 million in salary this year, could end up owing Minnesota roughly $43,000. While stars like Brady can make tens of millions of dollars annually in salary alone (and yet more in paid endorsements), the average NFL player makes $1.9 million—considerably less than the average in America's other major sports. Still, that works out to more than $3,300 in state taxes owed simply for spending a week in Minnesota. And of course those players still owe taxes in Massachusetts and Pennsylvania, along with every other state where they played a road game during the season. Tennessee is the only state without a jock tax. You may find it difficult to feel bad about the tax hurdles that come with being paid a lot of money to play a game for a living. Even so, jock taxes are fundamentally unfair, targeting income earned from a handful of high-profile professions. "The problem I have is [visiting athletes] are not receiving benefits that other people in that state receive who are paying the tax. It's unfair that the athletes get singled out," Illinois tax specialist Mark Goldstick told Stateline in 2014. "If an attorney makes a million-dollar deal in that state, they are not made to pay the tax, they are not pursued. But the fact that an athlete was in the state is in the box score." Chris Stephens, a law clerk with the D.C.-based Tax Foundation, writes that states like to tax visiting pro athletes because they are perceived to be easy targets for taxation. Their schedules are published in advance, some have very high incomes, and as non-residents, they cannot vote to voice their displeasure with the tax. While some teams in low-tax states can use their location to attract highly sought after free agents, players and team staff have no choice about where they play road games. And no one is going to turn down an opportunity to play in the Super Bowl because of the potential for a multi-thousand-dollar tax hit. But all those special tax bills might help explain why more than three quarters of professional football players find themselves in financial difficulties within a few years after retirement.[...]

Woman Still Getting Civil-War Survivor Benefits Shows How Federal Policies Mortgage the Future

Sun, 04 Feb 2018 00:01:00 -0500

Twenty or 50 years from now, the uproar over the House Intelligence Committee memo will be no more than a footnote to history, and many Americans living then will have fading memories, if any, of the Trump administration. But they will be sure to feel the consequence of other policies, little noticed now, that will weigh more heavily with each passing year. You may have never heard of Irene Triplett, who illustrates something politicians often forget: Decisions made for immediate purposes can reverberate for a long, long time. During the Civil War, to bolster military recruitment, the U.S. government established pensions for veterans wounded in battle and widows of those killed. After the war, the system was repeatedly expanded to cover ever more beneficiaries, including men whose disabilities had nothing to do with their service in uniform. As economist John Cogan of Stanford University and the Hoover Institution notes in his new book, The High Cost of Good Intentions, Congress eventually granted pensions to widows of Union veterans who married after 1890. Then it included all widows whose marriages had lasted 10 years. "In 1957," he writes, "Congress dropped the 10-year requirement. Incredibly, a year later, Congress granted pensions to widows of Confederate soldiers." In 1924, Mose Triplett, who had served in both the Union and the Confederate armies, married a woman who bore him a daughter named Irene. Born five years later, she is still getting survivor benefits from the Civil War, 153 years after it ended. Cogan's book chronicles the steady growth of federal entitlements. Social Security was originally meant to ensure protection against poverty to about half of future retirees. But "every Congress, save one, and every president during the years from 1950 to 1972 took action to expand the program." The pattern is logical. New programs "confine benefits to a group of individuals who are deemed to be particularly worthy of assistance," says Cogan. But groups outside the category push to be included and ultimately prevail. The change puts another group closer to qualifying, and that group does the same thing. The process repeats until the original rationale is lost. Today, federal entitlement assistance of one type or another goes to more than half of U.S. households—and 31 percent of beneficiaries are in families whose income exceeds the national average. In 2015, households in the top fifth of earners collected $225 billion in federal benefits. Restraining the cost of entitlements such as Social Security and Medicare is especially hard now. The ongoing retirement of the baby boom generation automatically swells their rolls. With a commitment to fiscal responsibility and regard for future generations, our elected officials might devise humane ways to curb this growth. But to the extent that commitment ever existed, it is gone. It vanished on December 22, when President Donald Trump signed a tax bill that the Committee for a Responsible Federal Budget projects will generate $1.8 trillion in additional deficits over the next decade—on top of the $10.2 trillion already in the pipeline. The bipartisan watchdog group also says, "Congress is likely to consider increasing discretionary spending caps for the next two years, disaster relief to deal with last year's hurricanes, (and) extensions of temporary tax provisions that expired at the end of 2016." In that scenario, the extra 10-year deficits would be more like $2.2 trillion. Conservatives claim the gap will force Congress to slash domestic spending. Fat chance. In the late 1990s, President Bill Clinton and the Republican Congress could envision and reach a clear achievement: balancing the budget. But once that goal is hopelessly out of reach, politicians have nothing to gain from spending discipline. Once deficits are considered the immutable norm, el[...]

The Puffy Coat Makers at Patagonia Want You to Subsidize Their Rich Customers

Sat, 03 Feb 2018 07:00:00 -0500

"The President Stole Your Land." That was the message, in stark white letters against a black background, that replaced the usual bright-colored images of puffy jackets and backpacks on the outdoor retailer Patagonia's website last month. "In an illegal move," the text continued, "the president just reduced the size of Bears Ears and Grand Staircase-Escalante National Monuments. This is the largest elimination of protected land in American history." The pop-up was probably jarring for anyone browsing to buy a thermal base layer. It was also inaccurate. Even if the administration's monument reductions survive legal challenges, the area in question wasn't "stolen" from the public: It remains federally owned public land. Patagonia wasn't the only outdoor recreation company to rail against President Trump's announcement that he would shrink the two monuments. REI's website noted "the loss of millions of acres of protected lands this week," a disingenuous line given the numerous laws and statutes—from the National Environmental Protection Act to the Archaeological Resources Protection Act—that already protect federal lands. The outdoor recreation industry's politics share a common conviction: that public lands should be "free" for everyone because they belong to all citizens, and that many more acres should be set aside for recreation. In arguing for stricter protections at Bears Ears in particular, companies like Patagonia play a familiar role, albeit one not usually described in such terms: Corporate interests get their policy preference despite vehement opposition from the locals. Trump is also guilty of framing the public lands dispute spuriously, having called his predecessor's designation of Bears Ears as a national monument a "massive federal land grab." In fact, the area was already federal land—managed by the Bureau of Land Management (BLM) and the U.S. Forest Service—before Barack Obama made it a national monument during his last month in office. (Monument designations can be controversial because they usually impose land-use restrictions, such as limiting or prohibiting activities such as livestock grazing or mineral development.) In its calls to limit uses on more and more public lands, Patagonia tends to come across as what most of its devotees no doubt see it as: a noble, thoroughly "green" company simply seeking a higher calling. Much of the media buys into that rendition: "Patagonia has long been an active participant in the fight to protect the environment," The Washington Post declared in its coverage of the splash page. The company's actions could just as accurately be described as a corporate interest lobbying for policies that will help its bottom line. The outdoor recreation industry certainly thinks its success hinges on public lands. A 2017 report by the Outdoor Industry Association called public lands and waterways "the backbone of our outdoor recreation economy." Patagonia CEO Rose Marcario used similar language when attacking Utah's elected officials for "their blatant disregard for Bears Ears National Monument and other public lands, the backbone of our business." Patagonia founder Yvon Chouinard has complained that Utah politicians "don't seem to get that the outdoor industry—and their own state economy—depend on access to public lands for recreation." Most of the visitors to those public lands are decidedly well-off when compared to the typical American household. According to the National Park Service and Forest Service, in recent years slightly more than half of visitors to national parks and forests had household incomes over $75,000. Both agencies also reported that less than 10 percent of visitors had household incomes under $25,000. Meanwhile, the public lands that bolster outdoor companies' profits are anything but "free." Collective ma[...]

Immigration Is the Only Thing Saving Connecticut From an Even Worse Budget Crisis

Fri, 26 Jan 2018 13:32:00 -0500

Connecticut's state motto—"Qui Transtulit Sustinet"—translates to "he who transplanted, sustains." It's a nod to the people who founded the Connecticut colony: immigrants who first fled religious persecution in England, then moved again out of disagreements with the ways their fellow colonists were running Massachusetts. In the past few years, thousands of residents have transplanted themselves out of Connecticut. The state government has imposed two massive tax increases in the span of less than a decade. Those increases have not solved Connecticut's fiscal problems—the place finished the most recent fiscal year with a $3.5 billion deficit, and it's running in the red again this year—but they have certainly exacerbated the migration crisis. The full fiscal crisis runs far deeper than the budget. Connecticut's debt has climbed from 12 percent in 1997 to 31 percent this year, according to the state Office of Fiscal Analysis. An analysis by The Connecticut Mirror found that annual debt service costs climbed by about 10 percent every year from 2011 to 2017. Equally unsustainable is the state's public pension system, which has a deficit of about $74 billion and only enough assets to meet 50 percent of its long-term obligations. The biggest factor behind Connecticut's shrinking population, the state's Office of Policy Management noted in a report last year, is the sharp increase in the number of people leaving the state. Net out-migration was up 55 percent in the years 2014–16 when compared to the previous decade's averages. And it's not just individuals who are leaving: Companies—General Electric, Aetna, Alexion—have fled the state in search of a lower tax burden. About the only thing that's working in Connecticut's favor right now is that it remains an attractive destination for international immigrants. While the state has been a net loser in domestic migration every year since 2003—with the biggest losses coming in 2014–2016—Connecticut has gained more than 10,000 residents from abroad every year this century. That won't solve the state's long-term financial problems, but it certainly could soften the blow. Here's how that looks: Connecticut is looking like the Illinois of New England: a place where tax increases are no longer fiscally or politically realistic, even though budgetary obligations continue to grow and spending is completely out of control. In fact, on a per capita level, Connecticut extracts more—about a thousand dollars more—from its residents than Illinois does, according to the U.S. Census Bureau. While there are many reasons to leave Connecticut that have nothing to do with taxes—job opportunities, a better climate, getting away from New England Patriots fans—it's notable that the state's population decline sets it apart from its neighbors. Whether you compare it to the rest of New England or the rest of the states in the greater New York City region, Connecticut is an outlier: Connecticut isn't just it's losing population. It's losing the high-earning (and therefore high-taxpaying) portion of its population. According to Internal Revenue Service data, the estimated 20,000 residents who left the state last year earned an estimated $2.6 billion in adjusted gross income. That about $130,000 per resident. The decline started, as the chart above shows, after a $1.5 billion tax increase in 2011. Lawmakers followed that with a $1.2 billion tax increase in 2015, after which the exodus picked up steam. According to the Yankee Institute, a Hartford-based think tank, Connecticut has lost more than 77,000 people with a combined adjusted gross income of $8.8 billion since 2011. "Connecticut has had a steady flow of people leaving the state for decades," says Suzanne Bates, director of public policy at the Yankee Insti[...]

Is Tax Reform Already Working?

Fri, 19 Jan 2018 11:30:00 -0500

To read the press releases, you might think the GOP's new tax reform law is already a smash success. The legislation, which permanently slashed corporate tax rates from 35 percent down to 21 percent, was only signed into law last month. But more than 100 companies have already indicated that they will make big moves to benefit workers and the economy—including raising wages, handing out bonuses, granting 401(k) increases, and committing to increased capital investment—while citing the law's reduction in the corporate income tax rate as at least part of the reason. American for Tax Reform published an impressive list of the companies who have made such announcements so far, with quotes linking their action to the tax bill. Walmart increased its base wage for all hourly employees from $10 to $11 and granted $1,000 bonuses. Aflac Insurance is extending parental leave, increasing its 401(k) match from 50 percent to 100 percent on the first 4 percent of compensation, and making one-time $500 contributions to every employee's 401(k). That amounts to a $250 million increase in overall U.S. investment. But it's not clear how many of these moves would have happened anyway, even if tax reform had never passed. The recent burst of activity isn't at all in line with the standard economic theory of how reductions in marginal federal business tax rates affect workers' compensation. Economists usually argue that lowering marginal tax rates on investment gives companies an incentive to earn more taxable income leading them to invest in other businesses and the expansion of their factories. This in turn raises workers' productivity, and ultimately leads to higher wages. In other words, it takes time for companies to invest new capital, and reap the benefits of their investment. This is clearly not what happened here, however, since many of the bonuses were announced after the House and the Senate passed the tax bill but before the president even signed it. So what's really going on? I asked tax expert Scott Greenberg at the Tax Foundation how he explains the discrepancy. He said that "an alternate theory may be needed to explain the recent bonuses and pay increases." According to him, "One such theory, which has been suggested by Kevin Hassett, is that workers may have some ability to bargain for a share of the windfall from a business tax cut." He isn't sure how to evaluate yet whether that theory is correct, but he acknowledges that "it is true that some of the companies providing bonuses and wage increases have done so after demands by labor unions." Greenberg also offered another, more cynical theory. "Companies may have been planning on raising labor compensation anyway, due to increasingly tight labor market, and chose to attribute bonuses and wage increases to the tax bill, as part of an effort to build public goodwill for the legislation." With Moody's estimating that the unemployment rate will drop to 3.5 percent by the end of the year, the raises probably indicate a tighter labor market, and employers taking steps to retain their employees. If this theory is correct, it is a brilliant public relations move from companies who for years have been labeled greedy bastards who always keep all their profits and will keep the benefits from the tax cuts all to themselves while leaving their employees out to dry. But it's not exactly a sign that the tax law is an instant hit. Now, this could play out in multiple ways. On one hand, based on the commitment made by many companies on the ATR list to increase their capital expenses significantly in 2018, more wage increases could be coming as the standard theory predicts. It will take some time to materialize, but it will happen. On the other hand, the narrative that the bonus frenzy is a dir[...]

Trump Turns One

Thu, 18 Jan 2018 09:30:00 -0500

The 45th president does not tend to elicit measured evaluations. Since even before his formal entry into national politics in 2015, Trump has acted as a powerful magnet on the body politic—attracting and repelling onlookers with equal force. A year ago, as we prepared to see a former reality television star sworn into the highest office on Earth, predictions abounded regarding the effects he was about to have on the country and the world. On one side were confident assertions that he would repeal the Affordable Care Act, bring back manufacturing jobs, and end political correctness once and for all. On the other were fears that he was a racist and a dimwit who would certainly abuse the powers of his station and might well start a nuclear war. On the Trump presidency's first birthday, the reality is less extreme than either set of prognosticators envisioned. The Republican Party under his leadership managed one major legislative accomplishment—tax reform that cut the corporate rate and is projected to add nearly $1.5 trillion to the debt—and failed after months of wrangling to enact an Obamacare replacement. Tensions with foreign governments from Iran to Russia to North Korea continue to simmer. The stock market has followed a dramatic upward trajectory, yet anger continues to grow over perceived wealth and income inequality. With the midterm elections now 10 months away, political polarization seems to hit new highs daily, but in many ways the checks and balances of our federalist system are working to keep even the current unscrupulous White House occupant from actualizing his most ambitious plans. As the 365-day mark approaches, have we reached a milestone worth celebrating or taken just another step in our national descent to unthinkable places? Reason asked 11 experts to weigh in on Trump's record so far. From positive signs on transportation policy and regulatory rollback to a worrying rise in nationalist sentiments and redoubled efforts to cleanse the United States of undocumented immigrants, the answers were a mixed bag, highlighting just how much uncertainty awaits the country in the year to come. —Stephanie Slade TAXES AND HEALTH CARE: Victory, Sort of, Maybe Peter Suderman At the beginning of 2017, Speaker of the House Paul Ryan told GOP lawmakers that the new Congress would repeal Obamacare and pass deficit-neutral tax reform by August. At summer's end, Republicans, despite holding majorities in both chambers, had accomplished neither. But eventually they would accomplish parts of each. In March, the House was set to hold a vote on legislation that would have repealed much of the Affordable Care Act while setting up a new system of related federal tax credits. Ryan was initially forced to pull the bill from the floor due to lack of support, but after making a series of tweaks intended to provide states with more flexibility, the body passed a health care bill in May. GOP leaders congratulated themselves for making progress on the issue, but the plaudits were premature. The bill stalled out in the Senate. By September, the Obamacare repeal effort was dead and Republicans had moved on to more comfortable territory: rewriting the tax code. At the center of the new effort was a significant cut to America's corporate tax rate, which at 35 percent was the highest in the developed world. Donald Trump had campaigned on slashing it to 15 percent. The GOP aimed for 20. At first, the tax effort went much like the health care effort. There were disagreements between the House, which hoped to partially offset any revenue losses with spending cuts, and the Senate, which gave itself permission to increase the deficit by $1.5 trillion. Republican senators also disagreed among themselves: Jeff Fla[...]

Who Knew Letting People Keep More of Their Money Leads to Good Things?

Tue, 16 Jan 2018 12:31:00 -0500

In the six weeks since the passage of the tax law, dozens of companies have announced bonuses and wage hikes, some of them just hours after the bill was passed. Although the bill has not yet gone into effect, there been other tangible benefits to a lower tax burden—some gas and electric companies, for example, have decided to pass on their tax savings via lower rates for customers. None of this should've been unexpected. Nearly 140 economists, urging Congress in November to pass the tax reform bill, predicted more jobs, higher wages, and a better standard of living for Americans, largely because of a lower corporate tax rate, which they explained would spur investment, business formation, and productivity. Shikha Dalmia wrote positively about the tax bill back in April. She predicted it would spur the kind of growth we're starting to see signs of, and also noted that that growth could have the effect of undercutting Trump's ethno-nationalist agenda. There's also evidence that historically lower tax rates in the U.S. overall lead to higher economic growth. Perhaps Peter Suderman put it best: the tax bill was in no way perfect, but not the end of the world its critics predicted. Instead, it was a "predictable, conventional piece of Republican tax legislation," with predictable drawbacks (primarily a deficit increase) and benefits, some of which are starting to be seen. Before the new law, the U.S. had one of the highest corporate tax rates in the world, leading many companies to move some operations overseas to lower their burden. Studies suggested the rate was so high it was actually reducing productivity so much as to lead to decreased revenue. In the run-up to last month's vote on the Republican tax bill, critics poo-pooed the intuitive idea that if companies pay less in taxes, some of that will make its way back to workers. Democrats in Congress were even worse, deploying apocalyptic rhetoric about the bill. The Center for American Progress' Igor Volsky, meanwhile, sounded downright ecstatic that Walmart announced layoffs. Paul Ryan in December: "majority of businesses are going to do just what we say, reinvest in their workers, reinvest in their factories, pay people more money, higher wages." TODAY, WALMART --THE LARGEST PRIVATE EMPLOYER -- ANNOUNCED IT WAS LAYING OFF THOUSANDS OF WORKERS. — igorvolsky (@igorvolsky) January 11, 2018 Volsky's characterization of what happened is misleading. Walmart is reportedly closing dozens of its underperforming Sam's Club locations after years of expansions. Walmart, meanwhile, announced it was raising its starting wage to $11 an hour, handing out bonuses to eligible employees, and looking for other ways to re-invest their tax savings. For his part, Ryan's prediction was about what a "majority of companies" would do, as Volsky himself described it, not every single one. A lower tax burden makes it easier to do business but it's hardly a cure-all. Most advocates avoided that kind of exaggeration. Companies' decisions to give employees bonuses or raise wages are headline-grabbers, and in the coming months and years there ought to be evidence other good things happening, too. And all because individuals the companies who employs them can keep more of their own money.[...]

Legal Weed Could Create $50+ Billion in Federal Tax Revenue

Fri, 12 Jan 2018 10:15:00 -0500

(image) There's big money in legal weed, and the federal government's cut could be more than $5 billion a year from sales tax revenue alone.

So says a new study by New Frontier Data, a marijuana market research firm, which assumed a 15 percent retail sales tax. Add payroll tax deductions and business tax revenue from new jobs and enterprises, and the study says new revenue will total more than $138 billion. (That estimate is based on a 35 percent corporate tax rate, and the new tax law lowered the rate to 21 percent. No biggie.)

The study also estimated that if the federal government legalized pot, the marijuana industry could create more than a million new jobs over the next eight years.

Whether or not the numbers are exactly right, the study's broad conclusions are intuitive. It should be obvious that bringing a portion of the drug trade out of the black market will create new legal jobs and new tax revenue. (The study suggests that 25 percent of the pot trade could remain in the black market even with full legalization, although lower taxes could reduce that.)

The economic arguments for legalization are not new, but the mainstream is finally catching on. Vermont is set to become the ninth state to legalize recreational marijuana, and the first to do so via the state legislature.

In 2012, Colorado and Washington became the first states to fully legalize marijuana, via ballot initiatives. At the same time, for the first time since Gallup polled the question in 1969, a majority of Americans—58 percent—favored legalization. Today the number is 64 percent. In 1969, it was just 12 percent. The Trump administration, unfortunately, is moving in the other direction.