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GOP Tax Cut Fever!
“Republicans Vie Over Who Can Cut Taxes Most as Deficit Shrinks” by Bloomberg’s Richard Rubin sums up the challenge for Republican 2016ers who want to offer big, splashy, Reaganesque tax cut plans at a time when the national debt is three times as high as it was in 1980 and top tax rates are 50% lower:
By removing budgetary and income-distribution constraints from their tax plans, Republicans are seeking to avoid some of the criticism that had their 2012 presidential nominee, Mitt Romney, playing defense on tax policy in the campaign’s final months. Obama, bolstered by independent analyses, said Romney couldn’t find enough tax breaks to eliminate in order to offset the cost of lowering tax rates as much as he wanted. The result, Obama maintained, was that Romney’s plan would cause middle-class families to pay more or increase the budget deficit. … That argument may be replayed in 2016, particularly if Republicans spend the next year in a tax-cut race. The rate cuts and business write-offs that are attractive to Republican primary voters may not fare as well with a wider audience. In a Republican primary, you want “a plan that is very pro-growth and is very simple to understand, and as a result you could put yourself in difficult positions,” said Lanhee Chen, who was Romney’s policy director in 2012. “I don’t think it’s insurmountable by any means, but it makes their job harder.”
And thus you get snarky headlines like this one in the New York Times, “Marco Rubio’s Puppies-and-Rainbows Tax Plan,” which I comment about over at NRO’s The Corner. (I have a quote in the NYT piece.)
A few simple GOP tax-plan guidelines: (a) it should encourage business investment, (b) it should provide tax relief to working class families, (c) it should still not lose trillions of dollars even when dynamically scored, (d) “pay fors” should target tax breaks/expenditures aimed at the upper-income and wealthy, (e) it should not assume that with an aging society and entitlement wave approaching, spending can be reduced to historically low levels. Reasonable, yes?
And politically, I would guess, a smart plan would avoid handing Democrats an easy way to characterize it as same-old, same-old Republican economics. That being said, I am very much looking forward to specific plans from GOP presidential candidates, including Rand Paul’s “largest tax cut in American history.”
Published in Economics
I’m all for lower taxes but honestly, I’ve become convinced of the old saw that over time, taxes follow spending. So what will really impress me is someone with a plan to pare back the entitlement spending trajectory. I know I’m probably out of step with political reality, but political reality is out of step with me too. The fact that I’m talking about the “spending trajectory” is already a bow to political reality. What would really impress me is a candidate with a plan to phase out the entitlement state entirely, probably within the lifetime of those being born today.
Enough about taxes. Seriously. They’re a non-issue.
Regulation is the problem.
I’ve been toying with heresy lately. My thinking is that the debt is a huge problem. The best answer is to cut government. But politically, that never seems to happen
So here’s a new thought. Accept the abomination of higher taxes, but in exchange get it in the form of a flat tax and a balanced budget. And make it permanent (statute-wise) — as part of the law, rates would automatically follow spending. Increase spending, the rate goes up; decrease spending, the rate goes down. It may not harm economic growth too much, as the flat tax may actually be less than today’s top personal rate (39.6%).
Now we’re in a situation where everyone is actually paying for the government they get, rather than pushing the bill off on their or someone else’s children.
Then, politically it would be easier to cut government/ cut taxes, because the savings goes into everyone’s pocket.
What’s a “working class family”? Do working class families only “work”, but other families don’t “work”? 2 married doctors, don’t “work”? Only 2 married plumbers “work”?
I.e., this is populist wording for “buy votes by lowering taxes for people who you think will vote for you, and raise taxes for the rest”.
Never going to happen, because all political parties are interested in buying votes.
When the tire hits the road, the uproar from “voters” will be such that any GOP politician will immediately back down.
We saw it in the attempt to lower benefits for military families. While all Federal employees had their benefits reduced (good thing), when it came time for the military to do the same, the GOP went in an up-roar to protect “those” entitlement benefits.
Because the GOP knows that that is a solid Republican electoral base, so cutting entitlements to their own base, is a no no.
Each side wants to cut entitlements for the other guy’s electoral base, but not it’s own.
Debt is really not a big problem. Debt is very cheap right now, which is why it makes sense to get more debt now, rather than taxes.
The whole “balanced budget” argument is one for trading off cheap debt for expensive taxes, but doesn’t do much to control actual level of spending.
Spending is the problem. Whether you pay for it by taxes or debt is a secondary issue (and right now it seems debt is a better alternative anyway).
Most people don’t pay anywhere near that rate. Most people pay in the low to mid teens.
A flat rate would inevitably lead to higher tax rates for the “lower” part income distribution, and also for the “middle” part.
So it won’t happen.
I disagree. Very much.
1. There are two aspects of the debt. One is the interest rate. The other is the principal that has to be paid back by a later generation, which is the classic third party payer problem. When someone else is footing the bill, spending increases tremendously. It is also immoral.
2. Paying 0% (also known as not borrowing) is even cheaper.
3. What happens when interest rates rise?
4. By your logic, we should reduce taxes to zero, and finance the whole of our federal budget.
Taxes have opportunity cost associated with them. Paying a high tax bill now, prevents you from investing this money into some more productive investment which would earn you returns for the future, hence that future return is foregone by having to pay the tax now, instead of in the future.
Hence the principle is irrelevant. The rate at which you borrow, is the most relevant part.
The same as when you buy a house. You can pay $200k cash down at closing, or you can borrow $200k and pay it over 30 years. Paying $200k cash now is obviously the worst choice, if the interest on the loan is low.
$200k in cash costs you a lot of money, in foregone opportunity cost, in fact. You could have invested that $200k and gotten a return on it, which may have been (most likely would be), higher than the interest rate you’ll be paying for the loan.
You’re not paying 0% on taxes. You’re paying for foregone investment opportunities of those tax dollars you gave to the government. I.e., you could have earned, lets say, 7% returns over 1 year on that money, so giving it up now, vs giving it up 1 year from now, costs you 7%.
I.e., there’s obvious benefits to paying out your costs over time, instead of when you incur the costs. It all depends on your opportunity cost, and the interest rate.
You borrow less. Future rates apply to future borrowing. Not to current borrowing.
Some countries do that, like Singapore for example.
Probable Cause, liberals would jump on your plan, but it would backfire on them. It would work if the tax increases applied to enough people to create the political pressure to control spending. Now, employment taxes hit everyone who works, but I am not sure if a majority of voters even pay income taxes. Further tax breaks for working class families just makes voters less sensitive to profligate spending if we promise them we will make the rich pay. Whatever the plan, if the majority of voters saw their taxes rise and fall with spending, we would have a more fiscally conservative electorate.
I personally am waiting for a candidate to simply bring some integrity to the tax code. My wish list for tax reform: (a) abolish tax credits, the mortgage interest deduction, charitable deductions, and other politically favored, social engineering tax breaks (because government cannot possibly know where the best place is for hundreds of millions of different people to put their money), (b) the same rate should apply earned income, capital gains, dividends, corporate income, etc. (same reason), (c) let corporations simply deduct dividends paid, abolish the estate tax, and index the capital gains tax to inflation (because it is unfair to tax the same income multiple times and unfair to tax mere inflation which is no gain at all), and (d) since I just abolished the estate tax, make heirs, even charities, pay capital gains tax on the step-up in basis on the assets inherited (because Warren Buffet and Bill Gates want to pay their fair share). In other words, tax all types of income at the same rate, no exceptions.
No. You can’t balance the budget with a statute or amendment.
Lots of states do it.
To me, the rates are only one problem with our Federal tax system. The rates can’t be made fair (whatever that is) until we simplify the tax code. A flat income tax or the Fair Tax (my preference) would not only simplfy the code, but give the general public (and politicians) one single rate to debate.
I don’t see that voters at the national level care much about debts and deficits. The concern that tax cuts will cost the federal government revenue and deepen the deficit is inside baseball which could only cost Republicans many swing voters through poor media management.
As usual, the challenge isn’t what Republicans do so much as it’s how Democrats are allowed to portray their actions. Without competence in media management, no plan will aid Republicans.
This is why I think Republicans should call for revenue neutral (gov’t gets the same amount) tax simplification in the short run. In other words, no tax cuts, but tax simplification. Who could be against that? What can be more fair than knowing exactly what your fair share is without needing a computer program to figure it out?
Rhetorical questions to be sure, but this would be the Republican strategy and their public relations sales pitch. Once tax simplification is accomplished, then the Republican argument in the long run can shift toward what a “fair” rate is.
I tried searching for the percentage of tax filers that use the 1040EZ but came up with only tangential results.
I wonder how much the average person worries about reading the tax code. Personally, I pay $80 and click “next” on the software page until it tells me I am done.
Since I care about more than just myself, I do want tax simplification for transparency and for easing the burden on small business owners and highly educated hard working couples who bump up against income thresholds that start to make things complicated.
But I don’t think this is an issue that hits most people hard enough for them to have a vested interest.
Gruber was right in one sense about the enthusiastic gullibility of the American public in regards to wanting to see a distinction between “tax credits” and subsidy checks cut from the treasury. I would be very impressed by a candidate that said one of his goals was to eliminate this form of three card monte and make a seat on the Ways and Means committee far less lucrative. Accept higher taxes on our oligarchs, possibly through a land tax, abolish the corporate tax and flatten the income tax.