Topic: Government and Politics

The Baucus-Hatch “Blank Slate” Approach to Tax Reform Isn’t Blank

By
Daniel J. Mitchell

I’m a big proponent of tax reform, so at first I was very excited to learn that Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) were launching an effort to clean up the tax code.

But on closer inspection, I don’t think this will lead to a simple and fair system like the flat tax. Or even a national sales tax (assuming we could trust politicians not to pull a bait-and-switch, adding a new tax and never getting rid of the income tax).

But judge for yourself. Here’s some of what’s contained in a letter they sent to their colleagues, starting with some language about the growing complexity of the tax code and the compliance cost for taxpayers.

…since then, the economy has changed dramatically and Congress has made more than 15,000 changes to the tax code. The result is a tax base riddled with exclusions, deductions and credits. In addition, each year, it costs individuals and businesses more than $160 billion to comply with the tax code. The complexity, inefficiency and unfairness of the tax code are acting as a brake on our economy. We cannot afford to be complacent.

Sounds good, though they also could have mentioned other indicators of nightmarish complexity, such as the number of pages in the tax code, the number of special tax provisions, or the number of pages in the 1040 instruction manual.

I’m a bit mystified, however, at the low-ball estimate of $160 billion of compliance costs. As explained in this video, there are far higher estimates that are based on very sound methodology.

But perhaps I’m nit-picking. Let’s see with Senators Baucus and Hatch want to do.

In order to make sure that we end up with a simpler, more efficient and fairer tax code, we believe it is important to start with a “blank slate”—that is, a tax code without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as “tax expenditures.”

I don’t like the term “tax expenditure” since it implies that the government taking money from person A and giving it to person B is equivalent to the government simply letting person B keep their own money. These two approaches may be economically equivalent in certain cases, but they’re not morally equivalent.

Once again, however, I may be guilty of nit-picking.

That being said, there is a feature of the “blank slate” approach which does generate legitimate angst. There’s a footnote in the letter that states that the Joint Committee on Taxation is in charge of determining so-called tax expenditures.

A complete list of these special tax provisions as defined by the non-partisan Joint Committee on Taxation.

This is very troubling. The JCT may be non-partisan, but it’s definitely not non-ideological. These are the bureaucrats, for instance, who assume that the revenue-maximizing tax rate is 100 percent! Moreover, the JCT uses the “Haig-Simons” tax system as a benchmark, which means they start with the assumption that there should be pervasive double taxation of income that is saved and invested.

This is not nit-picking. The definition of “tax expenditure” is a critical policy decision, not something to be ceded to the other side before the debate even begins.

As illustrated by this chart, the tax code is very biased against saving and investment.

Between the capital gains tax, the corporate income tax, the double tax on dividends, and the death tax, it’s possible for a single dollar of income to be taxed as many as four different times.

This is a very foolish policy, particularly since every school of thought in the economics profession agrees that capital formation is a key to long-run growth. Even the Marxists and socialists!

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Topics: 
Government and Politics, Tax and Budget Policy

Don’t be Fooled: Uncle Sam Is Still Bankrupt

By
Doug Bandow

The big spenders in Washington are all excited: the deficit is down. That must mean the budget crisis is over and Uncle Sam can go back to wasting money, big time.

Not that he ever stopped doing so. But now interest groups and leftish pundits are calling for more stimulus outlays, increased Medicaid, and expanded Social Security. They are defending huge increases in food stamp outlays. And ‘re theybewailing the terrible impact of “austerity,” defined as $5 trillion in deficits over the last four years.

The latest excitement has been caused by the recent Congressional Budget Office study detailing new budget projections. The federal budget deficit this year will be “only” $642 billion. 

That’s one-sixth of total federal outlays and 50 percent higher than that pre-Obama record deficit in 2008. But no matter; it’s not as big as before.

As I wrote in my new piece on American Spectator online:

In fact, the CBO’s latest report, “Updated Budget Projections:  Fiscal Years 2013 to 2023,” actually demonstrates that we face a continuing, enduring, and potentially catastrophic budget crisis. The near term is slightly less disastrous than originally thought. But without a genuine change of direction, the federal Leviathan remains headed over an economic cliff.

…However, this reduction does not reflect spending restraint. Rather, tax collections are up and the housing revival has at least temporarily stopped the fiscal bleeding of Washington’s boondoggle housing agencies. Explained the agency: the deficit estimate dropped significantly from February “mostly as a result of higher-than-expected revenues and an increase in payments to the Treasury by Fannie Mae and Freddie Mac.” 

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Topics: 
Government and Politics, Tax and Budget Policy

Congress Spends Your Tax Dollars on a National ID

By
Jim Harper

It’s appropriations season! – that wonderful time of year when the House and Senate pass competing versions of legislation to fund government agencies, bureaus, and…whatever pork and pet projects they can squeeze in.

Congress has made most of its spending decisions over the past few years through last-minute continuing resolutions or consolidated appropriations bills. That makes it harder to follow the money (which may be part of the reason they’ve been doing it that way), but it’s important to watch the dollars because some of that money is going toward national ID systems and biometrics.

Last week the House passed their FY 2014 Department of Homeland Security appropriations bill. As in years past, the legislation contains funding for three of everyone’s favorite identification programs: REAL ID, E-Verify, and US-VISIT/the Office of Biometric Identity Management (OBIM), a DHS office covering biometrics for travelers at airports, ports, and other points of entry.

For the coming fiscal year, the House appropriated $114 million for E-Verify, $232 million for OBIM, and $1.2 billion for the State Homeland Security Grant Program (SHSGP), from which grants for REAL ID implementation get doled out to states.

These numbers are consistent with past levels of appropriations for these programs, with the exception of REAL ID, which had its own funding stream until it was folded into SHSGP in fiscal 2012.

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Topics: 
Government and Politics, Law and Civil Liberties, Tax and Budget Policy, Telecom, Internet & Information Policy

Update on Arlington’s $1 Million Bus Stop

By
Chris Edwards

It looks like the cost of Arlington County’s gold-plated bus stop will be even higher than a $1 million. According to the Washington Post, taxpayers will also have to pay for an “independent contractor to review the cost and design” of the Transit Taj Mahal in Northern Virginia.

The bus stop is not actually gold-plated, but it does have “heated concrete flooring,” sort of like the lavish baths of the Roman Empire. But Roman baths were far more functional than this modern monument to bureaucratic excess:

 “But it wasn’t just the cost of the bus shelter that upset residents. It took 18 months to build, and riders have said the slanted glass roof does not keep rain and snow off them while they wait for the bus.”

The probable cause of the boondoggle is that federal and state governments are paying for 80 percent of the costs of this bus stop and 23 planned sister stops. A “typical bus shelter costs between $10,000 and $20,000” notes the Post. But these shelters—which don’t even provide shelter from rain and snow—are expected to cost $900,000 each.

If we want better governance, we need to create better incentives for politicians. The Transit Taj Mahal is a microcosm of the overspending problem caused by government-to-government subsidies. Abolishing the federal aid-to-state system would go a long way toward generating better fiscal decisions at the state and local levels.

As for the $1 million bus stop, how about Arlington officials pay for the “independent contractor” review out of their own pockets, rather than imposing that added burden on taxpayers?

  

Topics: 
Government and Politics

Service to the American People or to the American State?

By
Doug Bandow

One of the most persistent utopian visions over the last century and more is national service. By “national service” proponents never mean service to Americans. The United States long has been famous for the willingness of its people to organize to help one another and respond to social problems. Alexis de Tocqueville cited this activism as one of the hallmarks of the early American republic.

Rather, advocates of “national service” mean service to the state. To be sure, they believe the American people would benefit. But informal, decentralized, private service doesn’t count.

The latest proponent is columnist Michael Gerson, one-time speechwriter for “compassionate conservative” George W. Bush. Wrote Gerson:

How then does a democracy cultivate civic responsibility and shared identity? Taxation allows us to fund common purposes, but it does not provide common experiences. A rite of passage in which young people — rich and poor, liberal and conservative, of every racial background — work side by side to address public problems would create, at least, a vivid, lifelong memory of shared national purpose.

To Gerson’s credit, he does not advocate a mandatory program, where people would go to jail if they didn’t desire to share the national purpose exalted by their betters. But many people, from Margaret Mead to Senator Ted Kennedy, did want a civilian draft. Indeed, a number of noted liberals who campaigned against military conscription were only too happy to force the young into civilian “service.” 

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Topics: 
Finance, Banking & Monetary Policy, Foreign Policy and National Security, Government and Politics, Law and Civil Liberties

Local Government Mugged by the Constitution

By
Roger Pilon

Is the government like a mugger: “Your money or your life”? The Florida Supreme Court said yes. So did the U.S. Supreme Court’s four liberals. But Justice Samuel Alito, joined by his conservative brethren, begged to differ today as the High Court reversed the court below in Koontz v. St. Johns River Water Management District, a ringing victory for property rights.

In 1994 (note when this case began), Coy Koontz Sr. sought a permit from the District to develop his 15-acre tract. He offered to mitigate several environmental effects and to foreclose any future development on 11 acres. But that wasn’t enough for the District. Among other things, they demanded that he (1) reduce the size of his development to one acre and deed to the District a conservation easement on the remainder of his property, or (2) hire contractors to make improvements on District-owned wetlands several miles away.

No dice, he said. So he did what every red-blooded American would do – he sued. And today the Supreme Court said he was right to do so – as Cato and the Institute for Justice did in our amicus brief supporting Mr. Koontz. Under the Court’s Nollan and Dolan, precedents, governments cannot condition the approval of a land-use permit on an owner’s relinquishing a portion of his property unless there’s a nexus and rough proportionality between the government’s demand and the effects of the proposed land use. And there was no such nexus here.

As important a win as this is for the Fifth Amendment’s Takings Clause, it is equally important for adding heft to the Court’s often uncertain “unconstitutional conditions” doctrine, which at its core stands for a simple proposition: the government cannot put you to a choice between two of your entitlements. As Justice Scalia put it in the Nollan case, this was “not a valid regulation of land use, but ‘an out-and-out plan of extortion.’” The government cannot act like a mugger.

Topics: 
Government and Politics, Law and Civil Liberties

Obama Tackles Global Warming — On His Own Authority

By
Roger Pilon

In a speech today at Georgetown University, President Obama will lay out his sweeping plan to address what he believes is our “moral obligation” to address climate change – apparently oblivious to serious studies questioning the extent and cause of the problem, to the futility of our acting alone as China, India, and others do nothing, and to the far-reaching economic effects his plan will have on an economy already struggling with regulatory overkill.

And he plans to do all of this not with the concurrence of Congress but in the face of congressional opposition. He will act unilaterally, by executive order. Yet he has that power, thanks to constitutionally dubious congressional delegations and court decisions stretching back over many years. See here for a detailed discussion of how the president came to have such awesome power.

Topics: 
Energy and Environment, Government and Politics, Law and Civil Liberties

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