Tag: Higher Taxes

Debunking Fiscal Myths: There Is No Loophole for “Carried Interest”

I’m a big fan of the flat tax because a low tax rate and no double taxation will result in faster growth and more upward mobility.

I also like the flat tax because it gets rid of all deductions, credits, exemptions, preferences, exclusions, and other distortions. And a loophole-free tax code would be a great way of reducing Washington corruption and promoting simplicity.

Moreover, keep in mind that eliminating all favors from the internal revenue code also would be good for growth because people then will make decisions on the basis of what makes economic sense rather than because of peculiar quirks of the tax system.

Sounds great, right?

Well, it’s not quite as simple as it sounds because there’s a debate about how to measure loopholes. Sensible people want a tax code that’s neutral, which means the government doesn’t tilt the playing field. And one of the main implications of this benchmark is that the tax code shouldn’t create a bias against income that is saved and invested. In the world of public finance, this means they favor a neutral “consumption-base” tax system, but that’s simply another way of saying they want income taxed only one time.

Folks on the left, however, are advocates of a “Haig-Simons” tax system, which means they believe that there should be double taxation of all income that is saved and invested. You see this approach from the Joint Committee on Taxation. You see it from the Government Accountability Office. You see it from the Congressional Budget Office. Heck, you even sometimes see Republicans mistakenly use this benchmark.

Does Donald Trump Think Washington Politicians Should Have More of Our Money to Prop Up the Entitlement State?

I have a very straightforward rule when assessing politicians. Simply stated, if they are open to tax hikes, then it’s quite likely that they have no desire to control the size, cost, and power of the federal government.

Based on that rule, I’m skeptical about Donald Trump.

To understand my doubts, here are some passages from a story on the topic in the New York Times.

For years, Republicans have run for office on promises of cutting taxes… But this election cycle, the Republican presidential candidate who currently leads in most polls is taking a different approach… Mr. Trump has…suggested he would increase taxes on the compensation of hedge fund managers. And he has vowed to change laws that allow American companies to benefit from cheaper tax rates by using mergers to base their operations outside the United States.

These policy positions are raising a lot of eyebrows.

“All of those are anti-growth policies,” said David McIntosh, the president of the Club for Growth… “Those aren’t the types of things a typical Republican candidate would say,” said Michael R. Strain, a scholar at the conservative American Enterprise Institute, referring to the candidate’s comments on hedge funds, support for entitlement spending and the imposing of trade tariffs.

And Trump’s failure to sign the no-tax-hike pledge exacerbates the concerns, particularly when combined with his inconsistent statements on tax reform.

Mr. Trump and former Gov. Jeb Bush of Florida are the only leading Republican candidates who have not signed a pledge to not raise taxes. …In an interview with Fox News last week, Mr. Trump said a flat tax would be a viable improvement to America’s tax system. Moments later, he suggested that a flat tax would be unfair because the rich would be taxed at the same rate as the poor.

Byron York of the Washington Examiner writes about Trump’s fiscal policy in the context of traditional Republican orthodoxy.

Trump is preparing a tax proposal that will again set him far apart from the party’s powers-that-be. …Trump has been sending signals that his tax proposal, which he says will be “comprehensive,” will include higher rates for some of the richest Americans, a position generally at odds with Republican orthodoxy. “I want to see lower taxes,” Trump said at an appearance in Norwood, Mass., on Friday night. “But on some people, they’re not doing their fair share.”

And if his campaign manager is accurately channeling Trump’s views, the candidate even equates higher taxes with making America great.

Trump campaign manager Corey Lewandowski would say little about Trump’s intentions, but noted that “Mr. Trump has said that he does not mind paying what is required to make our country great again.” Raising taxes on anyone, even the super rich, has generally been anathema to Republicans for a generation.

Wow, what’s next, a Biden-esque assertion that higher tax payments are patriotic?!?

The State of Washington Should Learn a Very Important Lesson from Connecticut about the Dangers of an Income Tax

Every so often, I get asked why I’m so rigidly opposed to tax hikes in general and so vociferously against the imposition of new taxes in particular.

In part, my hostility is an ideological reflex. When pressed, though, I’ll confess that there are situations - in theory - where more taxes might be acceptable.

But there’s a giant gap between theory and reality. In the real world, I can’t think of a single instance in which higher taxes led to a fiscally responsible outcome.

That’s true on the national level. And it’s also true at the state level.

Speaking of which, the Wall Street Journal is - to put it mildly - not very happy at the tax-aholic behavior of Connecticut politicians. Here’s some of what was in a recent editorial.

The Census Bureau says Connecticut was one of six states that lost population in fiscal 2013-2014, and a Gallup poll in the second half of 2013 found that about half of Nutmeg Staters would migrate if they could. Now the Democrats who run the state want to drive the other half out too. That’s the best way to explain the frenzy by Governor Dannel Malloy and the legislature to raise taxes again… Mr. Malloy promised last year during his re-election campaign that he wouldn’t raise taxes, but that’s what he also said in 2010. In 2011 he signed a $2.6 billion tax hike promising that it would eliminate a budget deficit. Having won re-election he’s now back seeking another $650 million in tax hikes. But that’s not enough for the legislature, which has floated $1.5 billion in tax increases. Add a state-wide municipal sales tax that some lawmakers want, and the total could hit $2.1 billion over two years.

In other words, higher taxes in recent years have been used to fund more spending.

And now the politicians are hoping to play the same trick another time.

IMF Proposes to Sabotage China’s Economy

For the people of China, there’s good news and bad news.

The good news, as illustrated by the chart below, is that economic freedom has increased dramatically since 1980. This liberalization has lifted hundreds of millions from abject poverty.


The bad news is that China still has a long way to go if it wants to become a rich, market-oriented nation. Notwithstanding big gains since 1980, it still ranks in the lower-third of nations for economic freedom.

Yes, there’s been impressive growth, but it started from a very low level. As a result, per-capita economic output is still just a fraction of American levels.

So let’s examine what’s needed to boost Chinese prosperity.

The Growing Threat of a Wealth Tax

Allister Heath, the superb economic writer from London, recently warned that governments are undermining incentives to save.

And not just because of high tax rates and double taxation of savings. Allister says people are worried about outright confiscation resulting from possible wealth taxation.

It is clear that individuals, when at all possible, need to accumulate more financial assets. …Tragically, it won’t happen. A lack of trust in the system is one important explanation. People simply don’t believe the government – and politicians of all parties – when it comes to long-terms savings and pensions. They worry, with good reason, that the rules will keep changing; they are afraid that savers are an easy target and that they will eventually be hit by a wealth tax.

Are savers being paranoid? Is Allister being paranoid?

Well, even paranoid people have enemies, and this already has happened in countries such as Poland and Argentina. Moreover, it appears that plenty of politicians and bureaucrats elsewhere want this type of punitive levy.

Here are some passages from a Reuters report.

Germany’s Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.

Since data from the IMF, OECD, and BIS show that almost every industrialized nation will face a fiscal crisis in the next decade or two, people with assets understandably are concerned that their necks will be on the chopping block when politicians are scavenging for more cash to prop up failed welfare states.

Though to be fair, the Bundesbank may simply be sending a signal that German taxpayers don’t want to pick up the tab for fiscal excess in nations such as France and Greece. And it also acknowledged such a tax would harm growth.

“(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government’s obligations before solidarity of other states is required,” the Bundesbank said in its monthly report. …the Bundesbank said it would not support an implementation of a recurrent wealth tax, saying it would harm growth.

Other German economists, however, openly advocate for wealth taxes on German taxpayers.

…governments should consider imposing one-off capital levies on the rich… In Germany, for example, two thirds of the national wealth belongs to the richest 10% of the adult population. …a one-time capital levy of 10% on personal net wealth exceeding 250,000 euros per taxpayer (€500,000 for couples) could raise revenue of just over 9% of GDP. …In the other Eurozone crisis countries, it would presumably be possible to generate considerable amounts of money in the same way.

The pro-tax crowd at the International Monetary Fund has a similarly favorable perspective, relying on absurdly unrealistic conditions to argue that a wealth tax wouldn’t hurt growth. Here’s some of what the IMF asserted in its Fiscal Monitor last October.

The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair).

We Need a Debate about the Size of Government, but It Helps to Understand Basic Fiscal Facts

Self awareness is supposed to be a good thing, so I’m going to openly acknowledge that I have an unusual fixation on the size of government.

I don’t lose a wink of sleep thinking about deficits, but I toss and turn all night fretting about the overall burden of government spending.

My peculiar focus on the size and scope of government can be seen in this video, which explains that spending is the disease and deficits are just a symptom.

Moreover, my Golden Rule explicitly targets the spending side of the budget. And I also came up with a “Bob Dole Award” to mock those who mistakenly dwell on deficits.

With all this as background, you’ll understand why I got excited when I started reading Robert Samuelson’s column in today’s Washington Post.

Well, there’s a presidential whopper. Obama is right that the role of the federal government deserves an important debate, but he is wrong when he says that we’ve had that debate. Just the opposite: The White House and Congress have spent the past five years evading the debate. They’ve argued over federal budget deficits without addressing the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving… The avoidance is entirely bipartisan. Congressional Republicans have been just as allergic to genuine debate as the White House and its Democratic congressional allies.

Ryan-Murray Budget Deal Replaces Real Spending Restraint of Sequester with Budget Gimmicks and Back-Door Tax Hikes

How disappointing, but how predictable.

Politicians approved legislation in 2011 that was supposed to impose a modest bit of spending restraint over the next 10 years.

It wasn’t much. The enforcement mechanism, known as sequestration, merely was supposed to guarantee that spending climbed by $2.3 trillion rather than $2.4 trillion over the 10-year period.

But something is better than nothing, and the sequester that took place this year was a bitter defeat for President Obama and other advocates of bigger government.