Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
The Heartland Institute just opened up their new blog today, somewhatreasonable.com. I encourage a visit.
This is where the Heartland staff will post their quick takes and commentary on the rapidly developing stories of the day.
I just posted a spirited defense of Mitch Daniels there…like he needs my help.
There are two key elements to a tax policy:
1) collect revenue amounts as planned (i.e. bring in the cash you need)
2) enable the desired behavior or minimize non-productive behaviors tied to this tax policy
The USA now likely has the most dysfunctional tax regimes on these lines collectively of any major state.
Our recent estate tax fiasco, where for the year 2010 there is NO estate tax (so the heirs of George Steinbrenner, for example, inherit his wealth without paying estate taxes), is an epic reminder of our governments’ inability to drive any sort of behavior in a productive manner. For decades lawyers and accountants have been assiduously planning various complex strategies to avoid the estate tax (any wonder why Buffet is giving away billions while he is alive?) and yet if you passed in 2010 you pay NO estate tax, but if you happen to die in 2011, you will go back to the exorbitant rate of 55%! What sort of behavior is the US government attempting to elicit from its citizens? It is impossible to tell. And when you read the experts NO ONE thought that the US would just let the tax go to zero in 2010; everyone agreed that some sort of “fix” was inevitable; so they were all wrong, because clearly it is zero.
Now the situation is going to impact everyone, not just those contemplating their own morality. This article in the WSJ titled “Delays to Tax Tables May Dent Paychecks” shows how our inability to plan is now impacting anyone who is running a business with a payroll.
Lack of congressional action on 2011 income taxes may force the Treasury Department to make unprecedented moves to prevent US workers from seeing large tax increases in their January paychecks. The issue: 2011 tax withholding tables. Treasure officials usually release the tables… by mid November because it takes payroll processors weeks to adjust their systems before January 1.
If you look at your pay stub and all the complex deductions done by your payroll processor you can see that there is a lot of work behind those calculations, which are also impacted by the withholding that individuals select based on their filing status.
What happens after January 1 is that the tax cuts enacted under the previous administration expire and rates go up across the board, as well as impacting the Alternative Minimum Tax, capital gains, as well as the dividends received deduction (minimizing the double taxation of dividends). Unless Congress acts this year, which seems unlikely since they are all up for election, all these tax items automatically occur, although they could certainly be changed by Congress before the end of 2011 and other rates or policies put in their place.
Our tax policy now is totally unhinged when it comes to incentives. Are stocks that pay dividends going to be pummeled when the tax rate on dividends goes back up? You don’t know. If you live in the East or California in a high tax state and aren’t paying an arm and a leg in AMT, you may very soon if the taxes aren’t amended. The capital gain tax is more complex because many people are already betting that this will not be re-upped and cashing in their gains that survived the recent downturn in many cases anyways.
Don’t forget that this inability to plan is at the local and state level, as well. The State of Illinois, facing a huge deficit, decided to do nothing since elections are coming and just rolled the entire problem along to those that are elected next.
Really, I am a pessimist and I never thought that our tax policy at the Federal and State level would become so muddled. From an incentive and planning process it is making the lives of those who do this type of work extremely difficult to execute, and impossible to explain rationally to those that aren’t experts in the field. We have absolutely reached a new nadir.
Cross posted at LITGM
Public Unions are taking well-deserved heat for their pension greed. If you look at all the pension articles, the comments are full of reasonable sounding folks trotting out the argument that the really bad examples of abusive pensions are “outliers.” They then tell you that the average benefit is “only $20,000/year.” It’s best to address this calmly, reasonably, and accurately. Here’s how.
Cross posted at my own blog.
I skim the Washington Monthly blog as a window on the thinking of the far left. They are more civil (except in comments) than the DailyKos but the mentality is the same. Today is a reasonable example. The topic is taxes.
Roll Call noted this morning that the Senate is moving towards “an epic election-year battle over Bush-era tax cuts.” That sounds about right.
The dispute helps capture exactly what the two parties prioritize right now — Dems want to keep lower rates for the middle class, while reducing the deficit by letting the rich go back to the rates they paid when the economy was healthy. Republicans want to hold the Dem proposal hostage, fighting tooth and nail for breaks for millionaires and billionaires, and adding $680 billion to the deficit the GOP pretended to care about for a while.
The “middle class” is a very elastic concept for them with the top income range going all the way down to $150,000 per year. Secondly, the group with incomes of $250,000 or more, the target class, consists of mainly small business people who are not incorporated and who file all income with a personal return.
There is also no concept here of who pays the taxes. Shouldn’t “tax cuts” be distributed to those who pay taxes ? Otherwise, it is just one more government handout to those who are nonproductive. Here is a look. The top 1% of income pays 40% of the income taxes. Hmmm That’s also about $410,000 per year, not $2 million.
The top 5% pays 60.63% of the income taxes. The threshold for the top 5% is $160,000. Well, what do you know ?
Billionaires need little help from Republicans but they do invest and are the source of most new jobs. The concern for “the deficit” on the part of Democrats may be translated as the left side of the entire argument about spending versus taxing. Republicans want to talk about cutting spending, especially tea party Republicans. I even have a compromise: Let the tax rates go back to the Clinton administration rates but let’s also go back to the number of government employees of the Clinton period.
[W]here would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade. […]
Notice how the “richest” become those with incomes over $2 million when we are talking about one aspect of the issue but, when it is time to actually impose the taxes, the incomes shrink back down to $250,000 or, in some cases, it shriveles all the way down to $150,000 per year.
Midwestern centrists such as Sens. Kent Conrad (D-N.D.) and Evan Bayh (D-Ind.) have called for an extension of all of Bush’s tax cuts, including those benefiting individuals earning more than $200,000 and families earning over $250,000 annually.
Other Democrats say they would consider raising taxes on individuals and families earning below those thresholds, despite President Obama’s promise that middle-class families would not see their taxes increase.
Some liberals balk at the notion that families earning $250,000 or more belong in the middle class.
“Two hundred and fifty thousand dollars? Is that the top 1 percent of Americans, or half a percent? Come on!” said Sen. Tom Harkin (D-Iowa).
Harkin said he would be willing to extend the tax cuts for families earning $150,000 or less annually.
See how elastic that number is ? Families with a combined income of $150,000 are “rich.” We went from $2 million per year to $150,000 per year just like that!
Or we’re told that it’s about helping the economy recover. But it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.
Did you notice that one ? Tax cuts “give” money to people who have “plenty.” Just keep repeating to yourself; it’s not your money. It’s the government’s money and they are “giving you some of it.” They used to call that “To each according to his needs.”
No, this has nothing to do with sound economic policy. Instead, as I said, it’s about a dysfunctional and corrupt political culture, in which Congress won’t take action to revive the economy, pleads poverty when it comes to protecting the jobs of schoolteachers and firefighters, but declares cost no object when it comes to sparing the already wealthy even the slightest financial inconvenience.
Once again, a translation. Schoolteachers “need” the money. Firefighters is just a cover. The “wealthy” (Those with over $150,000 per year income) don’t “need” the money.
Note, there is no concept of a private economy here. Nobody invests; nobody starts a business. The story of the 2001 tax cuts that Democrats want to repeal is here in more detail.
This is what socialism looks like in practice.
Dear Conservative/Libertarian Center-rightists,
I’ve been enjoying posting about swapping all income taxes for either one big, or a series of small, consumption taxes.
One of the most powerful arguments in my favor is the exceedingly strong likelihood that if we fail to bargain now (next 2-4 years), we will lose the entire battle and end up with ALL the taxes, and no reform of our obscene welfare system.
I’m proven right again, of course, by Republicans.
Voinovich calls for gas-tax hike.
Bargain now, while we are strengthening, or lose it all later. For God’s sake conservatives, stop playing “not to lose” in a battle already lost. Your only choice is to play to win.