Tag Archives: taxes

Tax Reform

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…with a Republican Congress and a Democrat President.

[W]ith Barack Obama in the White House and enough Democrats in the Senate to uphold a filibuster, Republican lawmakers are quietly playing down any hope of comprehensive tax reform and instead have set their sights on just the corporate portion of the tax code.

The GOP favors a simplified tax code with a lower, but broader, tax base.

That proposal is a nonstarter with Democrats because while it would reduce taxes overall, it would draw tax revenue from more people on the lower end of the income spectrum.

Never mind that with skin in the game, “people on the lower end of the income spectrum” would take their political responsibilities more seriously, which, far from leaving them their current Democrat rubber stamps, would work to the good of the nation.

The tax cut deal Congress passed “doesn’t have the shelf life of a carton of eggs,” [Senator Ron, D-OR] Wyden lamented before the Senate adjourned.

Wyden is right to lament this, though perhaps not for the reason he thinks: temporary fiscal measures do not have any effect on businesses or the economy other than suppressing both as the businesses await the uncertain outcome of the end of temporary measures.

Congressional Republicans have come to realize that even though they will control both the House and Senate in 2015, they won’t get far on tax reform unless they do so in concert with the president.

In other words, the GOP isn’t planning on passing its own bill for Obama to reject.

Said one top GOP aide close to the Senate talks, “There is only so much that can be done without the White House involved.”

Simply giving up, though, would be a mistake, and it would play into the hands of critics who say the Republican Party has gotten too used to losing and no longer knows how to win in Congress. “Needing” the President’s cooperation and that of enough Democrats to pass a cloture vote, though, actually is good for Republicans: it would help them emphasize the differences between them and Democrats, and it (re)identify the Republican Party as the party of low taxes and the Democratic Party as the party of big spending, the party of you can’t have anything if I can’t have my big taxes, the party of No.

“Only so much that can be done” is true, and passing lesser reform is a fine fallback. However, Republicans need to force votes—even if they’re failed cloture votes in the Senate—on full, wide-ranging, complete tax reform in order to put the Democrats, individually and collectively, on the voting record: either those Democrat Senators are for reform, or they’re for the Party of No. Either Obama signs, or he vetoes as a leading member of the Party of No.

In fine: pass the broad reform bills, anyway: force the votes, and if it gets far enough, force Obama to veto. Then bring the failed bills up again the next year, and force and force the votes and the veto again—in an election year. Some Republican staffers worry that this year is it because in an election year, too many politicians will be worrying about their election campaigns. These staffers corroborate the criticism regarding not knowing how to win. Election years, especially the one coming up, is when the Republicans will have the most leverage—if they can find the courage to apply the pressure.

Taxes and Congress

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The 113th Congress, in its last days, has passed and sent to President Barack Obama for signature (or veto) a bill extending expired tax breaks through the end of this year. It’s retroactive because the expiration occurred at the end of last year. And the extension is good only for a couple more weeks. The breaks are an amalgam of exemptions that

benefit big corporations and small businesses, as well as struggling homeowners and people who live in states without a state income tax.

A couple things about this. First, notice that phrase “tax breaks.” These represent special carve outs for selected businesses and selected individual Americans, and they’re a mix of crony capitalism and social engineering.

The other thing is the end-of-year decision making regarding the tax code. This isn’t unique to this Congress; Congresses have been pulling this stunt for decades.

If we had real tax reform, say a tax code that eschewed social engineering, that had a single, low, flat rate without loopholes, carve outs, subsidies, credits, and so on, and that everyone with an income paid, there’d be no need—no opportunity—for this late year, late night, wrangling. And there’d be no need for tax breaks, loopholes, carve outs, subsidies, credits, and so on.

This also would both reduce the breadth of influence of special interests and reduce the availability of our tax code—and our tax money—for government-determined social engineering.

This is a thing the 114th Congress should take up with some urgency—”on day one.” It’s highly likely that Obama would veto real tax reform, but that in itself would be not so bad. At worst, that would help shape the 2016 elections and clarify differences between those who understand and respect the wisdom of American citizens and those who think government must be involved in our lives for our own good.

This is a test of both camps.

More Thoughts on European Taxation

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This time British Prime Minister David Cameron (he of the possible immigration awakening) and British Chancellor George Osborne have them. They’re touting a

diverted-profits tax, would hit multinational companies with a 25% tax rate on any profits earned from activity in Britain that the company attributes to a subsidiary based in a lower-tax jurisdiction. Since the rate is higher than Britain’s normal 21% corporate tax rate, Mr Osborne clearly is hoping companies will stop so-called revenue shifting and pay regular taxes instead.

As The Wall Street Journal put it in their op-ed at the link above,

[i]t’s a strange move because not so long ago the Tories understood the stimulative power of tax cuts. Messrs Cameron and Osborne have cut the top corporate tax rate to 21% from 28%, and have reduced personal income-tax rates and adjusted the tax brackets so that fewer earners pay the higher rates. By keeping more cash in the productive private economy and improving incentives for saving, investment and work, these moves have contributed to a growth rate now expected to hit 3% for this year.

The WSJ claims mystification over the “Google tax,” the nom de guerre of diverted profits tax, but they misapprehend the…thinking…of Messrs Cameron and Osborne. If fact, those fine gentlemen are operating from the false premise that corporate profits actually are the government’s money in the first place, and/or from that premise’s close associate, that the government needs that money.

Thoughts on European Inflation and Tax Policy

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Michael Heise, Chief Economist at Allianz SE, had some in his op-ed in The Wall Street Journal, but I want to focus on just a couple, for the mindset implied as he—and Europe’s politicians—address inflation and tax policy.

They [tax and ultralow-interest rate policies] encourage risk taking among investors searching for yield, potentially leading to malinvestment. They affect the distribution of income and wealth between the less affluent, who are most affected by low returns on bank deposits, and the wealthier, who tend to benefit most from rising share prices. Finally, perhaps most important, ultralow interest rates discourage savings for retirement and slow down the growth of existing pension assets.

“Ultralow rates encourage risk taking.” Yeah? And? That’s a business decision; no government need be—no government should be—involved in that. A free market will do a far better, far more efficient, with far prompter sanction application job of regulating risk taking businesses.

“Affect the distribution of income and wealth.” Yeah? And? To the extent such distributions can ever be bad, a free market is the best way to raise the prosperity of the least, and if the wealthy get wealthier, so what? The poor still are less poor. No government mandates or regulations can hope to match the prosperity creation that is freedom in the market.

“Ultralow interest rates discourage savings for….” This is true, and the ECB’s decision to artificially depress interest rates is negligently harmful to the poor, the retired, and those trying to save for retirement. Further, ECB and sovereign nation interferences in the market for debt instruments is purely political, and so it’s wholly unpredictable (who can tell when a politician will decide it’s in his interest to do something different?). That unpredictability seriously damages the ability of anyone to save for their future.

Tax policy shouldn’t be used for social engineering; optimally, it should be used only to fund basic government. The free market is a better place—more efficient, and faster acting—than government from which to regulate interest rates and risk. Even in social democrat Europe.

All Right Now

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…or nothing at all, ever. That’s the attitude of the Democratic Party in today’s Congress and of the farther right of the Republican Party in today’s Congress. It’s enough to paralyze Congress and keep it from doing much of anything—and to hand Congress back to the Democrats, which may explain some of their attitude.

I’ve argued before that gridlock isn’t, of necessity, a bad thing, but there are a few things Congress does need to accomplish.

A short, partial list includes

  • funding the legitimate tasks of government, those enumerated in Art I, Sect 8 of our Constitution
  • reforming taxes, which would have the side effect of paring back—significantly—an IRS that thinks it’s outside (not merely above) the law
  • reforming immigration
  • privatizing Social Security and Medicare, and getting rid of the Federal contributions to Medicaid

But none of this can be—nor should it be (Obamacare, anyone? Dodd-Frank?)—done all at once. Easy steps, compromises, that bring us incrementally into that reduced government place we should occupy—and will ultimately get us there.

But to get there, we need to take steps, one after another, not hold out for single leaps that cannot occur.