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Published: Tue, 12 Dec 2017 00:00:00 -0500

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Kill the Mortgage Interest Deduction Now!

Mon, 11 Dec 2017 11:30:00 -0500

Thankfully, one of the biggest scams in the American tax code is finally under attack in the House version of Republican tax reform. It's the mortgage-interest deduction, which currently lets homeowners deduct interest paid on mortgages of up to $1 million for two houses. Ever since owning a home has been a central tenet of the American Dream since the end of World War II and the rise of suburbia, it's been a given that deducting mortgage interest from your taxes is as American as apple pie. The House plan would limit filers to deducting interest on the first $500,000 of a mortgage on just one house, sending a blind panic through wealthy home owners, realtors, and the building trades, all of whom are terrified that a government subsidy is being yanked away from them. But the real problem with the House bill is that it doesn't go far enough. We should scrap the mortgage-interest deduction altogether and let housing prices reflect real market values. The mortgage-interest deduction is typically justified by claiming that it lets people—especially vaguely defined "middle-class" people—afford homes. But it also increases the price of housing by making it artificially cheap to borrow, meaning homebuyers are willing to pay more. England, Canada, and Australia don't let their taxpayers deduct their mortgage interest and they all have higher rates of homeownership than the United States. The mortgage-interest deduction disproportionately benefits the wealthiest Americans, who soak up almost all the $70 billion a year it costs in foregone revenue each year. Reason Foundation's director of economic research, Anthony Randazzo calculates that only 20 percent of tax filers claim the mortgage-interest deduction. That group by and large are part of six-figure households in a country where the median household income is just $57,000. Killing the mortgage-interest deduction might cause a one-time 7 percent drop in real estate prices, according to one estimate, with wealthy homeowners feeling most of the pain. As a homeowner myself, that seems like a small price to pay to end a policy that distorts the real estate market, complicates the tax code, and benefits mostly wealthier Americans on the false promise that it makes home-owning affordable for the middle class. The mortgage-interest deduction is just special-interest pandering wrapped in a gooey story that equates "the American Dream" with having a mortgage. The tax code should be designed to raise the revenue necessary to pay for essential services, not to nudge and prod us into spending money on something the government decides is good for us. Produced by Todd Krainin. Written and narrated by Nick Gillespie. Subscribe to our YouTube channel. Like us on Facebook. Follow us on Twitter. Subscribe to our podcast at iTunes.[...]

Tax Bill Mixes Very Encouraging Developments With Very Disappointing Ones

Mon, 04 Dec 2017 15:20:00 -0500

What to make of the Tax Cuts and Jobs Act, the legislation passed by the Senate at 1:36 a.m. Saturday, by a 51 to 49 vote, with only Republicans in favor? Any final assessment has to await a conference with the House of Representatives that will attempt to bridge differences between the Senate bill and the one already passed by the House. For now, though, the legislation is a mixture of really encouraging developments and really disappointing ones. Encouraging is the reduction of the corporate tax rate to 20 percent from 35 percent. Politicians from both parties have long acknowledged that the U.S. corporate rate is so high that it hurts American competitiveness. President Obama in 2012 proposed reducing the rate to 28 percent, and eventually talked about a 25 percent rate for some manufacturers. A 20 percent rate, or even 22 percent, would be an improvement. It would still leave America's corporate tax rate higher than places like Ireland, where the rate is 12.5 percent. But it'd be a big step in the right direction, toward solving what even Obama acknowledged was a problem. The Senate waits until 2019 to deliver the 20 percent corporate rate, while the House bill puts it into effect in 2018. Also encouraging is the prospect—somewhat shocking, isn't it?—of politicians actually following through on a campaign promise. The potency of tax cuts as a political issue has been eroded over time by politicians who pledge them but fail to deliver. The Republicans haven't managed to achieve their long-promised repeal of ObamaCare. Successfully getting a tax cut passed into law after being elected in part to bring one about is almost enough to warm a voter's heart, or to restore a person's faith in government's ability to act on the signals sent by elections. It's an antidote to cynicism. Unfortunately, by that same standard, aside from the rate cuts, the content of the bill itself and the process behind it so far are pretty disappointing. The middle of the night, weekend, party-line vote is the sort of thing that Republicans complain about, with some merit, when Democrats control Congress. A full text of the 479-page bill was provided to senators only hours before the voting began, and it was full of hand-written cross-outs and marginal emendations. The Senate bill doesn't meaningfully simplify the tax code. A lot of Americans will need not just a journalist or a politician but an accountant or a tax lawyer to explain to them how it will affect them. There's an element of the whole thing that reminds me of the home renovation horror story about the guy who starts out replacing a doormat and winds up having to redo the entire kitchen—what project managers call "scope creep." The Republicans set out to lower the corporate tax rate. Once they did that, then rates for businesses organized in other ways looked low, so they had to lower those, too. And once that was done, budget rules meant they had to "recover" the "lost revenue" somehow, with a variety of minor adjustments, even tax increases. Together, those add up to lots of work for lobbyists and accountants. They can be revisited in coming years as a way to milk campaign contributions out of the interested parties. Particularly dangerous is the practice of a political party using the tax code to reward its backers and punish its enemies. Republicans, who now control the White House and both parties of Congress, may find it humorous or convenient to raise revenue by increasing taxes on a handful of well endowed universities with overwhelmingly liberal faculties, and on the mostly Democratic-leaning cities and states with high state and local income taxes. But there will come a time when the tables are turned, and Democrats will then be tempted to alter the tax code in a way that punishes Republicans. The GOP would be on higher ground if it stood on principle for a tax code that treats everyone the same. Avoiding this sort of petty political vindictiveness is one of many reasons why a lot of people would prefer keeping their money in their own pocke[...]

Taxes, But for Uber

Fri, 01 Dec 2017 12:00:00 -0500

Visit the online forums where Uber and Lyft drivers congregate, and you'll find stories about awful passengers and suggestions for how to increase customer ratings. You'll also see a lot of confusion about taxes. It's relatively easy to become an Uber driver—the company's ads stress the ease with which you can go from "chilling" to "earning" at the touch of a finger on a phone-based app. It's much harder to navigate the federal revenue code after doing a few shifts behind the wheel. Many Uber drivers, and millions of other workers in the so-called gig economy, may not realize that they're becoming independent contractors, and therefore are signing up for a more complex tax status. Workers who earn a salary or hourly wages get a W-2 form from their employer at the end of the year and use that information to fill out their federal income tax returns. Because almost all W-2 employees have taxes withheld during the year, the process is usually straightforward. It may even feel rewarding when the government refunds some of their money. Being an independent contractor is very different. These workers don't have income taxes withheld, and they're on the hook for both halves of the federal payroll taxes that fund Social Security and Medicare. (W-2 workers have half of those taxes covered by their employers.) Independent contractors have always had to deal with these complications, but the number of Americans who fit into that category has grown dramatically in recent years, thanks to the explosion of online platforms making it possible for millions of people to get a supplementary paycheck by driving for Uber, selling homemade crafts on Etsy, renting extra bedrooms via Airbnb, and so on. More than 2.5 million Americans now earn income each month through gig-economy jobs, according to data collected by JPMorgan Chase; there could be as many as 7 million by 2020. When workers in the gig economy become entrepreneurs overnight, doing their taxes suddenly becomes "a daunting task," says Romina Boccia, deputy director of the conservative Thomas A. Roe Institute for Economic Policy Studies. Gig-economy platforms offer some help, but, as the title suggests, "independent" contractors are mostly on their own. Airbnb commissioned Ernst & Young, a major accounting firm, to put together a 28-page tax guidance pamphlet that was distributed earlier this year to all hosts—i.e., those offering short-term room or home rentals through the site. But it's hardly meant to be comprehensive. "Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision," the booklet warns on one of the first pages. Getting that help means adding more unexpected expenses to the tax season tally. Unfortunately, the internal revenue code is stuck in the past. It hasn't been updated in more than 30 years, when platforms like eBay and Amazon—the first major precursors of the idea that you could run a business with nothing more than something to sell and an internet connection—were over a decade away. When President Ronald Reagan signed the Tax Reform Act of 1986, he was closer in time to the first Eisenhower administration than he was to today. An update to the federal tax code is clearly overdue. As Congress tackles tax reform, most of the discussion will focus on top marginal rates, but lawmakers also have an opportunity to update the books to account for the growth of independent contractors and peer-to-peer employment—a trend that is unlikely to reverse in the coming decades. "Tax reform's promise of simplifying taxes is critical for sharing-economy providers," Boccia says. Even if Congress isn't interested in workers' sanity come tax time, legislators may have a more self-interested reason for reform: Simplifying the tax code for small-dollar independent contractors could net billions in new revenue from independent contractors who currently fail to file due to confusion about their tax status and what the law requires of them. According to[...]

Tax Reform Is on Track to Add $1 Trillion to the National Debt, Even After Accounting for Economic Growth

Thu, 30 Nov 2017 18:03:00 -0500

It's not yet a fait accompli, but Thursday was a good day for supporters of the GOP tax proposal. The bill, however, still doesn't come close to paying for itself. Sen. John McCain (R-Ariz.), considered a crucial swing vote on the measure, said he will support the bill. House leaders are reportedly preparing for a vote on Monday to go to a conference committee to iron out differences between their version of the tax bill (passed earlier this month) and the Senate bill. All that comes less than 24 hours after the first vote on the Senate tax bill—a motion to proceed to debate, a procedural step that's been anything but simple on other major GOP initiatives this year—including a drama-free "aye" from all 52 Republican senators. The only thing that slowed the tax bill's momentum was a new analysis from the Joint Committee on Taxation (a number-crunching cousin of the better-known Congressional Budget Office) showing, once again, that the GOP proposal will add about $1 trillion to the federal debt. This, even after accounting for increased economic growth from cutting corporate income taxes. Here's how the JCT spelled it out: All of those minuses show the one glaring flaw in the plan. Republicans mostly seem willing to ignore the defect, claiming increased economic growth will cancel out an estimated $1.4 trillion blow the plan will deal to the federal budget. The JCT report shows clearly that is not going to happen. Increased economic growth cancels out about $400 billion, leaving a $1 trillion shortfall. That's roughly in line with other estimates. When forecasted economic growth is factored in, the Republican proposal will cost about $500 billion, according to The Tax Foundation, a nonpartisan think tank. A separate analysis by the Wharton School at the University of Pennsylvania says the cost, including projected growth, will exceed $1.3 trillion. Here's a neat summary of various estimates, compiled by the Committee for a Responsible Federal Budget, which opposes the current tax plan because of how it will add to the debt. Projections are tricky things, with lots of moving parts. No one knows for sure what dynamic effects the tax changes will have on the economy, or what outside factors could drive growth—or trigger a recession—in the coming years. There are, however, no estimates, even from Republican sources, showing that tax bill cuts would fully pay for themselves. Instead, Republicans have responded to the estimates much the way Sen. John Cornyn (R-Texas) did today after the JCT analysis was released. .@JohnCornyn tells me re: JCT score "I think it's clearly wrong." Says growth projections are too conservative — Seung Min Kim (@seungminkim) November 30, 2017 In other words, close your eyes and wish really hard for the Economic Growth Fairy to make everything okay. It's a vision that you're tempted to believe in because it means you get all the benefits with none of the costs—which, in this case, are the tough political decisions about cutting spending—but it's not one that tracks with the real world or the economic and political history of the last 30-plus years. This isn't new. It's the same thinking that drove the passage of the Reagan tax cuts, properly understood as "tax deferrals," since the debt has to be paid back someday, as National Review's Kevin Williamson wrote in a memorable 2010 piece. The same thinking that drove the passage of the Bush tax cuts. Correcting this view, as Williamson wrote at the time, requires equating "spending" and "taxes" so that every dollar spent today means a dollar in taxes must be raised, either today or tomorrow. Unfortunately, that's not where we are right now. When the Bush tax cuts passed in 2001, the nation's debt-to-GDP ratio was 31 percent. Today, it's 77 percent. And Congress is about to add another $1 trillion to future Americans' tab.[...]

The GOP’s Deficit Trigger is a Self-Deceiving Budget Gimmick

Wed, 29 Nov 2017 15:13:00 -0500

Securing the votes to pass a tax bill has always presented a dilemma for Republicans: On the one hand, they want to advertise the plan as a broad tax cut, and appeal to legislators who simply want to cut taxes and not worry about the budgetary effects. On the other hand, they want to avoid the appearance of raising the deficit too much in order to appease the party's deficit hawks. In its current form, the bill would raise the deficit by about $1.4 trillion over the next decade. The strategy so far has been to pack the bill with budget gimmicks, like setting all of the individual tax cuts to expire in a decade (even while suggesting that they won't really go away), and to argue that the tax cuts will create sufficient economic growth to produce offsetting revenue, keeping the deficit in check. The problem with this strategy is that the budget gimmicks are fairly transparent, and even the most favorable projections show that economic growth will only make up for a fraction of the lost revenue. So the party's deficit hawks have begun to wonder: What if the growth doesn't materialize, and the deficit balloons as a result? In hopes of assuaging these concerns, party leaders appear to be negotiating what some see as a potential solution: a trigger mechanism that would raise taxes if government revenue falls too far and the deficit explodes as a result. Deficit triggers have a long history in budget politics. In theory, a trigger acts as an accountability measure by offering a backstop against debt increases. In practice, it's a gimmick that almost certainly wouldn't work, and might backfire even if it did. No details have been released so far, but the basic idea is to install a provision that would raise taxes automatically if certain growth targets aren't met. Roll Call reports that it could result in up to $350 billion in tax increases in 2022. There are a number of ways this could go wrong. A trigger would inject uncertainty into a tax overhaul that is supposed provide more certainty about the tax code. In addition, raising taxes during a time of sluggish economic performance has the potential to depress it even further. But that is exactly what the trigger would do by forcing automatic tax increases if the economy slowed down. It would hit businesses with a heavier tax burden at a moment when they were already hurting. Or at least that's what would happen if the trigger tax hike actually went into effect, which it probably wouldn't. To understand why, it helps to look back to the last time Congress considered a deficit trigger, in the early 00s, as Republicans pushed a major tax cut under President George W. Bush. That tax plan was predicated on projections showing a $5.6 trillion budgetary surplus over the coming decade. But a group of legislators led by Sen. Olympia Snowe (R-Maine) were worried: What if those projections were wrong? What if the surplus didn't materialize. So they backed a proposal favored by Alan Greenspan, who at the time was the head of the Federal Reserve, that would delay tax cuts (and some spending cuts) until the budget was back on track to hit the target. In an exchange with a Republican lawmaker at the time, Greenspan was asked about the potential for tax hikes in an economic downturn. What if, at that moment, Congress felt that tax cuts were called for instead? "Sure," Greenspan said, "but there's nothing to prevent the Congress at that point from doing that." The trigger didn't make it into the final law. But Greenspan's response gets at the reality with any trigger mechanism: A trigger doesn't bind Congress or force it into action. Lawmakers can always ignore or override the automatic actions. That is what happened in the 1980s, when Congress imposed a deficit trigger as part of a budget process reform. Passed in 1985, the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act came in the wake of record federal deficits. It wasn't precisely the same as the Greenspan p[...]

Stossel: How the Working Rich Improve Our Lives

Tue, 28 Nov 2017 11:43:00 -0500

Bernie Sanders and others on the left want higher taxes on "millionaires and billionaires." Would that be a good idea? Most rich people became prosperous by creating wealth, not taking it from others.

Jim Caruso took over a bankrupt brewery and turned it around by inventing creative craft beers. He now employs more than 100 people. The company he runs, Flying Dog Brewery, is worth millions.

Caruso had a good answer when John Stossel asked him about the "unfairness" of some Americans having so much more money than others. The top fraction of earners does now own almost half of America's assets.

Caruso pointed out that Steve Jobs was worth $10 billion when he died. But since Apple sold more than 2 billion devices, Jobs collected just $5 per device. "I think Steve might have been underpaid here," he says.

Most on the left don't see it that way. "The feeling tends to be that somebody like Steve Jobs took something away from everybody else," Caruso says. "What did Steve Jobs take? He had this idea, wouldn't it be great to have a thousand songs in your pocket... one of the most massively important tools for productivity and communication in life."

Stossel says Jobs, and all entrepreneurs (if they don't partner with or freeload off government) create far more wealth than they take.

Produced by Maxim Lott. Edited by Joshua Swain.

British Think Tank Report Says EU Food Policies Raise Food Prices

Sat, 25 Nov 2017 14:40:00 -0500

A new report from the TaxPayers' Alliance, a British nonprofit, argues that British food prices have been made artificially higher—an estimated seventeen percent so—by a combination of EU "tariffs, subsidies, and overly restrictive regulations." The 51-page report comes as Britain crafts its future ahead of 2019's Brexit, which will likely leave British lawmakers solely responsible for crafting the island's agricultural policies. While some in Britain have argued that these high food prices necessitate government provide more aid to those in need, the TaxPayers' Alliance report concludes that since government policies are responsible for the higher food prices in the first place, it makes far more sense to repeal the bad policies, thus targeting the root causes of those problems. "Brexit gives the UK an unprecedented opportunity to examine its agricultural and trade policies and adopt a more liberal approach which will ultimately result in a more productive agricultural sector and lower food prices for consumers," the Taxpayers' Alliance said in a recent farm-policy statement. The report pins most of the blame for these higher food prices on the European Union's bloated Common Agriculture Policy, known as CAP. "The programme is the most expensive scheme in the EU—accounting for more than 40% of its annual budget—and one of the most controversial," the BBC explained in a 2013 expose on CAP. The BBC notes agricultural subsidies under CAP, which predates the creation of the EU by several decades, are responsible for "the creation of 'mountains' and 'lakes' of surplus food and drink." But these subsidies, the TaxPayers' Alliance report reveals, are just one part of the CAP problem. CAP also imposes steep import tariffs on food. For example, the group cites research in its report showing that CAP taxes dairy imports at a rate of more than thirty-five percent, and that "the tariff on processed chicken is 88 per cent." CAP tariffs also target non-food items like farm equipment. Finally, the Taxpayers' Alliance report says strict CAP food-safety regulations also help make food prices artificially high. This combination of subsidies, tariffs, and strict regulations have made CAP the perfect tool, as the 2013 BBC article concluded, to make "Europe's food prices some of the highest in the world." So does the Taxpayers' Alliance report carry any weight in Britain? Maybe so. The group was founded in 2004 to combat government waste, higher taxes, and the lack of government transparency. By 2009, The Guardian reported then, the Taxpayers' Alliance had become "arguably the most influential pressure group in the country." That's great news. But why—beyond your status as a denizen of this Earth—should you care about some British think tank's report on the impact food taxes there? Sure, we fought a war against Britain that was, I've argued, in large part, a revolt against food taxes. But that was a long time ago. You should care about this report and the outcome of post-Brexit policies in Britain because the same issues the TaxPayers' Alliance highlights in its report are currently at issue right here in the United States. We certainly have wasteful farm-subsidy programs in place. It's a topic I've written about here probably a million times, including as recently as last week. We have food taxes that some argue should be increased. Some states tax groceries. Some activists in this country have argued for taxing "bad" food and subsidizing "good" food. I've been part of the debate, for example serving as a panelist at this Urban Institute event on the validity of taxing so-called "junk food" in 2015. Finally, we currently have a president who has argued for the purported merits of new import tariffs. More specifically, he seems particularly enamored of food tariffs. If these lousy economic policies are bad for Britain and British consumers—as they most certainly are[...]

What Charles Manson Teaches Us About Harvey Weinstein, Al Franken, and Tax Reform: Podcast

Mon, 20 Nov 2017 15:15:00 -0500

On this week's Reason Podcast, Nick Gillespie, Katherine Mangu-Ward, Peter Suderman, and Matt Welch discuss everything that's wrong with the Republican tax reform bill, what it would mean for Obamacare, whether the neverending stream of sexual-assault revelations will turn America into a desert wasteland of fierce Beyoncé woman warriors, gubernatorial candidate and Ohio Supreme Court Justice William O'Neill's announcement that "in the last 50 years" he has been "sexually intimate with approximately 50 very attractive females," and whether Harvey Weinstein is the "Charles Manson" of the 21st century.

Some of the stories referenced in this week's show:

Audio production by Ian Keyser.

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House Republicans Just Passed a Major Tax Reform Bill

Thu, 16 Nov 2017 14:42:00 -0500

House Republicans passed a major overhaul to the tax code today. The bill passed 227 to 205 on a party line vote, with a handful of Republicans, mostly from high-tax blue states, joining Democrats in opposition. The House plan cuts taxes by roughly $1.5 trillion over the next decade, with tax reductions for both businesses and individuals. The plan would slash the corporate tax rate from 35 percent down to 20 percent, and would condense the current seven individual income tax brackets into four while expanding the child tax credit and doubling the standard deduction. The lower corporate tax rate would be a permanent change. However, a new $300 tax credit dubbed the "family flexibility credit" that is intended to help middle would expire in 2023, leading one analysis to find that, after that year, only 40 percent of Americans would pay lower taxes under the plan—and 22 percent would pay more. The House legislation also reduces or eliminates many major deductions, including carve outs for medical expenses, cars, moving, tax preparation, and student loan interest. The plan gets rid of the state and local tax deduction for income and sales tax would be eliminated, and caps the deduction for property taxes. That deduction provides the biggest benefit to residents of high-income, high-tax states that tend to vote Democratic—hence the handful of GOP blue state defectors. Unlike the revised Senate tax plan that was released earlier in the week, it does not repeal Obamacare's individual mandate to purchase health coverage. Although some Republican representatives grumbled about the plan's treatment of various deductions, the passage of a tax bill in the House was never really in question. Republicans will now move forward with a related bill in the Senate, where passage is far less certain. Senate Republicans plan to pass the legislation with only Republican votes and a simple majority. They hold just 52 seats, which means they can lose just two votes (Vice President Mike Pence would break a tie). But one Republican, Sen. Ron Johnson (R-Wisc.), has already said he will not vote for the plan. Sen. Bob Corker (R-Tenn.) has said he will oppose any plan that substantially increases the deficit, which potentially puts him in the "no" camp as well. And while the decision to repeal Obamacare's individual mandate helps to offset the budgetary effects of the Senate plan's tax reductions, it also ties the tax bill to health coverage, which, as we saw this summer with the failed health care overhaul, could complicate the vote math too. The possibility of losing a GOP senator in the Alabama special election next month adds a further wrinkle. Indeed, at this point, the GOP's tax reform effort looks remarkably similar to its health care push. After some initial complications, the health care bill eventually passed in the House, despite some GOP objections. Senate leadership tried to rush a health care bill to vote, but found themselves stymied by a handful of holdouts. The same dynamic could play out again with tax reform. Republicans are generally more comfortable with tax policy than with health care, and, after the failure of their first major legislative initiative, are feeling an awful lot of pressure from supporters to pass some sort of tax legislation. So I suspect the odds of some sort of tax bill passing are better than the odds of health care were. But the bumpy process so far makes clear it won't be easy. Passage in the House is a significant first step, but the tax bill still has a long way to go.[...]

Simpler Tax Simplification

Wed, 08 Nov 2017 00:15:00 -0500

As you read this, President Trump's tax plan is being debated. Congress will change it. Where this ends, no one knows. I want two things: 1. Simplification. 2. More money in private hands. Trump offers some of both. His cuts would leave more money in private hands, where it will be used more efficiently. Politicians' spending decisions already put us $20 trillion in debt; they shouldn't be trusted with more money. Cutting the corporate tax rate isn't popular (rich people!), but a cut is needed. Economic growth is really important. It's stifled when America's taxes are higher than other nations'. Trump also offers some simplification. Good. The more complex the rules, the more time we waste hiring accountants and the more time lawyers spend fighting over who qualifies for what. Trump would double the personal exemption (fewer people will itemize) and kill the "death tax," deductions for local taxes and the alternative minimum tax. It's a start. But that's not nearly good enough. Heck, the "simplification" bill itself is 400 pages long. Americans spend about 7 billion hours trying to comply with today's tax rules. That's the equivalent of 3.7 million people working 40-hour weeks. What a waste. I spend hours filling out forms and forwarding paperwork to an accountant. I distort my spending and investments because of tax rules. What a waste. America's first 1040 form was four pages long. Today's code is more than 3.7 million words. No one understands it. Even the tax specialists get things wrong. Yet parts of Trump's plan make taxes more complex: He increases the child tax credit and creates a new credit for nonchild dependents. It may be fair to help people who care for helpless adults, but each new deduction creates complexity and parasites who feed off it. As usual, some rich people will game that credit, and some poor people will never figure it out. Far better to lower everyone's taxes to, say, 15 percent, by getting rid of all deductions. Then we could focus on creating wealth instead of filling out forms. But good luck with that, President Trump. Today's tax deductions are the main reason we've got a huge culture of lobbyists. One of the most unfair tax breaks is the mortgage interest deduction. It encourages rich people to buy more homes than we need. It exacerbates housing bubbles. Trump merely proposed cutting the maximum deduction to half-a-million dollars. But even that has the swamp creatures screaming, "Unfair!" Jerry Howard of the National Association of Home Builders says he will fight that "tooth and nail." He claims it "is a direct assault on the American dream of homeownership." Bunk. Canada has no mortgage deduction, yet Canada's homeownership rate is higher than the United States'. The big mortgage deduction is welfare for the rich. But people like Howard have clout. Homebuilders and mortgage bankers give politicians money. Likewise, even some Republicans in high-tax states like New York and New Jersey now are whining about losing state tax deductibility. They fear voter backlash in their districts. Once again, Congress ends up fighting over who gets the biggest cuts instead of the overall tax haul and size of government. Ideally, tax cuts should be accompanied by even larger spending cuts to avoid expanding that $20 trillion debt. But that's not happening. How about a variation on Trump's two-for-one regulation rule (cut two regulations for each new one you propose)? Cut two dollars from the budget for every dollar in tax reduction. That way we won't end up deeper in the hole. The best way to avoid Washington's spending getting out of balance is to avoid giving them our money in the first place. I'm rooting for a tax law so simple that everyone understands it, and one that will keep as much money as possible out of government's hands. That's the best formula for[...]

Americans Keep Setting New Records for Renouncing Citizenship, and Tax Reform Threatens to Make it Worse

Tue, 07 Nov 2017 15:31:00 -0500

One of the biggest arguments in favor of tax reform is that it's an opportunity to get rid of bad laws and human-harming regulations that virtually no non-self-interested observer can defend with a straight face. A welcome fix in the House's current tax-reform package, for example, is the removal of bonds for the construction of professional sporting stadia from the tax-exempt status granted to municipal bond-finance of actual infrastructure. So why on earth does the Republican Party's opening bid for tax-code overhaul not include the end of worldwide income taxation on U.S. citizens (even if they live and earn their money abroad), nor repeal of the odious Foreign Account Tax Compliance Act? After all, both promises are right there in the 2016 Republican Party Platform: The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government's warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows "unreasonable search and seizures" but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas. The United States is the only country besides Eritrea to tax the income of its non-resident citizens. If you were born to an American parent (or in the U.S. proper) but have lived and worked the bulk of your life elsewhere, the Internal Revenue Service still has a claim on your salary, even though you consume zero government services. That's just wrong, and should be stopped. Meanwhile, FATCA-repeal bills were introduced in both chambers of Congress back in April by Freedom Caucus Chair Rep. Mark Meadows (R-N.C.) and Sen. Rand Paul (R-Ky.), but both have yet to move beyond committee. The Republican Party has controlled Congress since January 2015, yet can't screw up the courage to deliver a simple repeal of a lousy law. With each passing day of inaction, the number of Americans renouncing their own citizenship rather than deal with the ridiculously onerous and punitive tax-filing requirements continues to set new records. Last week, the Treasury Department came out with its quarterly name-and-shame list, putting the 2017 tally of passport-burners at 4,448. At that pace we should break last year's record of 5,411 by just after Thanksgiving. Congratulations, America! Not only does the tax reform proposal thus far fail to provide any relief to the estimated 8.7 million Americans living abroad (who are routinely shut out of financial institutions, since foreign banks don't exactly enjoy playing errand-boy to the I.R.S.), it may rub salt in the wound. Max Reed, a cross-border tax lawyer in Vancouver, Canada, who writes frequently and well about such issues, says "it will make matters worse for some US citizens in Canada and keep it the same for others." Some of Reed's preliminary findings: * New punitive rules that apply to US citizens who own a business. Currently, most US citizens who own a Canadian corporation that is an active business don't pay tax on the company's profits until they take the money out. The House plan changes this. It imposes a new, very complicated, set of rules on US citizens that own the majority of a foreign corporation. The proposal would tax the US citizen owner personally on 50% of the entire income of the Canadian c[...]

The NFL Wants to Block Tax Reform Because It Would End a Common Stadium Subsidy

Sun, 05 Nov 2017 11:10:00 -0500

The tax reform bill unveiled this week by House Republicans would do away with the federal tax exemption for municipal bonds, commonly claimed by states and cities to subsidize the construction of stadiums. The National Football League is gearing up big time to lobby against it, The Wall Street Journal reported this week. Municipal bonds were made tax exempt in 1986 as a way to encourage investors to buy them at lower interest rates, saving cities money when they need to build new infrastructure or make expensive repairs. While the bonds are designed for building roads, sewer systems, and schools, cities have issued more than $13 billion in untaxed bonds for stadium projects since 2000, according to a recent Brookings Institute estimate. That tax break is "an unseen subsidy," according to Victor Matheson, a sports economist at the College of the Holy Cross, who is critical of using public money for stadiums. "It's a tax break that we never get to vote on, and it's one that don't even think about and don't see," he told Reason in June. There's bipartisan support for directing the exemption specifically for public infrastructure, rather than multi-billion dollar playgrounds for multi-millionaire athletes and billionaire franchise owners. Sens. Cory Booker (D–N.J.) and James Lankford (R–Okla.) in June introduced an independent piece of legislation to prohibit local officials from using municipal bonds for stadium projects. If that prohibition becomes law—either on its own or as part of a revamped federal tax code—those "unseen subsidies" would go away and the cost of those projects would increase. So, too, would public opposition to spending public money on stadiums. "It's something that the NFL will oppose because we believe that the construction of new stadiums and renovations of stadiums are economic drivers in local communities," NFL spokesman Joe Lockhart tells the Journal's Andrew Beaton. The 32 team owners who make up "the NFL" in this context are allowed to believe whatever they want, but the idea that new stadiums or renovations are economic drivers is not supported by facts. A landmark study published in 2000 by the Journal of Economic Perspectives reviewed 36 major metropolitan areas that had built stadiums for professional sports teams and found that, on the whole, they represented a drag on the economy. More recently, a 2015 study by the Stanford Institute for Economic Policy Research, found that "NFL stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city." Local governments, however, continue to put taxpayers on the hook for football stadiums. In his book The King of Sports: Football's Impact on America, Gregg Easterbrook, a journalist and longtime critic of taxpayer subsidies for the sport, says taxpayers have covered more than 70 percent of the total cost of NFL stadiums built in the past two decades. Maybe we're heading toward the end of that tradition. President Donald Trump, in between tweeting criticisms of NFL players kneeling during the national anthem to protest police abuse, has whacked the NFL for taking advantage of special loopholes in the tax code. "Why is the NFL getting massive tax breaks while at the same time disrespecting our Anthem, Flag and Country? Change tax law!" Trump tweeted in October. Why is the NFL getting massive tax breaks while at the same time disrespecting our Anthem, Flag and Country? Change tax law! — Donald J. Trump (@realDonaldTrump) October 10, 2017 President Barack Obama proposed eliminating tax exemptions for municipal bonds attached to stadium projects as part of his 2015 budget plan, but Congress didn't bite. Maybe, as part of a comprehensive tax re[...]

Five Important Details from the GOP Tax Plan

Thu, 02 Nov 2017 15:45:00 -0400

Republicans have been talking about reforming the tax code since well before the start of the year. Today we finally got a look at their proposal. Here's five important details from the bill—with the important caveat that just about everything in it could be subject to change after it is introduced: 1. Fewer Income Tax Brackets The current individual income tax system has seven brackets, with rates ranging from 10 percent to 39.6 percent. The highest bracket applies to income over $418,000 annually for individuals, or $470,000 annually for married couples. In the GOP tax bill, those seven brackets would be collapsed to four brackets, with rates of 12 percent, 25 percent, 35 percent, and 39.6 percent. The highest rate would kick in at $500,000 for an individual or $1 million for a married couple filing jointly. Most people would see a small income tax reduction, though some people might end up paying a slightly higher rate depending on where they fall on the current spectrum. Republicans propose collapsing seven tax brackets into four. See the rates and brackets in the bill. — Wall Street Journal (@WSJ) November 2, 2017 But that's not the most important detail for individuals and families. The bigger news is... 2. A Much Higher Standard Deduction Yes, the government is going to let you keep more of your own money. How generous, right? Currently, individuals can claim a standard deduction of $6,350 and married couples get a deduction of $12,700. Under the House GOP plan, the standard deduction would rise to $12,000 for individual filers and $24,000 for married couples. That means more people will likely choose to take the standard deduction instead of itemizing their deductions, which Republicans say will simplify the tax filing process. But does it really? About 70 percent of Americans already use the standard deduction, and high-income earners tend to be the only ones who itemize. A higher deduction is nice for everyone, of course, but it won't make much of a different in how most people put their taxes together. 3. No Changes for 401(k) Savings, But a New Cap on the Mortgage Deduction As I wrote yesterday, there was a fair bit of speculation about whether the Republican tax plan would lower or eliminate the current deduction for retirement savings, which encourages people to, well, save for retirement. The bill released Thursday makes no changes to how 401(k) plans operate, so that deduction remains in place. But another major deduction in the current tax code—the one that allows homeowners to subtract mortgage interest from their taxable income—would be altered. Republicans would cap the mortgage interest deduction at $500,000 for new home loans starting next year. That's something the construction industry will almost certainly lobby to change as the tax bill goes forward, but it would affect only about 5 percent of all homebuyers. Only about 5% of US mortgages are over $500k. But take a look at where they are in the US... (good chart via @NLIHC) — Heather Long (@byHeatherLong) November 2, 2017 4. Corporate Income Tax Rate Cut From 35 Percent to 20 Percent Maybe the most important part of the tax bill, politically, is the proposed cut to the corporate net income tax. The current rate of 35 percent would be reduced to 20 percent, something Speaker of the House Paul Ryan (R-Wisc.) said today will be essential to keeping America competitive in the global economy. This has been the centerpiece of the Republican tax agenda since last year's election (and indeed longer). If there is one thing that unites the varied factions of the Republican Party, it's the notion that taxes on American businesses should be reduced. All the changes—mostly[...]

The Trump Tax Plan Is Government as Usual

Wed, 01 Nov 2017 15:38:00 -0400

Donald Trump has declared "with tax reform, we can make it morning in America again" and that "revising our tax code is not just a policy discussion — it is a moral one, because we are not talking about the government's money – we are talking about your money, your hard work." The Republican tax plan, which would cut rates for individuals and small businesses, sounds like good policy, but it's not. Before we get lost in details and political infighting, it's worth laying out what effective tax reform actually looks like. The hallmark of a good tax code is that it doesn't attempt social engineering via revenue collection.. It's our money and the government shouldn't be telling us how to spend it or what to spend it on. And yet our tax code is larded up with all sorts of incentives for certain types of purchases—such as the mortgage-interest deduction, which is defended on the grounds that owning a home is morally and culturally superior to renting. It's not by the way, and the result is market distortions that saddle families that would be better off renting with mortgage debt. Trump's tax plan keeps the mortgage interest rate deduction--and the one for charitable giving, which is another example of social engineering. Another distortion in the tax code is that individuals can deduct the cost of their state and local taxes from their federal bill, effectively allowing jurisdictions like New York and California to get away with charging their residents more than they would otherwise. To its credit, the Trump plan at least attempts to do away with this practice, although it's doubtful this idea will survive the legislative process.. The most important principle for tax reform is that revenue should cover the actual costs of government so that citizens can actually make an informed decision about what services they're willing to pay for. On this score, Trump's plan is sadly business as usual. First, it would take even more people off the tax rolls. There are already over 40 million households that pay no federal income tax at all and the president brags that his plan would add another 31 million to that total. As Chris Edwards of the Cato Institute writes, "taking more people off the tax rolls is not a good way to keep the government limited. If something is 'free,' people will demand more of it." And the problem is much bigger than that. For decades now, the feds have been spending far more in any given year than they take in via taxes. Last year, for instance, the government spent 20 percent more than it took in and between 2009 and 2013, it spent 33 percent more than it brought in. Hence annual deficits and ballooning national debt. This is like government by Groupon: Every year, we're getting such a great deal, of course we want more and more stuff. We'd be stupid not to. Where does Trump's plan land on this topic? Who knows? Every tax reform promises to either be revenue neutral or to increase the government's haul. In many cases, neither outcome is close to being truthful. More to the point, after years of accumulating debt we need to focus on government spending first and foremost. In 2016, the feds took in about $3 trillion in taxes. That should be the absolute spending limit—instead of the nearly $4 trillion Congress is talking about. Taxes aren't the price we pay for civilization—they're the price we pay for government. And until we bind the two together, we'll be spending more and more money that we don't have on things we almost certainly wouldn't want if we had to pay full price for them. Produced by Todd Krainin. Written and narrated by Nick Gillespie. Cameras by Jim Epstein. Subscribe to our YouTube channel. Like us on Facebook. Follow us on Twitter. S[...]

A Clash of Visions Over Taxes

Wed, 01 Nov 2017 12:01:00 -0400

House Republicans unveil their tax-cut package Thursday, which means the spot price for liberal shibboleths like "giveaway to the rich" and "hypocrisy on the deficit" is about to hit the roof. Which is only fair. Conservatives don't exactly trip over themselves to embrace Democratic policies, either. The package will include lots of numbers. That will give critics plenty of ammunition with which to explain why this particular set of tax proposals does not deserve to pass. And maybe it doesn't! The trouble is that such arguments raise a question: What set of tax cuts would liberals consider worthy of passing? Judging by their usual objections, those on the left want to see tax cuts that help the poor, and maybe the middle class, but not the rich. This sounds swell, but it short-circuits just about all tax cuts of any sort. That's because the bottom 50 percent of earners in the U.S. pay only 2.7 percent of the revenue collected through income taxes. The top 1 percent of earners, who enjoy 15 percent of all pre-tax earnings, pay 38 percent of all federal income taxes. Some kinds of tax reform can benefit the poor but not the rich, such as expanding the earned income tax credit. But the EITC is not a tax cut. It is a subsidy—i.e., a government handout—based on a person's earnings and family size. It's a good policy that encourages people to work and has helped lift many people out of poverty, which is a noble enterprise. It's just not a tax cut. Actual tax cuts simply don't stir the hearts of garden-variety liberals. They are to many liberals what reductions in carbon-dioxide emissions are to so many conservatives: something that might conceivably be nice in a perfect world, but nothing you'd hold a pep rally for. To see what does stir the liberal heart, consider the Congressional Progressive Caucus' "People's Budget." This is the budget for all of those whose souls have been a rainy, bleak November for as long as they could remember, because the federal government isn't spending nearly enough money. Thus the People's Budget would impose more than $7 trillion in tax hikes, raise the top rate to 49 percent, cut defense spending, and then jack up spending just about everywhere else: infrastructure, health care, job training, and so on. It even proposes a pilot program to hand out diapers. Talk about the perfect metaphor. If enacted, the People's Budget would raise the federal government's take of GDP from 17.8 percent of GDP to 22 percent, and raise federal spending from 20.7 percent of GDP to 25.3 percent. Outlays haven't been that high since WWII. The GOP tax package and the Progressive Caucus' People's Budget capture sharply different visions of the correct allocation of resources. But they also capture an even more important question: Who should do the allocating—the government, or the people who made the money in the first place? The more modest approach holds that since you earned your paycheck, you ought to decide how it gets spent as much as possible—even if other people think you're doing it wrong. The more expansive approach says it's ridiculous to let a CEO buy yet another $12,000 wristwatch when parents in Appalachia or the Bronx can't even scrounge up the money for asthma medication so their kid can breathe. Both of these are pretty decent arguments. Some liberals take issue with the idea that a person—or at least certain persons—really earn their paychecks. We are all just products of circumstance, goes the argument. Some people are lucky enough to be born with good genes and into good environments, so they go to good schools and get good jobs and make a good living. Even if they work very hard (goes the argument), persistenc[...]