The Tax Lawyer's Blog

Paul Caron provides a link to a CBPP study that concludes (brace yourself) tax cuts given to the rich actually result in the rich having more money. This is the kind of thing that masquerades as news in an election year:

CBPP: Bush Tax Cuts Have Made Tax Code Less Progressive, Delivered Windfall to Rich

Center on Budget and Policy Priorities:  Bush Tax Cuts Have Provided Extremely Large Benefits to Wealthiest Americans Over Last Nine Years:

The tax cuts first enacted under President Bush in 2001 and 2003 have made the tax code less progressive and delivered a large windfall to the highest-income taxpayers. Tax Policy Center estimates for the years 2004 to 2012 (the years for which TPC provides data that are comparable from year to year) give us a sense of the cumulative effect of these tax cuts:

• The average tax cut that people making over $1 million received exceeded $110,000 in each of the last nine years — for a total of more than $1 million over this period.
• The tax cuts made the tax system less progressive. In each of the nine years from 2004 through 2012, the tax cuts increased the after-tax income of the highest-income taxpayers by a far larger percentage than they did for middle- and low-income taxpayers. For example, in 2010, the year in which all of the Bush income and estate tax cuts were fully phased in, they increased the after-tax income of people making over $1 million by more than 7.3%, but increased the after-tax income of the middle 20% of households by just 2.8%.

At a time of pressing fiscal problems and growing income inequality, continuing such large windfalls for the highest-income taxpayers is unaffordable.

The U.S. income tax system is already the most progressive income tax system in the civilized world (the bottom 50% don’t pay any income taxes at all), but, as I have pointed out ad nauseum in my previous posts, no amount of progressivity is progressive enough for the left wing wealth snatchers. I give you my permission to ignore the CBPP “study.” It sheds about as much light on the issue of taxation and who bears the burden of funding the federal government as a firefly sheds on a black hole.

Related Posts:

• U.S. Tax System is More Progressive than France, Germany, Belgium and U.K.
• Greg Mankiw on Our Progressive Tax System
• U.S. Tax System is Most Progressive in the World (but still not progressive enough for progressives)

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What if they waged a class war and nobody showed up?

Jeffrey Jones of Gallup Politics tells us:

PRINCETON, NJ — Creating good jobs, reducing corruption in the federal government, and reducing the federal budget deficit score highest when Americans rate 12 issues as priorities for the next president to address. Americans assign much less importance to increasing taxes on wealthy Americans and dealing with environmental concerns.

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Tax law professor and progressive blogger Linda Beale says that the reason we have tax evasion is because of too much capitalism and not enough regulation. Specifically, Ms. Beale objects to the following statement made by a New York Times Magazine author she refers to only as Adam D:

One often-overlooked lesson of the financial crisis is that shenanigans don’t happen in the absence of regulation; they happen when regulations are exceedingly complex and involve confusing, overlapping regulatory authorities.

Here’s Beale:

Shenanigans happen in brute force capitalism–the kind we’ve had in place for the last few decades–until there is one dominant beast who controls everything. Regulations ain’t the cause.

Illegally hiding ones money in an offshore account to evade taxes has nothing whatsoever to do with capitalism, brute or otherwise. In fact, it is anti-capitalist to shelter one’s capital to evade taxes because it gives the shelterer an unfair competitive advantage over his marketplace rivals. What tax evaders are doing, then, is a perversion of capitalism, not capitalism itself, in much the same way Islamic terrorists practice a perversion of Islam. To denigrate capitalists for the sins of perverse capitalists is no different than denigrating Muslims for the sins of perverse Muslims.

The truth is that the dominant beast that slouches toward Bethlehem to be born isn’t capitalism, but rather statism. The former at least is subject to the checks and balances of free market competition, however imperfect those checks and balances may be. Statism, or big government, has no competition and, therefore, is in an actual position to control everything as was recently demonstrated by the  King Mayor of New York when he made it a crime to purchase a Big Gulp.

I am a little surprised that Ms. Beale takes exception to Adam D’s observation that “exceedingly complex” and “confusing” regulations create a climate for tax shenanigans. Surely she is not in favor of such regulations, as her repeated calls for tax simplification and tax reform would suggest.

Adam D is calling for the simplification and centralization of regulations, not their eradication. What’s so objectionable about that?

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Tax happy Professor James Maule  has finally extricated himself from the dark side. Today at his blog Mauled Again he admits that there are limits to taxation.

In the current atmosphere of anti-taxation sentiment, opposition to tax increases, and efforts to curtail government, it was surprising but very telling that the coach of the University of Alabama football team proposed, according to this story, that “one option to address the Penn State tragedy might be a ticket tax on athletic events and giving the proceeds to child-abuse funds.”

Saban’s precise words, “Maybe they ought to tax all the tickets that they sell on athletics” clarifies that his proposal did not reach beyond Penn State ticket transactions.

…

Details aside, Saban’s proposal is unsound. If the tax is paid by the ticket purchasers, it puts an economic burden on people who did not commit the crimes in question, and did not engage in the behavior that contributed to the wrongdoing. If the tax is paid by the University, it would ultimately be paid by some combination of students through tuition, alumni through contributions, and taxpayers through state grants. Again, its incidence would fall on the wrong people.

…

The Penn State situation requires solutions, but a tax on people not responsible for the crimes is not one of the answers.

Before you get too excited about Maule’s Paulian conversion, I suggest you read between the lines. Especially when he says this:

The economic cost of the crimes in question ought to fall on the perpetrators. … When someone worth $100 causes $1 million of damages, who pays? This nation too often cannot bring itself to impose economic penalties on wrongdoers who have more than adequate resources to compensate the victims of their bad decisions, so it’s even less likely that its justice system would, even if it could, require the perpetrators to pay for the impact of their decisions.

Alas, Mr. Maule isn’t really claiming that there is a limit on taxation, but rather calling for more taxation of wealthy “wrongdoers.”¹

Sigh.

Footnotes:

¹  That the United States is the frivolous lawsuit capital of the world apparently causes Mr. Maule little consternation. He thinks there aren’t enough lawsuits. Tort law has been exploited by the left as a means of wealth-redistribution for decades. It’s one of the main reasons healthcare costs have skyrocketed in this country.

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President Obama continues to tell the American people that he is a tax cutter not a tax raiser. Fortunately for us, William McBride of the Tax Foundation has the truth.

This week the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) updated their estimates of the tax increases embedded in Obamacare, i.e. the Patient Protection and Affordable Care Act.  Turns out it’s not so affordable.  Over ten years Obamacare represents over a $1 trillion in new taxes.  The chart below, reproduced from the House Committee on Ways and Means, outlines the more than 20 new taxes comprised in the law.

This estimate has increased dramatically since the law was passed in 2010 because now more of the taxes fall within the 10 year budget window.  For instance, the “Cadillac tax” doesn’t go into effect until 2018, meaning even the current estimate understates the fully phased-in tax increases.

Provision	March 2010 Estimate, 2010-2019, $US billion	June/July 2012 Re-Estimate, 2013-2022, $US billion
Additional 0.9 percent payroll tax on wages and self-employment income and new 3.8 percent tax on dividends, capital gains, and other investment income for taxpayers earning over $200,000 (singles) / $250,000 (married)	210.2	317.7
“Cadillac tax” on high-cost plans *	32	111
Employer mandate *	52	106
Annual tax on health insurance providers *	60.1	101.7
Individual mandate *	17	55
Annual tax on drug manufacturers/importers *	27	34.2
2.3 percent excise tax on medical device manufacturers/importers*	20	29.1
Limit FSAs in cafeteria plans *	13	24
Raise 7.5 percent AGI floor on medical expense deduction to 10 percent *	15.2	18.7
Deny eligibility of “black liquor” for cellulosic biofuel producer credit	23.6	15.5
Codify economic substance doctrine	4.5	5.3
Increase penalty for nonqualified HSA distributions *	1.4	4.5
Impose limitations on the use of HSAs, FSAs, HRAs, and Archer MSAs to purchase over-the-counter medicines *	5.0	4
Impose fee on insured and self-insured health plans; patient-centered outcomes research trust fund *	2.6	3.8
Eliminate deduction for expenses allocable to Medicare Part D subsidy	4.5	3.1
Impose 10 percent tax on tanning services *	2.7	1.5
Limit deduction for compensation to officers, employees, directors, and service providers of certain health insurance providers	0.6	0.8
Modify section 833 treatment of certain health organizations	0.4	0.4
Other Revenue Effects	60.3	222**
Additional requirements for section 501(c)(3) hospitals	Negligible	Negligible
Employer W-2 reporting of value of health benefits	Negligible	Negligible
Total Gross Tax Increase:	569.2	1,058.3
* Provision targets households earning less than $250,000.** Includes CBO’s $216.0 billion estimate for “Associated Effects of Coverage Provisions on Tax Revenues” and $6.0 billion within CBO’s “Other Revenue Provisions” category that is not otherwise accounted for in the CBO or JCT estimates.
Source: Joint Committee on Taxation Estimates, prepared by Ways and Means Committee Staff

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Barack Obama and his campaign cohorts continue to mislead Americans that the rich are not paying their fair share of taxes. Will Freeland and Scott A. Hodge of the Tax Foundation reveal the truth:

Tax Foundation:  Tax Equity and the Growth in Nonpayers:

• In 2010, 41% of all tax returns filed had no income tax liability. This represents over 58 million income tax filers.
• Nonpayers have grown substantially over the last two decades.  In 1990, only about 21 percent of returns had no tax liability, about  half of what it is today.
• The expansion of tax credits is the primary driver of the  increased number of nonpayers. The budgetary cost of tax credits reached  $224 billion in 2010.
• Though most nonpayers of the income tax are generally low  income, the number of nonpayers in middle income categories has grown.  The median income of nonpayers has increased by 40% over the last 9  years.
• The threshold at which a typical married couple with two children will likely be a nonpayer is now $47,000.

And Freeland and Hodge point out that not only are the rich paying their fair share of federal income taxes, they are providing welfare payments through the tax system to those who are not:

As the number of nonpayers has grown, so too has the number of tax filers who receive cash payments because of the expansion of refundable credits. The combined budgetary cost of basic tax credits (non-refundable credits that offset only a filer’s income tax liability) and refundable tax credits (the cash payments) has soared over the past few years.

(Hat Tip: Paul Caron)

Related Posts:

• The Fair Share Lie
• The Shared Sacrifice Lie
• Who Doesn’t Pay Taxes?
• U.S. Tax System is Most Progressive in the World (but Still not Progressive Enough for Some Progressives)
• We’re Number 1: America has the Highest Corporate Tax Rate in the World

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Professor Todd Henderson supports the Buffett Rule but says it should be voluntary:

We can now add actor Will Smith to the growing list of celebrities, business leaders, and politicians who have recently come forward to complain that they don’t pay enough in taxes. Bill Gates has volunteered to pay more. So too has Warren Buffett. Most colorfully, the author Steven King recently penned a piece for the Daily Beast, “Tax Me, for F@%&’s Sake!”

We should take them up on their offer. But this does not necessarily mean raising everyone’s taxes. If we can figure out a way to get the rich who want to contribute more to the government to pay voluntarily, then everyone will be better off.

Nothing prevents taxpayers from paying voluntary taxes. The federal government has accepted voluntary donations to the Treasury since the 1960s, and receives about $3 million per year against a deficit now exceeding $1.3 trillion. Many states also allow individuals to pay more taxes voluntarily. Few do. Case in point: Virginia’s “Tax Me More Fund,” which was implemented in 2002 to close a budget shortfall. Over the past decade, the fund has taken in a total of about $12,000.

These numbers are striking because of the size of voluntary contributions to charities each year. Individual taxpayers voluntarily gave $212 billion to charity in 2010, according to Giving USA Foundation.

So what explains the gap between the rhetoric of voluntary tax and the reality? One possibility is a view that real progress can be made on solving government problems if many people pay. While true, the same can be said of charitable giving. The Red Cross can’t really do much good if only one person gives a little bit, but it can do enormous good if thousands do.

The problem can’t be the size of the problem either. Many charities raise money against huge needs, like reducing poverty in Africa or educating children in failing urban school districts. A dollar given to the local soup kitchen is just a drop in the bucket, in the same way that giving a million dollars to the US Treasury would be.

The big difference between charity and government is choice and competition. Wealthy individuals with a preference for government action may not voluntarily give to government because they are worried about how the money will be spent. Politicians, who may serve their own interests or may spend in ways that donors do not like, spend government money. The government cannot credibly commit to spend money on deficit reduction or the poor; it just might spend it on bombing Iran or building a bridge to nowhere.

Here’s Professor Henderson’s solution:

One way to solve this problem is to allow taxpayers to earmark their voluntary tax payments as they would if donating to a charity. Will Smith could voluntarily pay $10 million (half his pay for each film he makes) to fund the food stamp program (or perhaps even individual families) or FEMA, instead of giving money to a local soup kitchen or the Salvation Army. The government already does this to some extent, allowing every taxpayer to voluntarily contribute to the public financing of political campaigns by paying an extra $3 in tax. This program should be expanded to allow itemized contributions to various government functions.

Love it! Rich Republicans will give their money to things like border control and national defense and rich Democrats will give their money to things like the National Endowment for the Arts and Solyndra.

Related Posts:

• IRS Voluntary Payment Check Off Box for the Benevolent Rich
• The Pro Tax Rich Should Voluntarily Pay More Taxes or Shut the #%&@ Up
• George Soros Gives $100 million dollars to Human Rights Watch Instead of U.S. Government
• The Giving Pledge: Instead of Private Charity, Why Not Give it to the Government?
• Taxing the Rich Because You Can: The Beginnings of Totalitarianism
• Rich Liberals Don’t Really Want to Pay More Taxes
• Pro-Choice on Taxes

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