Tag Archives: taxes

IRS and Politics

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Recall that in the last election season, the Internal Revenue Service demanded of a number of nonprofit organizations information about the nature of their politics, who their contributors were, even asking about family members.  The IRS intended to use this information to challenge the organizations’ nonprofit status.  That this was a biased request is demonstrated by the fact that only conservative nonprofits were targeted, and they were targeted on the basis of the presence of terms like “patriot” and “tea party” in their organizational names.

The then-IRS commissioner, of course, denied this.  Douglas Shulman told Congress in March 2012,

There’s absolutely no targeting.  This is the kind of back and forth that happens to people….

Turns out he was lying.  Lois Lerner, head of the IRS division that oversees tax-exempt groups, said,

That [demand] was wrong.  That was absolutely incorrect, it was insensitive, and it was inappropriate.  That’s not how we go about selecting cases for further review[.]

Then she said,

The IRS would like to apologize for that[.]

Well, Madam, when will the IRS apologize for that, instead of just talk about wanting to?  And what assurances are you or Steven Miller, the acting IRS Commissioner, going to provide that guarantee this politicization of the IRS’ function has been erased and will not recur?  When will we see IRS action on these assurances?

This…behavior…makes me wonder if David Axelrod has gone to work for the IRS.  Or whether Janet Napolitano, DHS Secretary, is directing the IRS’ oversight function.

A Thought on Wealth Redistribution

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The Heritage Foundation has released their study on a potential cost to existing US taxpayers of legalizing existing illegal aliens under the Gang of Eight’s immigration reform program.  Andrew Stiles, writing for National Review Online, has provided a useful summary of that 100-page document.

Rather than commenting on the implications vis-à-vis immigration reform, though, I want to comment on the implications for us taxpayers with respect to the larger question of wealth redistribution in our country.

Stiles noted that

[t]he study seeks to calculate the total amount of taxpayer-funded benefits and services illegal immigrants would, if given legal status, consume over their lifetimes, compared with the amount they would contribute in taxes.  The various benefits and services taken into account include direct benefits such as Social Security and Medicare, means-tested welfare programs such as food stamps and public housing, public education, and other services such as police and fire departments.

Stiles’ summary continued:

[O]nce formerly illegal immigrants become eligible for [means-tested welfare] programs, average fiscal deficits [of welfare payouts over tax collections] would rise to about $29,500 per household.  During retirement, when former illegal immigrants, now permanent residents or citizens, would be eligible for Social Security and Medicare benefits, the net cost to taxpayers would remain high, at around $22,700 per retiree per year.

In the aggregate,

[a]fter legalization, [the fiscal deficit]…would climb to $106 billion once households become eligible for welfare benefits, and would increase still further to around $160 billion during the retirement phase.

There are legitimate criticisms of this study as it applies to immigrants, mostly centered on the study being static rather than dynamic—for instance, now-legal immigrant contributions to our economy are not considered.

In the context of this post, though, the numbers are instructive, since there are no special welfare programs for immigrants, legal or otherwise: these are the programs in which American citizens of an economic status participate.

There are more than 50 million recipients of Medicaid benefits and more than 40 million food stamp recipients presently (yes, there’s overlap between these two groups).  There are more than 100 million recipients of some form of welfare.  With 11 million legalized immigrants getting $106 billion to $160 billion in annual welfare payments, it’s easy to wonder at the magnitude of the wealth redistribution aimed at our existing poor.

Think about the economic boon—to those poor and to the middle and upper classes—of that money staying in the private economy rather than being washed through government with its inherent inefficiencies and waste, even assuming only the best of intentions and effort by the bureaucrats administering the programs.

A sound economy, with maximal monies left in the hands of the earners, greatly reduces the moral and fiscal burdens on Americans, and it greatly reduces (though it does not eliminate) the need for, and cost of, welfare programs.

A Thought on Taxes

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As the idea of reforming our mendaciously Byzantine tax code starts to come up again—whether as a reform in its own right or as a bargaining chip in the coming debt ceiling debate (which debate properly focuses on cutting spending more than on taxes)—some thoughts occur to me, triggered by a couple of recent Wall Street Journal articles.

One thought concerns the purpose of tax reform.  The Progressives in government, led by President Barack Obama, Senators Chuck Schumer (D, NY) and Majority Leader Harry Reid (D, NV), and Congressman Sander Levin (D, MI, Ranking Member on the Ways and Means Committee) insist that the purpose must be to raise yet more revenue for government, while most Republicans and generally all Conservatives insist that the purpose must be both to make the system fairer and to leave more money in the hands of the folks who earned it—which does not include government.

Levin actually argues in all seriousness

I don’t see how you do it without a major tax cut for the very wealthy.  And to make [the revenue] up, I think that means a tax increase for the middle class. I don’t see how else you do it.

But Levin, and his fellow Progressives generally, don’t explain why they have such disdain for this group of Americans.  Their bias is well-established, but it’s less important than another Progressive failure: their decision not to justify the government’s—or their own—”need” for more revenue.  The Progressives’ need is well understood—it’s to feed both their addiction to the dependency of others on their own power to dole out goodies to those dependents and to consolidate their personal political power.  But based on what theory must government have more revenue?  These worthies cynically decline to explain that at all.

Progressives (and too many Republicans) complain that cuts in taxes (or spending, come to that) will hurt this or that or those programs, but this simply begs the question.  They have yet to demonstrate either that the programs actually are necessary, and subsequently, that government can do them better than the private sector: private enterprise, charity/church, local communities, NGOs, etc.

There is an alternative to “paying” for a tax reform that reduces revenue to the government (eliding the fact that the resulting burgeoning economy will, on net, produce an increase in the government’s revenue collections).  That is to cut spending to fit within the revenues collected.  But that’s inconceivable to too many in government.

Government certainly can, and should, fill the shortfalls and failures, but there must be failure or shortfall before government legitimately can act.

Congressman Kevin Brady (R, TX, Joint Economic Committee Chairman), in the other WSJ article wrote of a practical aspect inhibiting real tax reform, and that is the inaccuracy of the underlying data.  I won’t go into the statistical arcana that are at the center of this problem; suffice it to say that there is a difference between the meanings of the median and mean (what we normally think of with “average”) of a collection of data, in this case the tables of tax data broken out by various categories involving income levels and who pays taxes currently—what Brady refers to as Tax Distribution Tables.

These tables are used to assess the outcomes of various tax proposals (and their degree of progressivity, that is by how much the higher income are required to pay more than the middle and lower income).  Misuse of the data in these tables can lead to misleading assessments of proposal outcomes.  Brady wrote

The tables use averages—rather than medians—to characterize changes in tax liabilities by income groups (or quintiles).  But averages are wildly unrepresentative for this purpose.  For example, the study found that the average tax liability for the second quintile (with adjusted gross incomes between $11,100 and $24,000) represents just 1.1% of the taxpayers in that quintile.  The average reflects a mere 31.9% of taxpayers in the fourth income quintile ($42,600-$76,600).

The average adjusted gross income for all tax returns…was $59,800 while the median is only $32,200.  The average tax liability was $8,000 while the median is $1,500.  This dramatic difference suggests how much confidence one can place in these tables as a guide to policy makers.

And

The tables group taxpayers by income categories without regard to other relevant factors.  In reality, income alone has little in common with tax liabilities—that is, how much a taxpayer owes the government—because of differences in the size and composition of households, the type of income, and the amount of deductions and exclusions.

The tables miss two other important aspects of our tax code, also, stemming from the fact that they are static snapshots and so cannot illuminate the dynamics of an American taxpayer, or the collection of us.  For instance:

Tax-distribution tables cannot capture one of the most salient characteristics of the U.S. tax code—the decreasing share of taxes paid by the bottom 50% of taxpayers and the increasing share of taxes paid by the upper 1%.

And

Tax-distribution tables are momentary snapshots that ignore income mobility.  …  The nonpartisan Tax Foundation found in a study on income mobility in 2010 that nearly 60% of the households in the lowest quintile moved into a higher income group between 1999 and 2007, while almost 40% of households in the top quintile fell by at least one quintile. The…traditional tax tables [are] obsolete shortly after they are published.

Another Impact of Obamacare

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The Labor Department released its April jobs data last Friday.  First, the good news: the labor force participation rate didn’t change from March—good news because it actually means more folks, in absolute terms, are participating, since the US’ population increased from March, and because while participation still is down from last January and remains near 30-year lows, it’s not dropping further.  Also, 165,000 new non-farm jobs were added in April—no great shakes compared with what’s needed for actual economic growth, but it’s better than even the upwardly revised number for March.  These combined to lower the unemployment rate a tick from March, to 7.5%.

Buried in the numbers, though, are some worrisome data [emphasis added].

[A] broader rate, known as the “U-6” for its data classification by the Labor Department, increased to 13.9% from 13.8% a month earlier.
…
In April, the rate ticked up as the number of workers who are part-time but want full-time work increased.  That came even as the numbers of hours worked also dropped this month for all workers.

The primary reason the hours are dropping is illustrated by this.

…the decision by some employers to keep fewer full-time workers on the payroll or reduce the hours of near full-time workers to avoid having to provide health insurance.

It’s not limited to private enterprise:

Consider the city of Long Beach.  It is limiting most of its 1,600 part-time employees to fewer than 27 hours a week, on average.  City officials say that without cutting payroll hours, new health benefits would cost up to $2 million more next year, and that extra expense would trigger layoffs and cutbacks in city services.

And

Overall, an estimated 2.3 million workers nationwide, including 240,000 in California, are at risk of losing hours as employers adjust to the new math of workplace benefits, according to research by UC Berkeley.  All this comes at a time when part-timers are being hired in greater numbers as US employers look to keep payrolls lean.

As the WSJ put it,

This raises the question about the kinds of jobs being created, and whether they can support a faster recovery.

The Party of Stupid, Again

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Mark Peters and Neil King, writing in The Wall Street Journal, described the party’s latest escapades, this time in state governments, late last week.

Republican lawmakers in several states are blunting plans by GOP governors to reduce or eliminate income taxes, putting the legislators at odds with figures many in the party see as leading voices on reshaping government.

Friction over tax policy within the GOP has flared in states such as Louisiana, Nebraska, Kansas and Ohio, as Republican lawmakers raise concerns over projected revenue losses from income-tax cuts.  Three of those states shelved big income-tax cuts that would be paid for by broadening the sales tax, and in Kansas, legislators will return next week to a continuing debate over the size and speed of proposed cuts.

And

What is playing out is a collision of long-held Republican Party ideals as lawmakers want to cut taxes to spur economic growth without running up deep budget deficits.  Most of the governors promoting cuts are first-termers who say the income tax damps consumer spending and business creation.  The boldest plans, however, can’t be done without expanding the sales tax and eliminating certain exemptions, a shift many legislators aren’t willing to embrace.

As I’ve pointed out many times, these beefs flow from the false premise that the (state) governments need the revenues.  No.  Cut spending to fit within the (lower) taxes—which actual revenues will increase, anyway, from the resulting stronger and growing state economies.  Reduce overdone services; eliminate the frivolous and/or duplicative ones (New Jersey has six separate services related to agriculture as well as an Arts Council and an Arts and Recreation service that are better done locally and/or in the private sector; Arizona’s descriptions of its state-run services run to 500 pages of…regulations); let the private sector do more with its own money; let private charity, church, community play more of their proper role.

Indiana House Speaker Brian Bosma (R, Indianapolis) said of a tax reduction plan generated by Governor Mike Pence (R)

You can’t just have a reaction and say, “Yep, we’re going to cut a tax.”  You have to look in the long haul—over a decade—to be sure it’s sustainable.

Yes, you can.  It’s sustainable from cutting spending commensurately.

Peters and King note

[t]he tax debate in Republican-dominated capitols comes as national party leaders see the states as a source of policy innovations and fresh faces following Republican election defeats on the federal level last November.  The Republican National Committee recently heralded its 30 GOP governors as “America’s reformers in chief.”

It’s hard to make this case, though, with the evident hypocrisy the Republican state legislators are showing.

Figure it out, guys.  Either you’re for low taxes, little spending, and limited government, or you’re not.  Do we need to generate a new party that takes shrinking government seriously?