Tag Archives: taxes

Social Engineering with the Tax Code

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Senators Max Baucus (D, MT) and Orrin Hatch (R, UT), Senate Finance Committee Chairman and Ranking Republican, respectively, had a thought, as described in a recent Wall Street Journal op-ed.  In a letter to their fellow Committee members, they suggested,

To make sure that we clear out all the unproductive provisions we plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.

In other words, they want to zero out all deductions, loopholes, subsidies, credits, carve-outs, and so on in the Federal tax code and start over, including only those that are explicitly defended and defended successfully.

Right idea; flawed execution.  Items 2) and 3) are mutually exclusive.  “Important policy objectives” can only come at the expense of this or that group.

Moreover, “policy objectives” through taxing is inherently ineffective and immoral.  If Congress can’t achieve the policy objective through legislation, it’s because the legislators and their bosses, the sovereign people, don’t want that objective, and so that objective is illegitimate.

Further, the circumscription created on this or that group by taxing for that or this objective limits arbitrarily the victimized groups, and it thereby immorally eliminates those groups’ equality of opportunity—which is supposed to be equal to the opportunities of other groups (vis., the opportunities of the tax-favored groups)—and their ability to exercise such opportunities as are left to them according to their own imperatives, not those dictated by government.

We’ll see how far even this idea gets, though, first in the Progressive-controlled Senate Finance Committee, and then in the Progressive-controlled Senate.

On the other hand, what’s happening along these lines in the Republican- (as opposed to Conservative-) controlled House?  Not much, mostly this year-old chit-chat.  Even on the matter of social engineering through the tax code, the Ways and Means letter and attachment merely identify the existence of damage done by social engineering, but they do not offer anything concrete to do about that damage or about the measures themselves.  At least the two Senators had that much.

In Which The Swiss Government Votes for National Sovereignty

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Switzerland’s lower house of Parliament voted 123-63 against the measure [to let Swiss banks otherwise violate Swiss banking laws to give up data demanded by the US], which would have enabled many of the Alpine nation’s banks to sidestep the Swiss banking secrecy laws and start handing information to the US Department of Justice about any past help they may have given to Americans hiding undeclared wealth in Swiss accounts.

Those lawmakers were worried about, among other things,

the heavy-handedness of the US effort to have them sign off on legislation that might have exposed the country’s banks and bank employees to legal hazards.  Lawmakers had also raised concerns about the lack of detail in the plan regarding potential fines for banks that would have opted to participate.

Peter Kunz, Professor of Business Law at the University of Bern, disagreed:

This is the major problem.  Swiss banks, and banks in general, need some certainty in their business—and right now no one really knows what’s going to happen.

I disagree with the good professor.  To the extent there is uncertainty, it’s in the Swiss government’s behavior.  With this rejection, Swiss banks remain free to obey Swiss law without fear of retaliation, which would not have been possible under the proposed law.  That law would have subjected Swiss banks to the vagaries of American law.

This may be more coming down the pike.

Senior officials from Germany, France, Japan and the European Commission have expressed deep concern to Federal Reserve Chairman Ben Bernanke about the Fed’s proposed new regulatory regime for foreign banks under Section 165 of the Dodd-Frank Act.

This is what concerns them:

the Fed proposes to require over two dozen foreign banks to move their U.S. broker-dealer and other nonbranch operations under separately capitalized, intermediate holding companies that would be subject to U.S. bank capital requirements, liquidity buffers and single counterparty credit limits.

…

For purposes of complying with the Fed’s higher capital requirements under Section 165, U.S. bank holding companies would be allowed to take account of their global consolidated operations. Foreign bank-owned IHCs would not—which means that capital held at the foreign bank parent level would not be available to support U.S. operations. This would tilt the competitive playing field against foreign bank-owned broker-dealers, and it is a glaring violation of long-standing principles of equal national treatment.

Sovereignty—what a concept.

Progressives and Taxes

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Look no further than California for the latest example of foolishness.

That state’s latest budget counts on at least $500 million from that state’s auction of carbon credits under its cap-and-trade…business…to balance its budget.

There’s a problem with that bait-and-switch…business…though.  As California’s Supreme Court ruled in its 1997 Sinclair Paint Co opinion, regulatory fees can’t

exceed in amount the reasonable cost of providing the protective services for which the fees are charged

or be imposed for

 unrelated revenue purposes.

The cap-and-trade collection, however, explicitly is a fee and not a tax—that’s how the fees were successfully assessed in the aftermath of California’s Proposition 13, which requires a supermajority in each house of the California legislature to raise taxes.

This leads to a couple of problems that would be no-brainer deal killers for anyone but a Progressive:

First, the stated purpose of the diversion: to put the monies into the state government’s general coffers in order to balance the budget, rather than to spend the money on “green” goals, which is the stated purpose of the cap-and-trade program.  The monies can’t be diverted to the general coffers.  Not legally, anyway.

Second, the diversion of the $500 million demonstrates that the state government believes the money is not needed so much for those “green” goals: the cap-and-trade fees “exceed in amount the reasonable cost of providing the protective services for which the fees are charged” by those $500 million.

Hmm….

Social Engineering with Taxes

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Dr Alan Blinder, Princeton University Professor of Economics and Public Affairs, is at it again.

First, some side issues which he raises:

Since the economy as a whole created 5.41 million net new jobs over the past three years, you might expect that about 4.51 million of them were in the private sector and about 900,000 were in the public sector.  In fact, the private sector created 6.56 million net new jobs over the past three years while about 1.14 million net government jobs were eliminated via layoffs and spending cutbacks.

Never before in postwar history has government employment declined during a recovery. Compared with historic norms, we’re down over two million government jobs.

Never mind that the private sector’s performance is about 2/3 of what President Barack Obama promised with his 2009 stimulus and less than that compared to other recoveries, held back by his interfering policies.

Separately, the reduction in government employment is a good start.  Government remains far too big, and it’s not a jobs welfare program: further cuts in Federal employment are warranted.

Then,

Real GDP growth has averaged a paltry 2% per annum over the past three years.  But growth of GDP excluding government purchases—the things governments buy, including hiring workers—has averaged 3%.

But this just confirms how much government interference is inhibiting recovery.

Next, he offers a partial solution:

So Congress could make a good start on faster job creation simply by ending what it’s doing—destroying government jobs.

There’s that employment security welfare claptrap made explicit.  Government actually has a few very specific tasks, named by the Constitution, and no other thing to do at all.  It doesn’t need to employ lots of workers, outside of soldiers, sailors, marines, and airmen, in order to do those few tasks.

Now, he comes to his tax policy as social engineering tool:

Virtually since the Great Recession began, many economists have suggested offering businesses a tax credit for creating new jobs.  While details matter, the basic idea is straightforward: Offer tax breaks to firms that boost their payrolls.

For example, companies might be offered a tax credit equal to 10% of the increase in their wage bills over the previous year.  No increase, no reward.

You might imagine that Republicans would embrace an idea like that.  After all, it’s a business tax cut….

Here’s that foolishness of using taxes to drive our economy to a government goal.  No.  The ways to help our businesses and spur hiring include reducing—or even eliminating—taxes on businesses, canceling the additive costs and outright taxes Obamacare imposes on businesses for hiring, and stopping paying the unemployed for not working.

And no, the “tax credit” isn’t at tax cut at all.  It’s an increase in spending.

Blinder also had this idea:

Suppose Congress enacted a partial tax holiday that allowed companies to repatriate profits held abroad at some bargain-basement tax rate like 10%.  The catch: the maximum amount each company could bring home at that low tax rate would equal the increase in its wage payments as measured by Social Security records.

Again, no.  Eliding the social engineering claptrap of the suggestion, temporary tax moves have no effect.  We’d be better off moving to a territorial tax scheme at the new reduced overall business tax rate.  Or eliminating the business tax altogether.

Blinder concludes with this:

My general point is that the fiscal cupboard is not bare.  There are things we could be doing to boost employment right now.  That we are not doing anything constitutes malign neglect of the nation’s worst economic problem.

Indeed.  Let’s reduce/eliminate business taxes, get Obamacare off the backs of businesses, and restore unemployment payments to the status quo Harding right now.

False Premise

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Reuters talked about a CBO study commissioned by Congressman Chris Van Hollen (D, MD) that purported to look at tax deductions in our tax code.

The top 10 tax deductions, credits, and exclusions will keep $12 trillion out of federal government coffers over the next decade, and several of them mainly benefit the wealthiest Americans….

Never mind that the claim proceeds from a couple of false premises, as I’ve beefed about before.  For one thing, it’s not the government’s money, so of course it doesn’t “keep $12 trillion out of federal government coffers.”  Such a claim presumes that the money belongs in the federal government’s coffers.

For another, even were the money in some sense due the government, the government’s need for the money hasn’t been established, and so any discussion of monies “lost” is…premature…at best.

James Taranto, writing for The Wall Street Journal, had additional problems with the study.

[W]hat makes the CBO study misleading is not the frame but the anchor.  The CBO uses the Joint Committee on Taxation’s definition of “tax expenditures” as “deviations from an individual income tax structure that incorporates the existing regular tax rates, standard deduction, personal exemptions, and deduction of business expenses.”  But as a practical matter, many of these “deviations” are integral to our tax system.

And

[T]he JCT/CBO definition of the tax “structure”—the anchor that holds in place all the study’s assumptions—is arbitrary.  Two examples will suffice to make the point.

The two tax credits in the CBO list—the EITC and the child tax credit—differ from the exclusions, deductions and differential rates in that they are available only to taxpayers with relatively low incomes.  Indeed they are available to “taxpayers” who don’t pay taxes, which is to say that in some cases they can result in a negative tax liability—an actual subsidy, as that word is commonly understood.

Thanks to those credits, taxpayers at the lower end of the income scale get some benefit from “tax expenditures.”  But other redistributionist programs like food stamps, Medicaid, and Supplemental Security Income are left out of the CBO’s analysis merely because they are not administered through the income-tax system.

The CBO’s study also is a typically static study that, from the assumptions dictated to the CBO by Van Hollen for this one, cynically ignore, among other things, how the people being taxed and the economy in generally will react to changes in these “tax deductions, credits and exclusions.”