Tag Archives: Taxes

Of vs. In vs. Adding Words

Over at Politico this morning, Michael Lind has an interesting item out that suggests Donald Trump “exposed the Tea Party.”

One line, very early in the piece, jumped out at me. Lind is quoting Trump here:

“People as they make more and more money can pay a higher percentage” of taxes.

Lind didn’t use an ellipsis (…) after percentage to show that he was cutting up the quote. This is a bit sloppy.

Here’s what Trump actually said on Sean Hannity’s show:

TRUMP: I actually believe that people, as they make more and more money, can pay a higher percentage, OK?

HANNITY: How high?….What’s the cap?

You can read the full exchange here, but Trump doesn’t answer the question, other than to suggest that hedge fund managers can afford a tax increase. (This as some surmised, and later was confirmed, had to do with the “carried interest” tax rate, which is lower than the personal income tax rate a hedge fund manager would typically pay.)

This is not a defense of Trump. He didn’t answer the question with specificity, so we still don’t really know. And specificity is a problem area for Donald.

I know what you’re thinking — who cares? “‘a higher percentage’ of taxes” vs. “‘a higher percentage’ in taxes” are six and one half-dozen of the other, right? Nope, not necessarily.

Since raising taxes is generally a no-no for the political right, a distinction is important.

To say one wants wealthier people to pay “‘a higher percentage’ of taxes” is to suggest — assuming we’re only talking income taxes — that you want their contributions to represent a higher percentage than present of the total amount of taxes that are collected.

Of course, when it comes to income taxes, the top 50% of taxpayers pay 97% of all federal income taxes. The top 1% pay 38% of it.

Now, saying one wants wealthier people to pay “‘a higher percentage’ in taxes” is saying you want to raise rates on individuals as they get wealthier, or change the tax treatment of certain types of income (like carried interest or investment income) so it is treated as ordinary income.

So, what’s the distinction? Well — Trump’s views are still a mystery, but Lind inadvertently put words in Trump’s mouth by butchering the quote.

Conservatives, rightly, claim that when you tax something, generally, you get less of it. It’s not an absolute principle, but it’s generally correct. (To those who disagree, why, then are cigarette sales declining? Could it be a $1 per pack tax increase Obama signed? OK.)

In some instances, raising taxes on certain activities or on certain individuals, could ultimately result in less of that activity or individuals doing less work. It could even result in lower tax revenues than at lower rates.

The distinction between a higher percentage of all taxes and a higher percentage in tax rates is real. But Trump still hasn’t made it clear, and Lind (wrongly, though probably unintentionally) tried to make it clear.

I guess we’ll find out when Trump releases his tax plan. Though, if it’s anything like his immigration plan, don’t expect many specific details.

Hot Pockets, US International Tax Law, and Corporate Inversions

Here’s a recent appearance on One America News Network where I discuss the global economy, corporate inversions, and everyone’s favorite treat: Hot Pockets.

Can Reason Save Cleveland?

Earlier today, I shared Matt Yglesias’s story on why Silicon Valley should relocate to….Cleveland.

The facebook post I shared came with this message:

Yglesias writes “It’s time for tech hubs to go where they’re welcome.” And he picks…. Cleveland? What? Off his rocker.

The post received a number of comments, including one from a thoughtful a neighbor, whose son I played hockey with. He writes:

So Jimmy, you have been away long enough that you are now a Cleveland basher as well? True, we have three months of bad weather…..but unbelievable property values, great cost of living, great culture (I would put the Cleveland Orchestra up against any from San Francisco or Washington), the largest theater district west of NYC, a great art museum, the Hall of Fame, fantastic restaurants, great music ……and, oh yeah, you can actually get to all of them within 30 minutes – not 2-3 hrs. BTW…how much would your old home on Eaton Rd cost in either SF or Washington?

I frequently, and sometimes more harshly than I should, criticize Cleveland. I’d like to clear the air and share my thoughts on the matter. I don’t hate Cleveland, I criticize because I love where I grew up and want my hometown to thrive — despite its efforts to snatch defeat from the jaws of victory.

Here’s my response to my former neighbor, an all around good guy who frequently inspires great discussions on my facebook wall:

Dr. S. — I don’t disagree with your points on Cleveland the region. I do think, and agree, that the region would be good to host a wide range of industries for the reasons you express. And, for what it’s worth, I love the bad weather.

Indeed, the house I grew up in on Eaton road would easily go for a million or two here in Washington or San Francisco, if not more. (So, three to six times the cost.) Detroit, as Yglesias notes, has even more affordable housing, but he wrote them off as a lost city, noting that if he had picked Detroit, people likely migrate to Ann Arbor. I don’t think Cleveland is lost yet, but it’s not going out of its way to improve things, in my opinion.

Solving Cleveland’s inability to attain the growth it could attain is a puzzle, one with locally imposed constraints and with ones imposed by the state. The Cleveland area has many great attributes and it also has some things it needs to work on. That goes for Ohio, as well.

While I am frequently critical of Cleveland — sometimes more harshly than I should be — it’s because I’d love for my hometown to be the next Silicon Valley, but at present, I don’t think it can be. But that doesn’t mean that it can’t. Some of that is on the city of Cleveland itself, some on the suburbs, and some on the state. Before I forget, some of it is on Cuyahoga County — now with less corruption!

One reason is because I think that municipal income taxes are a poor way to structure things, especially if individuals who live in one city but work in another have to pay taxes to both in some respect. Unlike other comparable jurisdictions in other states, potential employers would have to pay more in salary and benefits to offset the tax differential. Not exactly a welcome beacon to relocate to NE Ohio. Sure, low-income earners get an exemption, but, in the case of the Yglesias example, tech employers probably employ fewer people exempted than those subject to paying taxes in Cleveland and (insert name of other jurisdiction).

Like the electoral map, Ohio has a bunch of residential clusters and a larger swath of area with lower population density.  Yes, California has high taxes — but it doesn’t allow city income taxes the way Ohio does. I do think an examination of the state’s tax policies are in order. That could benefit Cleveland and NE Ohio greatly.

Yglesias is correct to note that, unlike Detroit or Buffalo (no offense to my Buffalo friends), Cleveland could be fertile ground for such a resurgence. But, knowing that Cleveland and nearly every other major city does what it can to sell itself to businesses (like Philadelphia is doing to California’s Sriracha maker, under fire from the city in which it does business), businesses aren’t flocking to Cleveland. I wish they would, because I’d love to move back some day and watch the Browns lose in person. Maybe some day, we’ll win big.

My other concern/criticism with his piece is, at least as it pertains to the city, is this: If Yglesias thinks that it’s time for “tech hubs to go where they’re welcome” because SF residents are complaining about private bus stops — wait until he learns about some of Cleveland’s NIMBY problems.

Cleveland’s zoning and regulatory policies, for me, leave much to be desired. In my opinion, the city of Cleveland’s problem isn’t due to one-party rule, it’s more a problem of ideology. It’s more of a “our job is to help business ‘thread the needle‘ of regulations” than it is to make the regulations and laws more conducive for businesses to want to locate there in the first place.

My TL:DR is this — If Yglesias were revealing some secret about why everyone should “flee to the Cleve” and move their business there, people would already be doing it. I wish they were, as Cleveland is a great area with a lot to offer. But they aren’t. It’s not because of a lack of publicity or PR. Other journalists, with a love for Cleveland and Ohio, have already suggested some reasons why Cleveland might want to shun PR and focus on change, but they’ve largely been ignored.

While I’d love it if Ohio and Cleveland adopted the Texas and Houston models, that is unrealistic. It won’t happen. It’s part of the culture, which is fine. Even some modest changes in that direction, though, could help Cleveland.

bsig

UPDATE: I recommend this post by Daniel McGraw on the same topic.

Will we get a deal?

fiscal-cliff-contact-congress

It’s increasingly unlikely that Congress will work out a deal to solve the so-called “fiscal cliff” before the December 31 deadline.

This time two years ago, the ink was drying on the President’s signature of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

The clock is ticking and by most public accounts, we are nowhere close to a deal. Especially now that the House couldn’t get the votes together for a deal.

Earlier this month, press secretary Jay Carney said that Speaker Boehner’s oddly named “Plan B” isn’t acceptable to President Obama because “it can’t pass the Senate.”

One wonders whether or not the President’s proposal can meet his own Senate passage test. What’s more, it’s worth asking whether Boehner’s Plan B can even pass the House — since it already failed once.

With less than a week left until the end of the year, this is pretty much where we are: the sides are talking, but no plan seems to exist that is guaranteed passage in either chamber.

Details are scarce. We’re only offered broad descriptions about rates and income thresholds. Specific line items are being kept out of the public eye to avoid a thousand side debates over the necessity of a certain program, or whether or not current funding levels are justified.

In 2010, a similar deadline loomed. A select group of lawmakers huddled in secret to work out a deal on expiring tax rates and other provisions. The details of the negotiations weren’t public, but the names of the negotiators were.

This time around, it appears no such secretive group exists.

Which means that either the only people doing the negotiating are the President and Congressional leadership or a super-secret group of lawmakers negotiating exists. The latter is doubtful, since secrets like this are too big to keep in a gossipy place like Congress.

In 2010, a deal was struck with time to spare. But not after weeks of deliberations behind closed doors. Once it was struck, it was swiftly passed by the Senate by a large margin, and eventually passed in the House by a vote of 277 – 148 (with mostly Democrats and a few conservative Republicans voting Nay).

The sentiment in 2010 was that most people wanted a deal. For a deal to happen, consensus had to be reached, and consensus is hard to build when you go through the normal process, since Congress has a tendency to pick things to death.

Thus, why the details were hashed out in private. Prying eyes will try to kill a deal. They tried. And failed.

Hundreds of lobbyists and activists converged on the hill to see if their sacred cows would be spared or slaughtered. Multiple calls, emails, impromptu office visits to this secretive cadre of elected officials took place on a daily basis. Usually in vain.

Most of those inquiries were ignored by those officials and their staff. Even confirming to a party that their provision was in the clear would make it more clear to others that their interests were at stake. Washington is a small town, and word travels fast.

Revealing much of anything would cue a flood of further lobbying — not that it wasn’t happening already in the form of spam emails from CapWiz . So the way the 2010 tax compromise happened was because people kept a tight ship, and a take it or leave it deal was presented to the rest of Congress.

Neither side seemed very happy with the 2010 deal, but compromises often yield ugly results. They took the deal.

In 2012, neither side seems to want a deal, or at least a deal like the one struck in 2010. Back then, the House was about to change hands and Democrats had to worry about whether or not a new Republican majority would be more insistent on getting their way. The incentive was there to compromise.

Like in December of 2010, an election has recently taken place and the voters have spoken. A “status quo” election as Fred Barnes described in THE WEEKLY STANDARD, since no chamber lost its majority and the President retained his job.

The President and his supports think this means voters sided with them. House Republicans think since they kept the House, the voters sided with them. Not a very propitious climate for a compromise.

Which leaves us with a few possibilities:

Boehner and Obama are closer than we think and a deal is close to being reached. This would probably require bi-partisan passage in both bodies, since the more polarizing members in each chamber are likely to eschew compromise.

We are going off of the cliff and a deal comes in January. If either side holds out in an attempt to cash in on an imaginary mandate come January, markets will crash and voter discontent will soar. It’s a risky gamble for either side, but it has the potential to pay dividends and can’t be ruled out.

No deal is in the works in the short-term. If enough members hold out, and the newly-elected 113th Congress can’t muster a deal, we could go over the fiscal cliff and stay there for months. Some conservatives want voters to see the real cost of a big government is – despite the fact deficits would still likely exist even under this scenario. Others don’t believe a compromise will truly cut spending and put the country on a path to fiscal sanity. Some liberals want to hold out for imposing even higher tax rates on high income earners and on capital gains, while others want to see deep cuts to defense spending.

A super-secret group of elected officials is working on a ‘Hail Mary’ like 2010. It is unlikely such a group could exist without some spurned member blowing its cover, but it’s always possible. There are retiring members like Senators Kyl, Conrad,  Lieberman and Hutchison who are known deal makers and would avoid the pains of re-election. But retiring members don’t hold as much sway as Party leadership does with people who still have to be re-elected.

Will we get a deal? It’s always possible, but the incentives have changed for the worse since 2010.

And from the little we do know,  there’s not much promise. PageLines- bsig.png

 

 

 

 

Do Yourself a Favor

And listen to Jon Lovitz rant. Disclaimer: Audio NSFW

Tuesday Tax Day Links

Paging Wolf Blitzer

clotureclub: taxes due tonight

DealNews: The Best Tax Day Freebies & Deals: From Massages to Free Food

WSJ: Mutual-Fund Industry Sues CFTC Over Registration

Grover: Trickle-down taxation

MR: Relative to baseline forecasts, ACA and otherwise

Mankiw: Competition Is Healthy for Governments, Too

[poll id=”13″]

Landsburg: I’m teaching at CATO University

Jacob Wood's pic of the fly by

Arlington Taxicab user survey

Reason: Uncle Sam Wants You So Badly That the Feeling May No Longer Be Reciprocal

Bloomberg: The Sliming of Pink Slime’s Creator

Department of: 

Politico: Obama launches attack on oil speculators  (My earlier writing on the topic)

GGW: Graduate of DC schools says he wasn’t prepared for college

Olivia Wilde is an economic genius! (Not really, but her birth last name was Cockburn..)

Atlantic Wire: ALEC, Group That Pushed Stand Your Ground, Quits the Culture Wars

Bob Beckel’s F-Bomb

Reuters: Special Report: Tax time pushes some Americans to take a hike

John McCain endorses Josh Mandel #myfriends

TNR: If Health Insurance Mandates Are Unconstitutional, Why Did the Founding Fathers Back Them?

Understanding Tax Fairness

Rep. Davis: THE EPA IS WRONG ON COAL — AGAIN

The Atlantic: What the ‘End of Retail’ Means for Young Workers

That’s playoff hockey

Wonkette: GSA Crashing Its Own Party With Tales of Exploding Toilets, Bubble Baths And Wine Coolers

ABCNews: Cheers! Photos Show Embattled GSA Official Enjoying Wine and Soak in Spa Tub at M Hotel During “Pre-Conference” Meeting (what happens when old people use social media)

WaPo: St. Elizabeths renovation as security campus faces resistance

Consumerist: Seattle Man Victorious Over Apple In Small Claims Court | Michigan Lottery Winner Charged With Welfare Fraud

An IKEA TV? 

Weekly Standard: The Death of a Gimmick

Tucker Max: Duke story

NakedDC: Jennifer Granholm is forgetful

Gizmodo: Bucky Balls Could Double Your Lifespan (I think I’ll take a pass on eating my bucky cubes)

Reuters: US rejects import duties on refrigerators, steel wheels (small victory for consumers)

Gizmodo: What the Hell Happened to Google Wallet’s Cash-Free Future? (I love google wallet, I use it)

Kotaku: The Domino’s iPad Game Could Transform The Way We Order Pizza (And Get Jobs) (Amazing that potential Domino’s employees might own iPads.)

Says the Left: We were rich and awesome when taxes were higher

City: Illinois Shows What Not to Do

This movie looks taxing

From the trailer, I can tell that this is not a movie I will enjoy seeing. Invariably, I am sure I will watch it and write about it here because I do enjoy writing about tax policy and tax reform.

The movie’s billed as follows:

WE’RE NOT BROKE tells the story of U.S. corporations dodging billions of dollars in income tax, and how seven fed-up Americans take their frustration to the streets…and vow to make the corporations pay their fair share.

From the scenes depicted, it doesn’t look like it offers a serious and thoughtful dialogue on our tax code: what it is, and how it got to be the way it is. The film makers are not tax experts. And while I caution against overly trusting tax experts, since they profit most from the code’s complexity, people who aren’t tax experts don’t have a history of making good movies about taxes or espousing rational fixes.

I think Alec Baldwin’s tweet of support pretty much confirms this:

Watch this movie and it will indicate why I support the spirit of OWS, if not every action.

When I think of brilliant tax minds, the very first who jumps into my mind is Alec Baldwdin.

The film makers have jumped on and supported a bill by Sen. Levin called the “Cut Unjustified Tax Loopholes Act” — which is just a wordy and complicated attack on the territorial aspects of our tax code. Levin and others tend to support a “worldwide” system of taxation, which subjects foreign earnings to U.S. taxes. We are one of the few countries in the world that still have this tax system.

I don’t deny that corporations try to minimize their tax bill, but given a whole world of alternatives, is it really in our best interest to pursue policies that are likely to encourage them to take further action to that end? Obviously not. The goal is to reform the tax code in a way where they are less likely to do that.

But what I wanted to post is this scene from the trailer with some commentary by yours truly. In the scene below, people are saying they pay their taxes, so why isn’t Bank of America?

Well, no, collectively the odds are they all don’t pay their taxes. Maybe it’s possible 100% of the people in the picture do, but the statistics aren’t in their favor. Between 41% and 50% of individual filers either owe no taxes or receive money back beyond what they actually paid in taxes.

The reasons why people owe no income taxes are complex. From the Earned Income Tax Credit, to the Child Tax Credit, Mortgage Interest Deduction, buying a home (since expired) or a hybrid, or even simply writing off investment losses — there are a multitude of reasons why a significant portion of income earners don’t actually pay income taxes.

Just as conservatives are wrong to broadly malign those who owe no taxes, liberals are wrong to make similarly broad assumptions about corporations. The best remedy is to have a serious discussion on the history of the provisions, examining why they were enacted. Failing to do so is violating the fallacy of Chesterton’s fence.

In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable. It is extremely probable that we have overlooked some whole aspect of the question, if something set up by human beings like ourselves seems to be entirely meaningless and mysterious. There are reformers who get over this difficulty by assuming that all their fathers were fools; but if that be so, we can only say that folly appears to be a hereditary disease. But the truth is that nobody has any business to destroy a social institution until he has really seen it as an historical institution. If he knows how it arose, and what purposes it was supposed to serve, he may really be able to say that they were bad purposes, that they have since become bad purposes, or that they are purposes which are no longer served. But if he simply stares at the thing as a senseless monstrosity that has somehow sprung up in his path, it is he and not the traditionalist who is suffering from an illusion.

Just as individuals can owe no taxes for seemingly complex reasons, the same can be said of corporations. Whether it’s carrying forward losses, taking advantage of tax credits or deductions (like green energy!) there is not a simple way to determine whether or not a company’s tax bill is “fair” or not. Especially since “fair” is such a subjective term that has become a code word by the left, even if undefined.

And, my math is wrong and Congress made a mistake, they’re not “loopholes.” We need to stop using this term if Congress and the President made a conscious decision to make these policies law. True tax loopholes, ones that are mistakes, are more rare than you might think. Disliking the law or how people respond to it and other aspects of the law does not justify use of the term “loophole.”

One thing is for sure, we desperately need tax reform. However, if it’s along the lines of what Levin, Sanders and others are offering, count me out.

The film’s trailer features Sen. Sanders — The Democratic party has far better thinkers on tax policy than him. If Bernie Sanders can’t stand the thought that museum trinkets are made elsewhere, I tell you, I am sure his solutions on international tax policy will be equally backwards. In short, I highly doubt that if you care seriously about tax issues, this movie will be for you.

However, if you’re like my grade school classmate, and want something to get angry about something without being open to a discussion about it, I bet you’ll like it.

Further critique forthcoming.

Grover Norquist Interview