Tag: taxes

All Your Money Are Belong to Us

In his State of the City Address, New York mayor Bill de Blasio laid out his governing philosophy succinctly:

Here’s the truth, brothers and sisters, there’s plenty of money in the world. Plenty of money in this city. It’s just in the wrong hands!

The money, of course, is in the hands of those who earned it. In de Blasio’s view, people who earn too much are “the wrong hands.”

In the speech itself and in an interview with Jake Tapper on CNN’s “State of the Union,” he elaborated: the wealthy have too much money because they aren’t taxed enough.

There are whole books on the correct theory of taxation. De Blasio, like many politicians, seems operate on the theory most clearly enunciated in 1990 by Sen. Barbara Mikulski (D, Md.):

Let’s go and get it from those who’ve got it.

There are many theories of taxation, such as Haig-Simons, the Tiebout model, and the Ramsay Principle. But I’d bet that the Mikulski Principle explains actual taxation best. And as “progressives” are feeling their oats, we can expect more politicians and pundits to be asking, “Who’s got the money? Let’s go get it.”

Poll: 74% of Americans Support Federal Paid Leave Program When Costs Not Mentioned—60% Oppose if They Got Smaller Pay Raises in the Future

The Cato 2018 Paid Leave Survey, a new national poll of 1,700 U.S. adults, finds that nearly three-fourths (74%) of Americans support a new federal government program to provide 12 weeks of paid leave to new parents or to people to deal with their own or a family member’s serious illness. A quarter (25%) oppose establishing a federal paid leave program. However, support slips and consensus fractures when costs are considered.

Read about the full survey results here.

The survey found 54% of Americans would be willing to pay $200 a year in higher taxes, a low-end estimate, in exchange for a 12-week federal paid leave program. If the program were to cost them $450 in taxes a year—the mid-range estimate—52% of Americans would oppose it, while 56% would oppose if it cost them the high range estimate of $1,200 in taxes. (Low, mid, and high range cost estimates are based off of potential costs of the Family and Medical Insurance Leave Act (FAMILY Act). See here for further explanation of cost estimates).

What Trade-Offs Would Americans Make for Federal Paid Leave?

The survey also investigated Americans’ willingness to deal with other potential or likely trade-offs that research finds could result from establishing a federal paid leave program. Americans would oppose establishing a federal paid leave program if it had the following effects:

  • If it required the government to cut funding for other programs such as Social Security, Medicare, and education: 76% oppose and 21% favor
  • If it reduced employer-provided benefits such as health care benefits and vacation days: 68% oppose and 29% favor
  • If people who don’t use the program still had to pay higher taxes to fund it: 62% oppose and 36% favor
  • If people would receive smaller pay raises in the future: 60% oppose and 38% support
  • If it caused the national deficit to rise: 57% oppose and 40% favor

Research from OECD countries suggests federal paid leave programs may slow the pace of women’s career advancement. Thus, the survey investigated if Americans feel this would be an acceptable trade-off for establishing a federal program. The survey finds 69% would oppose and 29% would favor a federal paid leave program if women became less likely to get promoted and become managers as a result.

Partisan Consensus on Paid Leave Breaks Down When Costs Considered

At first, majorities of Democrats (88%), Republicans (60%), and independents (71%) all support establishing a new government program to provide 12 weeks of paid family or parental leave. However, consensus breaks down once the costs and trade-offs of the program are considered. 

Democrats turn against a federal paid leave program for the following reasons: if it meant they’d receive smaller pay raises in the future with 49% in favor and 49% opposed; if the program caused fewer women to get promoted and become managers (63% opposed); if it meant employers would reduce benefits workers receive like health care benefits and vacation days (63% opposed); or if government spending on Social Security, Medicare, or other programs had to be cut (74% opposed). However, Democrats say they’d be willing to pay higher taxes, as high as $1,200 per year to establish the program, with 60% in favor. In contrast, Republicans turn against federal paid leave if it costs them $200 a year or more, with 63% opposed. Independents are split on raising their taxes $200 a year but turn against the program if it cost them $450 or more a year, with 56% opposed.

Americans Are Cautious of 6-Month Federal Paid Leave Program

Americans are more cautious of establishing a 6-month federal paid leave program. Even before considering costs, 48% of Americans support and 50% oppose creating a 6-month federal paid leave program. Support drops to about a third if a 6-month program cost the average employee $525 a year (66% oppose, 32% in favor), or $750 a year (68% oppose, 31% in favor), or $2,100 a year (69% opposed, 28% in favor) in higher taxes.

New Parents: Childcare Costs and Flexible Work Arrangements More Important than Paid Leave 

Nearly two-thirds (63%) of new mothers say that more affordable daycare (24%), more flexible work schedules (22%), and the ability to work remotely (17%) are more important than more paid parental leave (12%) to help them balance work and family. New mothers also report that the ability to work part-time hours (10%) and have extended afterhours childcare (10%) would best help them balance work and family obligations. The survey included an oversample of mothers of children under the age of 3 to enhance precision of these results. Parents of children under 18 also prioritize more flexible work schedules (26%), ability to work remotely (23%), and more affordable childcare (20%) ahead of more paid parental leave (10%). 

Americans Support Parental Leave Savings Accounts

More than three-fourths (78%) of Americans support cultivating a culture of saving for parental and family leave through establishing a new tax-advantaged saving account for family and medical leave. Twenty percent (20%) oppose this proposal. Establishing family and medical leave savings accounts enjoys rare bipartisan support with majorities of Democrats (82%), Republicans (80%), and independents (69%) in support of offering tax advantages to people who set aside money for this purpose.

Estimating Costs of a Federal Paid Leave Program

The survey also measured how many Americans might use a federal paid leave program and how many weeks they might use, if it were available to them. The survey found that 24.8% of current workers said they wanted or needed to take leave in the past 1 year, after the birth or adoption of a child, to care for an ill family member, or to deal with their own serious medical condition. If Americans were offered 66% of their current pay, but not more than $1000 per week, they say they would have taken the following:

  • Those taking parental leave would have taken an average of 9 (median) or 13 (mean) weeks
  • Those taking leave to care for a family member would have taken an average of 9 (median) or 12 (mean) weeks
  • Those taking leave to deal with their own serious medical condition would have taken an average of 9 (median) or 14 (mean) weeks of leave

These data show that while people overwhelmingly support the general idea of more paid leave, they aren’t willing to accept most of the costs necessary with establishing a new federal government program for this purpose. You can learn more about how women and men think differently about federal paid leave and its costs along with other findings from the survey here.

Read about the full survey results and analysis here.

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies.

Methodology

The Cato Institute 2018 Paid Leave survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online during October 1-4, 2018 from a national sample of 1,700 Americans 18 years of age and older. Restrictions are put in place to ensure that only the people selected and contacted by YouGov are allowed to participate. The margin of error for the survey is +/- 2.4 percentage points at the 95% level of confidence. 

NRO Article Errs on Tax Cuts

National Review’s Ramesh Ponnuru has a new article, “The Tax Cut Doesn’t ‘Tilt Toward the Middle Class.” The piece apparently responds to commentary by Veronique de Rugy and me about the effects of the GOP tax plan.

Ramesh says:

According to the Joint Committee on Taxation (JCT), households making between $20,000 and $30,000 pay 0.7 percent of all federal taxes now and will pay 0.8 percent of them under this law in 2025 … Households making $30-40,000 pay 1.3 percent of federal taxes now and will pay 1.4 percent of them in 2025. Households making between $40,000 and $75,000 will see their share of federal taxes unchanged at 10.2 percent.

His point is, “the tax cut reduces tax burdens proportionally,” rather than giving the biggest cuts to the middle, as I found here and here.

Alas, Ramesh used the wrong data. The tables published on the JCT website include reduced subsidies from repeal of the ACA individual mandate. Those would be almost entirely spending cuts, not tax increases. (This JCT score shows that the ACA effect will be $314 billion over 10 years, of which $297 billion, or 95 percent, will be spending).  

The JCT produces tables without the ACA subsidies, but they are not posted on the JCT site, in a typical example of the agency’s nontransparency. Phil Kerpen received them from GOP staffers, and they are attached below.

Anyway, here are Ramesh’s points rewritten from the JCT 2025 table that excludes the ACA piece:

Households making between $20,000 and $30,000 pay 0.7 percent of all federal taxes now and will pay 0.6 percent in 2025. Households making $30,000 to 40,000 pay 1.3 percent of federal taxes now and will pay 1.3 percent in 2025. Households making $40,000 to $50,000 will see their share of federal taxes fall from 2.2 to 2.1 percent, and households making $50,000 to $75,000 will see their share fall from 8.0 to 7.9 percent.

The non-ACA JCT table shows that the percentage tax cuts for the middle groups in 2025 are larger than the cuts for the top groups. So even aside from the (misguided) payroll tax issue raised by Ramesh, the JCT table shows that the GOP bill especially favors the middle class and will make the tax code more progressive (unfortunately).

Here is the JCT table, and Veronique responds to Ramesh here.

How Can Republicans Entrench the Tax Cuts?

The peculiarity of Congressional 10-year budgeting has left its mark on the tax debate. In the UK, if something like the Republican bill had passed, it would be regarded as a significant tax cut, pretty much across the board. And rightly so.

As JCT analysis has shown, in 2019, 44 percent would see tax cuts of more than $500, 17 percent tax cuts between $100 and $500, with just 8.1 percent seeing tax increases greater than $100. Even by 2025, just before most of the individual income tax cuts would expire, 56 percent would see tax cuts of more than $100, with just 13.5 percent seeing tax increases of $100 or more. And this includes as “tax rises” the reduction in subsidies paid out as the removal of the individual mandate penalty leads to fewer people opting for health insurance.

As Chris Edwards has explained, even on the JCT’s own figures (which attribute most of the burden of corporate income taxes to the rich), the biggest financial winners in terms of a reduction in the proportion of federal income and corporate taxes they bear will be the middle-class.

Two Problems with the CBO’s Score of the DREAM Act and One Solution

The Congressional Budget Office (CBO) recently released a fiscal impact score for the DREAM Act.  It found that the DREAM Act would increase deficits by about $25.9 billion over the next decade.  There are at least two problems with this CBO score and a solution that should make fiscal conservatives and DREAM Act supporters happy.    

What is the Baseline?

The CBO’s black box fiscal estimates are frequently frustrating and this one is no exception.  The biggest difficulty is telling what their baseline is.  Their baseline could be that 700,000 DACA recipients continue to work legally, which is roughly the current situation but will continue to decline rapidly over the next few years as DACA disintegrates.  The baseline could also assume zero government costs incurred while identifying and deporting immigrants who would otherwise have been legalized, an unrealistic assumption given that this administration is building up an internal deportation apparatus. 

The American Action Forum (AAF) has estimated the federal government’s cost of deportation and indirect costs on GDP.  The AAF findings suggest that removing DACA recipients and DREAMers over the next decade will increase government expenditures by $70 billion to $103 billion and lower GDP growth by about $260 billion.  Both of those swamp and fiscal effects from the DREAM Act.  If the AAF estimates are the baseline, the DREAM Act would actually save hundreds of billions of dollars over the next decade.   

It is difficult to estimate what immigration enforcement will be like over the next decade but at least some of those large costs should be included as part of the baseline in any CBO fiscal cost analysis.  The choice of baseline matters in whether the DREAM Act will be scored as fiscally positive, negative, or neutral.

The CBO versus the National Academy of Sciences

The findings of the CBO report are inconsistent with the National Academy of Sciences (NAS) fiscal cost projection for first-generation immigrants.  The age and education of the immigrants are the two biggest factors that influence their net fiscal impact.  The greater the education and younger the age at arrivals (with some caveats), the more fiscally positive the immigration is.  In contrast, the less educated and older the age at arrival (same caveats), the less fiscally positive the immigrants is.  

Applying the age and education profiles of DACA recipients to NAS findings by age and education in table 8-21 reveals startlingly different results from that of the CBO (Figure 1).  Figure 1 shows the average net fiscal impact by DREAMers by year after legalization.  Just counting the 700,000 DACA recipients should produce a fiscally positive result over the next decade of about $1.6 billion using the NAS methods.  Expanding this to the roughly 2 million or so eligible DREAMers, assuming they have about the same education and age profiles, should produce about $4.6 billion in net positive tax revenues over the next decade.      

Figure 1: Average Fiscal Impact per DREAMers by Year

 

Sources: National Academy of Sciences, Migration Policy Institute, Pew Research, and Author’s Calculations.

This result comes from the age profile of DACA recipients and DREAMers, not from assuming that they will be highly educated.  For the CBO to find that legalization will turn a $1.6 to $4.6 billion dollar surplus into a $25.9 billion deficit requires an enormous increase in benefit usage or a tremendous drop in taxable income or both at exactly the age when benefit receipts drop and taxable income rises for immigrants (Figure 2). 

Figure 2: Taxes minus Benefits for Immigrants, by Age

 

Source: National Academy of Sciences.

Either the NAS is tremendously wrong in its widely praised fiscal cost analysis or the CBO made unrealistic projections and assumptions, perhaps having to do with a possible uptick in family-sponsored immigration after the DREAM Act.  Regardless, one cannot praise the NAS findings and believe the CBO’s.     

Hedging Our Fiscal Bets

Even if you assume that the CBO’s findings are closer to reality than those of the NAS’, there is an easy solution that Republicans should leap for: welfare reform.  As Cato scholars have written about in detail, it is easy, popular, and fiscally prudent to limit non-citizen access to means-tested welfare benefits.  As part of a DREAM Act, Congress could include stricter welfare rules denying all non-citizens access to means-tested welfare, tax credits, and health insurance subsidies.  Congress could then create a special green card for DACA recipients and DREAMers, call it the DLPR, which they cannot use to naturalize for 10 years.  In such a case, they work legally and pay taxes without access to benefits for a decade when they will then have a choice.  Permanently protecting a large population from deportation while also making this fiscal cost argument moot is a good deal and should be taken regardless of CBO findings.       

Lower the Corporate Tax Rate As Much As We Can, While We Can

The recently concluded tax reform conference report draft includes a one-percentage-point increase in the corporate tax rate above what both the House and the Senate passed, with some of the revenue savings being used to keep a portion of the deduction for state and local taxes as well as forego delaying its implementation until 2019, as the previous bills proposed. There remains a chance the rate may tick up yet again before negotiations are concluded, especially if other targeted tax breaks get some traction in the Congress over the next few days.

However, even this small diminution in the rate reduction is a mistake: while a one point increase may seem to be a trifle, each uptick in the corporate tax rate represents a large opportunity cost that Congress won’t be able to easily rectify in the future.

Johnny Hallyday: Also Bucked Establishment on Taxes

French rocker Johnny Hallyday—the “French Elvis—has passed away at 74. I do not know his music, but it appears that he was an innovator. His sounds were apparently new to French ears, and his willingness to adopt rock styles from the English-speaking world upset the French establishment. But the people adored his music, and he sold 110 million records. So Hallyday and the market got the better of France’s cultural rules.

Hallyday didn’t like French tax rules either. Here is what I wrote in Global Tax Revolution:

The solidarity tax on wealth was imposed in the 1980s under President Francois Mitterrand. It is an annual assessment on net assets above a threshold of about $1 million, and it has graduated rates from 0.55 percent to 1.8 percent. It covers both financial assets and real estate, including principal homes.

One of those hit by the wealth tax was Johnny Hallyday, a famous French rock star and friend of French president Nicolas Sarkozy. Hallyday created a media sensation when he fled to Switzerland in 2006 to avoid the tax. He has said that he will come back to France if Sarkozy “reforms the wealth tax and inheritance law.” Hallyday stated: “I’m sick of paying, that’s all … I believe that after all the work I have done over nearly 50 years, my family should be able to live in some serenity. But 70 percent of everything I earn goes to taxes.” A poll in Le Monde found that two-thirds of the French public were sympathetic to Hallyday’s decision.

France still has its wealth tax, but numerous other countries have scrapped theirs as global tax competition has heated up. As for Hallyday, he spent his last decade avoiding the wealth tax in Switzerland and Los Angeles.

Pages