Tag: Taxes

Reframe The Debate

Posted on January 24, 2018

It is important to recognize changes in the seasons. Our country is undergoing a significant metamorphosis, which is likely to last several years, but we have an opportunity to help ensure that what emerges from this turmoil is more beautiful than what preceded. While there are plenty of problems we can dwell on, at the same time there are a number of very positive changes occurring that I believe are laying the groundwork for a better future. It is now our collective job to work toward making that happen.

One of the big shifts going on is in the economic arena, and it will have profound effects. A fresh perspective on the role of our nation’s currency is set to reshape the debate on public policy and government budgets. If you are not yet familiar with Modern Money Theory (MMT), it is time you get up to speed. A good place to start is with the work of Stephanie Kelton. Her recent New York Times piece How We Think About The Deficit Is Mostly Wrong provides an excellent introduction to this shift in thinking.

The Patriotic Millionaires have a powerful message about restoring political equality, fair pay for workers, and ending tax giveaways for the wealthy. However, we too must be careful not to fall into the trap of framing tax reforms and public policy in ways that reinforce the narrative that our government is fiscally constrained. It is not, and never will be.

Let me be clear. Raising taxes on the wealthy does not give our government any more spending power than what it already possesses. Whatever Congress authorizes is “affordable” since our government is self-financing. The Treasury and Federal Reserve coordinate to make all payments that Congress authorizes, no matter what levels of taxes are collected. As I have written previously, our advocacy for tax reform is about reducing excessive inequality and extreme wealth concentration that disrupts our democratic process, NOT about fundraising for the federal government.*

We must reframe fiscal policy debates away from the false narrative of a scarce money supply. This narrative forms the basis for the argument that Social Security and Medicare, among other government programs, are unaffordable. As Alan Greenspan tried to explain to a very disappointed Paul Ryan, “there is nothing to prevent the Federal Government from creating as much money as it wants and paying it to somebody.” There is no unfunded liability crisis.

We cannot give in to the temptation to link tax reforms that address inequities in our economy to the sustainability of important government programs.

Firstly, it is economically inaccurate to state that federal taxes fund government spending. The government spends by crediting bank accounts, and taxes can only remove currency that prior government payments added. Taxes cannot be a source of funds.
Secondly, we should vigorously defend programs such as Social Security from attacks simply because a government that issues its own currency will never be insolvent. Congress should simply approve a permanent living wage to senior citizens and authorize Treasury to make all payments as they become due, irrespective of taxes received or trust account balances. This is, of course, exactly how we pay for our wars.
Finally, linking government programs and investments to a specific tax source leaves those programs subject to unnecessary cuts when tax receipts inevitably fall during recessions. Why would we want to link essential purpose services to business cycles?

It is time we ended the “pay for” mentality. We need to break the bad habit of pairing all of the government’s public investments with a tax, or of linking payments for government programs to the need for a more equitable tax code. They are two separate aspects of government policy, each to be debated on their own merits. This allows us to reframe the conversation on each issue back to how they best serve the public.

For example, the Republican Tax Plan was problematic not because it created a larger government deficit – something that is neither good nor bad in and of itself – but because it gave a massive handout of our public currency to the extremely wealthy, worsening an already excessively inequitable distribution of wealth, and doing nothing to create a more sustainable, shared prosperity.

Now, as Republicans seek to use the enlarged deficit to attack Social Security and Medicare, our response must be to expose their entire false premise – that larger deficits create unsustainable programs. Reducing funding for welfare programs is entirely a political choice, not an economic necessity. Such cuts are cruel public policy that hurts American families and have nothing to do with fiscal responsibility. We will separately argue for a less regressive FICA tax, but not because Social Security needs another source of funds, but rather so that we have a more just and fair tax system.

Our government is not constrained financially like a household. The deficit is not our primary guide for government budget and tax reform discussions. We Patriotic Millionaires have a compelling tax policy message that will reduce inequality and lead to a more prosperous economy for all. We also have a powerful message that our government can already afford to pay incomes to senior citizens, raise wages for its workers, cover the costs of health care, and forgive student loans.

Take care to reframe the debate over fiscal policy the right way. If you need help understanding how our modern monetary system works, you can check out my site Modern Money Basics. Together, we can shift our national conversation in a more positive direction and inspire hope in a better economy for all.

*Note that for state and local governments, which do not issue the public currency, taxes are essential for funding their budgets. The federal government as the issuer of our currency is unique.

Congressional Budget Office Cost Estimate: The Tax Cuts And Jobs Act

Posted on November 26, 2017

The Reconciliation Recommendations of the Senate Committee on Finance, the Tax Cuts and Jobs Act, would amend numerous provisions of U.S. tax law. Among other changes, the bill would reduce most income tax rates for individuals and modify the tax brackets for those taxpayers; increase the standard deduction and the child tax credit; and repeal deductions for personal exemptions, certain itemized deductions, and the alternative minimum tax (AMT).

Those changes would take effect on January 1, 2018, and would be scheduled to expire after December 31, 2025. The bill also would permanently repeal the penalties associated with the requirement that most people obtain health insurance coverage (also known as the individual mandate).

The legislation would permanently modify business taxation as well. Among other provisions, beginning in 2019, it would replace the structure of corporate income tax rates, which has a top rate of 35 percent under current law, with a single 20 percent rate. The legislation also would substantially alter the current system under which the worldwide income of U.S. corporations is subject to taxation.

The staff of the Joint Committee on Taxation (JCT) estimates that enacting the legislation would reduce revenues by about $1,633 billion and decrease outlays by $219 billion over the 2018-2027 period, leading to an increase in the deficit of $1,414 billion over the next 10 years. A portion of the changes in revenues would be from Social Security payroll taxes, which are off-budget. Excluding the estimated $27 billion increase in off-budget revenues over the next 10 years, JCT estimates that the legislation would increase on-budget deficits by about $1,441 billion over the period from 2018 to 2027. Pay-as-you-go procedures apply because enacting the legislation would affect direct spending and revenues.

JCT estimates that enacting the legislation would not increase on-budget deficits by more than $5 billion in any of the four consecutive 10-year periods beginning in 2028.

Because of the magnitude of its estimated budgetary effects, the Tax Cuts and Jobs Act is considered major legislation as defined in section 4107 of H. Con. Res. 71, the Concurrent Resolution on the Budget for Fiscal Year 2018. It therefore triggers the requirement that the cost estimate, to the greatest extent practicable, include the budgetary impact of the bill’s macroeconomic effects. The staff of the Joint Committee on Taxation is currently analyzing changes in economic output, employment, capital stock, and other macroeconomic variables resulting from the bill for purposes of determining these budgetary effects. However, JCT indicates that it is not practicable for a macroeconomic analysis to incorporate the full effects of all of the provisions in the bill, including interactions between these provisions, within the very short time available between completion of the bill and the filing of the committee report.

CBO and JCT have determined that the tax provisions of the legislation contain no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).

ESTIMATED COST TO THE FEDERAL GOVERNMENT

The estimated budgetary effects of the Tax Cuts and Jobs Act are shown in the table below.

BASIS OF ESTIMATE

Revenues and Direct Spending

The Congressional Budget Act of 1974, as amended, stipulates that JCT’s estimates of revenues will be the official estimates for all tax legislation considered by the Congress. Therefore, CBO incorporates JCT’s estimates into its cost estimates of the effects of legislation. JCT provided virtually all estimates for the provisions of the bill, but JCT and CBO collaborated on the estimate of the provision that would eliminate the penalties associated with the requirement that most people obtain health insurance coverage.¹ The date of enactment of the bill is generally assumed to be December 1, 2017.

JCT estimates that, together, the provisions contained in the legislation would decrease federal revenues, on net, by about $38 billion in 2018, by $972 billion over the period from 2018 to 2022, and by $1,633 billion over the period from 2018 to 2027. Net outlays would be nearly unchanged in 2018, and would decrease by $46 billion from 2018 to 2022, and by $219 billion over the period from 2018 to 2027. On net, deficits would increase by $38 billion in 2018, by $926 billion from 2018 to 2022, and by $1,414 billion from 2018 to 2027. A portion of those effects reflect changes to revenues from Social Security taxes, which are off-budget. JCT estimates that over the 2018-2027 period, the bill would increase on-budget deficits by $1,441 billion and reduce off-budget deficits by $27 billion.

Tax Changes for Individuals. The bill would make numerous changes to tax law pertaining to individuals.

JCT estimates that the individual tax provisions would, on net, reduce revenues by $1,119 billion from 2018 to 2027. Those provisions also would decrease outlays by an estimated $233 billion over the 2018-2027 period. Some provisions would increase off-budget revenues by $20 billion over the period from 2018 to 2027, JCT estimates. On-budget revenues would decrease by an estimated $1,139 billion.

Revenue-Reducing Provisions. Provisions that are estimated to reduce revenues over the 2018-2027 period include the following, which would take effect on January 1, 2018 and expire on December 31, 2025:

Modify the seven tax brackets in place under current law to create brackets with rates of 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 38.5 percent;
Increase the standard deduction;
Repeal the individual AMT (Alternative Minimum Tax);
Allow a 17.4 percent deduction, subject to certain limits, for qualified business income that individuals receive from pass-through entities, namely partnerships, S corporations, and sole proprietorships;
Increase the child tax credit to $2,000, and, among other related changes, provide a new $500 credit for certain other dependents; and
Double the exemption allowed under estate and gift taxes.

According to JCT’s estimates, the largest revenue reductions would result from the provision that would modify income tax rates and brackets: Revenues would fall by $1,165 billion and outlays for refundable tax credits would increase by $9 billion over the 2018-2027 period. The increase in the standard deduction would reduce revenues by $654 billion and increase outlays for refundable tax credits by $83 billion over the same period, JCT estimates. Repealing the individual AMT would reduce revenues by $769 billion from 2018 to 2027.

JCT also estimates that the bill’s provisions that provide a deduction for qualifying income from pass-through entities would reduce revenues by $362 billion over the 2018-2027 period and that modifications to the child tax credit would, over the same period, reduce revenues by $431 billion and increase outlays for refundable tax credits by $154 billion. JCT estimates that additional revenue reductions, totaling $83 billion from 2018 to 2027, would result from the modifications to estate and gift taxes.

Revenue-Increasing Provisions. Provisions that are estimated to increase revenues over the 2018-2027 period would:

Repeal deductions for personal exemptions through 2025;
Repeal certain itemized deductions, including those for state and local taxes and interest on home equity indebtedness, also through 2025;
Disallow immediate use of certain losses by active owners of pass-through entities; and
Permanently index tax parameters to the chained consumer price index instead of the traditional consumer price index.

The largest revenue increases would result from the provision to repeal deductions for personal exemptions, which JCT estimates would increase revenues by $1,086 billion and reduce outlays for refundable credits by $134 billion over the 2018-2027 period. JCT estimates that the repeal of certain itemized deductions also would increase revenues by $974 billion and reduce outlays for refundable credits by $3 billion from 2018 to 2027.

Substantial but smaller increases in revenues would result from two other provisions. First, disallowing certain losses by pass-through entities would increase revenues by an estimated $137 billion over the 2018-2027 period. Second, the change in the inflation measure used to index tax parameters would increase revenues by $115 billion and reduce outlays for refundable credits by $19 billion over the 2018-2027 period, according to JCT’s estimates.

Repealing the Individual Mandate. The bill’s most significant effects on outlays would occur as a result of the elimination, beginning in 2019, of the penalties associated with the individual mandate. CBO and JCT estimate the following effects of that provision:

Federal budget deficits would be reduced by about $318 billion between 2018 and 2027, consisting of estimated reductions in outlays of $298 billion and increases in revenues of $21 billion over the period;
The number of people with health insurance would decrease by 4 million in 2019 and 13 million in 2027;
Nongroup insurance markets would continue to be stable in almost all areas of the country throughout the coming decade; and
Average premiums in the nongroup market would increase by about 10 percent in most years of the decade (with no changes in the ages of people purchasing insurance accounted for) relative to CBO’s baseline projections. In other words, premiums in both 2019 and 2027 would be about 10 percent higher than is projected in the baseline.

Those effects would occur mainly because healthier people would be less likely to obtain insurance and because, especially in the nongroup market, the resulting increases in premiums would cause more people to not purchase insurance. In this estimate for the Tax Cuts and Jobs Act, the estimated reduction in the deficit is different from a CBO and JCT estimate published on November 8, 2017.2 The differences occur because the provision of this legislation eliminates the penalties associated with the mandate but not the mandate itself and because of interactions with other provisions of the bill.

Business-Related Tax Changes. The bill would make many permanent changes to business taxes. The provisions with the largest effects on revenues, as estimated by JCT, are those that would:

Replace, starting in 2019, the current graduated structure of corporate income tax rates, which has a top rate of 35 percent under current law, with a single 20 percent rate;
Limit the deduction for net interest expenses to the sum of business interest income and 30 percent of an adjusted measure of taxable income; and
Limit the deduction for past net operating losses to a portion of current taxable income, and generally repeal the two-year period over which losses may be carried back to previous tax years.

JCT estimates that those tax provisions would, on net, reduce revenues by $669 billion from 2018 to 2027. In addition, those provisions would increase outlays for refundable tax credits by an estimated $14 billion over the 2018-2027 period.

JCT estimates that the modifications to the rate structure, including reducing the top corporate tax rate from the 35 percent that is assessed on most taxable income to a 20 percent rate that would apply to all amounts of taxable income, would reduce revenues by $1,329 billion over the 2018-2027 period. JCT also estimates that limiting the deductions for interest expenses would increase revenues by $308 billion and that limiting the use of net operating losses would raise revenues by $158 billion over the same period.

The outlay effects from the business provisions would result from repealing the corporate alternative minimum tax. That change would reduce receipts by $26 billion and increase outlays by $14 billion over the period from 2018 to 2027, according to JCT’s estimates.

International Tax Changes. The bill would substantially modify the current system of taxation of worldwide income of U.S. corporations, generally including foreign earnings in taxable income when paid to businesses as dividends by their foreign subsidiaries and with an allowance for tax credits for certain foreign taxes that businesses pay. Under the Tax Cuts and Jobs Act, the tax system would provide an exemption for dividends paid by a foreign corporation to its U.S. parent, and no foreign tax credits would be allowed for taxes paid on the amount of such dividends. Other changes also would be implemented. The international tax provisions with the largest estimated effects on revenues are those that would:

Provide a deduction for the foreign-source portion of dividends received by domestic corporations from certain foreign corporations;
Require that certain untaxed foreign income of U.S. corporations be deemed to be immediately paid to those corporations as dividends and included in taxable income, subject to taxation at a rate of 10 percent (or 5 percent for certain illiquid assets), and with an option to spread the resulting tax payments over an eight-year period with 60 percent paid in the final three years;
Impose on U.S. corporations a minimum tax of 10 percent (12.5 percent starting in 2026) on a tax base that excludes certain otherwise tax-deductible payments to foreign affiliates; and
Require that U.S. corporations immediately include in taxable income certain amounts earned from low-taxed investments by foreign subsidiaries.

JCT estimates that the provisions related to international taxation would, on net, increase revenues by $155 billion from 2018 to 2027. It also estimates that the deduction for dividends received from foreign corporations would reduce revenues by $216 billion over that period. JCT estimates that three other provisions would have large budgetary effects that would increase revenues from 2018 to 2027. Those provisions would require a deemed repatriation of untaxed foreign income ($185 billion), impose a new minimum tax ($138 billion), and require the immediate inclusion in taxable income of certain amounts earned by foreign subsidiaries ($135 billion).

Revenue-Dependent Repeals. The bill would make parts of six business and international taxation provisions dependent on future revenue collections. The parts that would be affected generally begin in 2026, and would increase revenues in 2026 and 2027. Those amounts are incorporated into the overall revenue effects shown in the estimate of this legislation. The provisions include those that would require that certain research or experimental expenditures be amortized, that would limit the deduction for net operating losses, and that would impose a minimum tax on a tax base that excludes certain otherwise tax-deductible payments to foreign affiliates.

Under the legislation, the parts of those provisions beginning in 2026 would not take effect if an overall revenue target was reached. Specifically, if on-budget revenues for the period from 2018 to 2026 exceeded $28.387 trillion, then those revenue-raising provisions would be repealed starting in 2026. Under CBO’s latest baseline revenue projections, adjusted to include the revenue effects of the bill (without incorporating any macroeconomic feedback), the on-budget revenue target would not be reached and therefore the revenue-raising modifications would occur. JCT has estimated that the revenue-dependent repeals would have a negligible effect on revenues. Given variations in inflation, economic output, and many other economic developments that affect revenues, including the response of overall economic activity to this legislation, there is some probability that the target would be reached and that the modifications to those provisions, and the resulting revenues, would not occur.

PAY-AS-YOU-GO-CONSIDERATIONS

The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending or revenues. The net changes in outlays and revenues that are subject to those pay-as-you-go procedures are shown in the following table. Only on-budget changes to outlays or revenues are subject to pay-as-you-go procedures.

ALLOCATION OF BUDGETARY EFFECTS ACROSS INCOME GROUPS

Section 4107 of H. Con. Res. 71 requires that CBO and JCT’s estimates of budgetary effects for major legislation include, to the extent practicable, the legislation’s distributional effects across income categories.

JCT has published a distributional analysis of the Tax Cuts and Jobs Act that includes the effects of the bill on revenues and on the portion of refundable tax credits recorded as outlays.3 That analysis included effects on outlays for premium tax credits stemming from eliminating the penalty associated with the requirement that most people obtain health insurance coverage. However, other spending related to eliminating that penalty was not included, specifically changes in spending for Medicaid, cost-sharing reduction payments, the Basic Health Program, and Medicare.

CBO has separately allocated across income groups the budgetary effects of those other changes for an earlier version of the legislation, under consideration by the Senate Finance Committee; those estimates also apply to the bill as ordered reported.4 In making those estimates, CBO did not attempt to estimate the value that people place on such spending, which may be different from the actual cost to the government of providing the benefits. CBO also did not attempt to make any distributional allocations for people who would choose to obtain unsubsidized health insurance in the nongroup market and who face higher premiums there compared with what would occur otherwise.

The combined distributional effect of the provisions estimated by JCT and CBO, thus representing the total distributional effect of the bill, was calculated by subtracting the estimated change in federal spending from the change in federal revenues allocated to each income group. The resulting changes in the federal deficit allocated to each income group are reflected in the following table.

Overall, the combined effect of the change in net federal revenues and spending is to decrease deficits (primarily stemming from reductions in spending) allocated to lower-income tax filing units and to increase deficits (primarily stemming from reductions in taxes) allocated to higher-income tax filing units. Those effects do not incorporate any estimates of the budgetary effects of any macroeconomic changes that would stem from the proposal.

INCREASE IN LONG-TERM ON-BUDGET DEFICITS

JCT estimates that enacting the legislation would not increase on-budget deficits by more than $5 billion in any of the four consecutive 10-year periods beginning in 2028.

MANDATES

CBO and JCT have determined that the legislation contains no intergovernmental or private-sector mandates as defined by UMRA.

Trump’s Big Buyback Bamboozle

Posted on February 8, 2018

Trump’s promise that corporations will use his giant new tax cut to make new investments and raise workers’ wages is proving to be about as truthful as his promise to release his tax returns.

The results are coming in, and guess what? Almost all the extra money is going into stock buybacks. Since the tax cut became law, buy-backs have surged to $88.6 billion. That’s more than double the amount of buybacks in the same period last year, according to data provided by Birinyi Associates.

Compare this to the paltry $2.5 billion of employee bonuses corporations say they’ll dispense in response to the tax law, and you see the bonuses for what they are – a small fig leaf to disguise the big buybacks.

If anything, the current tumult in the stock market will fuel even more buybacks.

Stock buybacks are corporate purchases of their own shares of stock. Corporations do this to artificially prop up their share prices.

Buybacks are the corporate equivalent of steroids. They may make shareholders feel better than otherwise, but nothing really changes.

Money spent on buybacks isn’t reinvested in new equipment, research, or factories. Buybacks don’t add jobs or raise wages. They don’t increase productivity. They don’t grow the American economy.

Yet CEOs love buybacks because most CEO pay is now in shares of stock and stock options rather than cash. So when share prices go up, executives reap a bonanza.

At the same time, the value of CEO pay from previous years also rises, in what amounts to a retroactive (and off the books) pay increase – on top of their already humongous compensation packages.

Big investors also love buybacks because they increase the value of their stock portfolios. Now that the richest 10 percent of Americans own 84 percent of all shares of stock (up from 77 percent at the turn of the century), this means even more wealth at the top.

Buybacks used to be illegal. The Securities and Exchange considered them unlawful means of manipulating stock prices, in violation of the Securities Acts of 1933 and 1934.

In those days, the typical corporation put about half its profits into research and development, plant and equipment, worker retraining, additional jobs, and higher wages.

But under Ronald Reagan, who rhapsodized about the “magic of the market,” the SEC legalized buybacks.

After that, buybacks took off. Just in the past decade, 94 percent of corporate profits have been devoted to buybacks and dividends, according to researchers at the Academic-Industry Research Network.

Last year, big American corporations spent a record $780 billion buying back their shares of stock.

And that was before the new tax law.

Put another way, the new tax law is giving America’s wealthy not one but two big windfalls: They stand to gain the most from the tax cuts for individuals, and they’re the big winners from the tax cuts for corporations.

This isn’t just unfair. It’s also bad for the economy as a whole. Corporations don’t invest because they get tax cuts. They invest because they expect that customers will buy more of their goods and services.

This brings us to the underlying problem. Companies haven’t been investing – and have been using their profits to buy back their stock instead – because they doubt their investments will pay off in additional sales.

That’s because most economic gains have been going to the wealthy, and the wealthy spend a far smaller percent of their income than the middle class and the poor. When most gains go to the top, there’s not enough demand to justify a lot of new investment.

Which also means that as long as public policies are tilted to the benefit of those at the top – as is Trump’s tax cut, along with Reagan’s legalization of stock buybacks – we’re not going to see much economic growth.

We’re just going to have more buybacks and more inequality.

Why We Must Raise Taxes On Corporations And The Wealthy, Not Lower Them

Posted on September 23, 2017

When Barack Obama was president, congressional Republicans were deficit hawks. They opposed almost everything Obama wanted to do by arguing it would increase the federal budget deficit.

But now that Republicans are planning giant tax cuts for corporations and the wealthy, they’ve stopped worrying about deficits.

Senate Republicans have agreed to cut taxes by $1.5 trillion over the next decade, which means giant budget deficits.

Unless Republicans want to cut Social Security, Medicare, and defense, that is. Even if Republicans eliminated everything else in the federal budget – from education to Meals on Wheels – they wouldn’t have nearly enough to pay for tax cuts of the magnitude Republicans are now touting.

But Republicans won’t cut Social Security or Medicare because the programs are overwhelmingly popular. And rather than cut defense, Senate Republicans want to increase defense spending by a whopping $80 billion (enough to fund free public higher education that Bernie Sanders proposed in last year’s Democratic primary, which deficit hawks in both parties mocked as being ridiculously expensive).

There’s also the cleanup from Hurricanes Harvey and Irma, estimated to be least $190 billion. And Trump’s “wall” – which the Department of Homeland Security estimates will cost about $22 billion.

Oh, and don’t forget infrastructure. It’s just about the only major spending bill that could be passed by bipartisan majorities in both houses. Given the state of the nation’s highways, byways, public transit, water treatment facilities, and sewers, it’s desperately needed. Trump campaigned on spending $1 trillion on it.

So how do Republicans propose to pay for any of this, and a big tax cut for corporations and the wealthy – without exploding the federal deficit?

Easy. Just pretend the tax cuts will cause the economy to grow so fast – 3 percent a year on average – that they’ll pay for themselves, and the benefits will trickle down to everyone else.

If you believe this, I have several past Republican budgets to sell you, extending all the way back to Ronald Reagan’s magic asterisks.

The Congressional Budget Office and the Joint Committee on Taxation don’t believe it. They realistically assume that the economy won’t grow over 2 percent a year on average over the next decade.

The Federal Reserve estimates the fastest sustainable rate of economic growth will be 1.8 percent, given how slowly America’s working-age population is growing as well as the slow rate of productivity gains.

But Trump has already made a fetish out of discrediting anyone that comes up with facts he doesn’t like, and other Republicans seem ready to join him.

Senator Bob Corker, a Tennessee Republican who sits on the budget committee, says he doesn’t want to rely on estimates coming from economists at the CBO and the Joint Tax Committee. He’d rather rely on supply-side economists outside government. “I do think it is time for us to have a real debate and to have real economists weighing in and we should take other things into account other than Joint Tax and C.B.O,” Corker said last week.

Unfortunately for the Republican tax cutters who used to be deficit hawks, we already have real-world historical evidence of what happens after massive tax cuts. Ronald Reagan and George W. Bush both cut taxes on the wealthy and ended up with huge budget deficits.

Besides, there’s no reason to cut taxes on big corporations and the wealthy. If anything, their taxes should be raised.

Trump says we’re “the highest taxed nation in the world.” Rubbish. The most meaningful measure is taxes paid as a percentage of GDP. On this score, the United States has the 4th lowest taxes of any major economy. (Only South Korea, Chile, and Mexico ranking lower.)

American corporations aren’t overtaxed. After taking deductions and tax credits, the typical U.S. corporation today pays an effective tax rate of 24 percent. That’s only a tad higher than the average of 21 percent among advanced nations.

The rich aren’t overtaxed. The wealthiest 1 percent in the U.S. pay the lowest taxes as a percent of their income and total wealth of the top 1 percent in any major country – and far lower than they paid in the U.S. during the first three decades after World War II, when the American economy grew faster than it’s been growing since the Reagan tax cuts.

But we do have a deficit in public investment – especially in education and infrastructure. And we do have a national debt that topped $20 trillion this year and is expected to grow by an additional $10 trillion over the next decade.

What’s the answer? Raise taxes on big corporations and the wealthy. That’s what rational politicians would do if they weren’t in the pockets of big corporations and the wealthy.

Long-Term Projections Of Social Security’s And Medicare’s Financing Are Not As Scary As They Seem

Posted on July 20, 2017

With the release of the annual Social Security and Medicare trustees’ report, President Trump’s appointees endorsed sharp improvements in Medicare’s financing that occurred under former President Obama. Medicare had a projected shortfall of 3.54 percent of covered payroll (over a 75-year planning period) during the last year of the Bush administration, now it is down to just 0.64 percent.

This development should give pause to those who wish to fundamentally restructure Social Security and Medicare based on these projections. A lot changed over the eight years of the Obama administration and even more can change over 75 years. This is worth taking into account when looking at Social Security’s 75-year shortfall, which is at 2.83 percent of payroll under the intermediate scenario.

The figure below compares the tax increase that would be required to fully fund Social Security — 2.83 percent — with the projected increase in average wages over the next 30 years. The tax increase is dwarfed by the increase in wages over this period, which would be 49.4 percent by the trustees’ own estimates. Wage increases are over 17 times more important than the tax increase.

The next figure is a simple projection of what would happen to a salary of $50,000 per year in 2016 ($46,900 with the current Social Security taxes taken out) over the same 30-year period. With the current Social Security tax rate, this salary would be $69,018 per year in 2047 based on the average wage increase. With Social Security fully funded, it would be $66,936.

It’s unlikely that these projections will hold over such a long time frame, but this should demonstrate that workers should be much more concerned with making sure they receive their share of productivity gains in wage increases over this period than they should be about tax increases. This is not about Social Security needing to be less generous, it is about making sure that workers receive their fair share.

In fact, this problem cuts the other way as well. Unlike Medicare taxes which apply to entire incomes, Social Security taxes apply only up to a threshold — the payroll tax cap — which was set at $127,200 in 2017. With the upward redistribution of income that has occurred over the last four decades, Social Security has less of a base on which to draw. 90 percent of wage income was subject to the tax in 1983 — it was 82.6 percent in 2015. This decline represents a large share of the program’s shortfall.

For Social Security, as with Medicare, long-term financing problems are not indicative of inherent or intractable problems with social programs. Rather, they are indicative of other problems, like policies that redistribute income upwards, and they are fixable.