issue: Tax

GOP’s Budget-Busting Defense and Tax Proposals Are Incompatible

Posted on by Alyssa Brown

Last week, Senator Roger Wicker, the GOP ranking member on the Senate Armed Services Committee, called for increasing U.S. defense spending from roughly 3% to 5% of gross domestic product (GDP) over the next five to seven years to prepare for increased geopolitical tensions with Russia, China, and Iran. That would require at least $5 trillion in new federal spending over the next decade, for which Senator Wicker offers no offsets.

Meanwhile, Senate Republicans also want to spend an additional $4 trillion over the next decade to extend the Trump 2017 tax cuts, most of which are currently set to expire in 2026. Even if there were national security merits to Senator Wicker’s proposal, Republicans have offered the country no explanation for how they intend to finance $9 trillion in spending, which would reverse the $1.5 trillion of savings they secured in last year’s Fiscal Responsibility Act several times over. By comparison, the most recent Biden budget proposed $4.1 trillion in new spending over the next decade, and much of that was offset by proposed tax increases.

Wicker’s plans for a dramatic ramp-up of defense spending were swiftly endorsed by Mitch McConnell and several other prominent Republicans. However, the proposal does not spell out a clear strategic rationale for such a high defense target. In an op-ed defending the proposal, Wicker cites the unfunded priorities lists annually requested by the Pentagon as one justification for this increase. However, the spending increase that would be required to fully fund all these priorities is less than one-tenth of what Wicker is calling for. Moreover, there is clearly some room for the Pentagon to pay for these priorities by spending smarter rather than spending more. The Inspector General’s Office, the Government Accountability Office, and the Defense Business Board have all suggested that smarter procurement and personnel decisions could save money with few negative consequences for military readiness.

But if our country faces threats dire enough to justify this new spending, you’d expect a party that has repeatedly threatened to crash the economy in the name of “fiscal discipline” to come up with ways to pay for it. Yet Republicans have instead chosen to do the opposite, calling for even more tax cuts for affluent Americans by making their 2017 tax bill, the Tax Cuts and Jobs Act (TCJA), permanent. Although TCJA made some positive changes to simplify the individual tax code that are worth extending, it also lavished almost two-thirds of the overall benefits on the top fifth of income earners. And contrary to GOP claims that the law would pay for itself, even sympathetic estimates say only about 14% of the total cost is estimated to be recouped through faster economic growth.

America cannot afford the GOP’s reckless spending proposals. The federal government spent $2 trillion more than it raised in revenue last year — a deficit that cannot be justified at a time of strong economic growth and record-low unemployment rates. Interest costs as a percent of GDP are now higher than at any other point in American history, and they are projected to more than double over the next 30 years even if current law remains unchanged. If this growth continues unchecked, interest costs will begin to crowd out other important priorities, including national defense. This scenario is hardly hypothetical, as interest payments on the debt eclipsed defense spending for the first time last year. If the GOP truly wanted to ensure military readiness, they would ensure that defense spending is sustainable rather than pitch unrealistic spending surges.

Ultimately, these GOP proposals highlight how unserious their party is on improving the nation’s fiscal outlook. Despite their routine demonization of fiscal proposals from the other side of the aisle, they fail to recognize the complete incompatibility and hypocrisy of their own $9 trillion priorities. Republicans want to spend now and pay later — by sticking young Americans with the bill. Policymakers in Congress and the Administration should be having a serious dialogue about what is necessary to correct the nation’s fiscal trajectory, not making it worse.

Weinstein for Forbes: America’s Tax Code Is A Hot Mess.

Posted on by Max Sherrill

By Paul Weinstein Jr.

Tax day is upon us, and millions of Americans are scrambling to finish their returns on time by navigating one of the most illogical, unfair, and confusing tax systems in the world—the federal tax code.

Almost 40 years ago, Congress passed the Tax Reform Act of 1986, the last major overhaul of the federal tax code. Signed into law by Republican President Ronald Reagan and championed by Democrats such as Bill Bradley and Richard Gephardt, the enactment of the law was a historical, and by today’s standards, almost impossible bipartisan achievement. It significantly reduced marginal rates with a top rate of 28 percent, removed millions of working poor off the tax rolls, and simplified the tax code by closing a myriad of tax loopholes.

Unfortunately, over time, Presidents and Members of Congress have conspired to undue much of the good that came from the 1986 reform—often under the guise of reform. many of the loopholes that the 1986 reform eliminated have returned, with a few extra ones slipped in for good measure. Since the law’s enactment, tens of thousands of changes have been made resulting in a tax code (including regulations and official guidelines) that is several volumes longer than The Bible and requires almost 75,000 pages.

Keep reading in Forbes.

Biden’s Budget Tax on Executive Compensation is an Imperfect Solution

Posted on by Alyssa Brown

Skyrocketing executive pay has become an increasingly important indicator of income inequality and has prompted questions as to what policy tools can rein it in. The Biden administration recently proposed to tackle the problem by prohibiting corporations from deducting salaries over $1 million for all their employees. Although this approach may be an improvement to the status quo, it has some drawbacks compared to the more straightforward option of just creating a new top income tax rate for very high-earners.

In 1989, the ratio of CEO compensation to median worker pay was 59:1. By 2021 this had risen to 399:1. Much of this has been driven by the growth in stock-based compensation for executives, which now makes up the vast majority of executive pay. Yet despite the “performance-based” incentive of stock-based compensation, these higher paid executives have not necessarily brought higher value to companies they lead. One study found that the rate of return on $100 put into companies with lower-paid CEOs surpassed those with higher paid ones, $367 to $265.

As this issue garners more attention, many proposals have popped up to address it through the tax code. In last week’s FY25 budget, the Biden administration offered their own solution, proposing to expand section 162(m), a 1993 provision that reduced corporations’ ability to deduct certain high salaries from their corporate taxes. This provision currently prevents companies from deducting compensation over $1 million dollars for their five highest-paid executives. The administration’s proposal would extend this to all employees making over $1 million, and extend the eligibility to all corporations, not merely publicly traded ones.

Since its passage, the provision has in practice done little to address the growing pay of corporate executives. However, it has succeeded in subtly increasing the effective tax rates of those executives by imposing what is essentially an employer-side payroll tax on covered employee salaries. Because this tax is passed on to the employee in the form of lower earnings, covered workers face an effective top marginal tax rate of over 50% under current law (the 21% corporate income tax plus a 37% tax rate on the remaining 79% of their compensation in excess of $1 million). In conjunction with the budget’s other proposals to raise the corporate income tax rate to 28% and the top individual income tax rate to 39.6%, Biden’s approach would raise the effective top marginal tax rate on compensation over $1 million dollars to 56.5% — a massive increase over the status quo and close to the revenue-maximizing level.

Hiding such a large tax increase on high-earners in the corporate tax code may be more politically advantageous than doing so outright through a change in the ordinary income tax code, but it comes with some drawbacks. The proposal would expand the provision for only employees at C corporations like Amazon or Walmart, leaving out many high earners working at pass-through businesses like law firms or hedge funds. These types of businesses make up 95% of all businesses in the United States, yet would not be subject to the provision since they pay no corporate income tax. This would give a tax advantage to many high-earning professionals in consulting, finance, or law, where firms are less likely to be structured as C corporations.

In addition, it is also not apparent from their details whether the proposal would expand an existing provision for highly paid nonprofit executives that requires tax-exempt organizations to pay an excise tax equal to the corporate rate for their five highest paid employees. This risks creating a situation where an employee of a nonprofit or pass-through making $2 million a year is taxed at a 39.6% top rate, while a corporate employee making the same salary will be taxed at a top rate of 56.5%.

Creating a 56.5% bracket for incomes over $1 million would do a better job of taxing highly compensated corporate executives without section 162(m)’s uneven impacts. This option could raise substantially more revenue for progressive policies and avoid imposing an uneven system that only targets certain businesses or sectors.

If the politics are such that expanding section 162(m) is possible while significantly raising ordinary income tax rates is not, doing so would be an improvement over a status quo that chronically under-taxes the rich. However, the administration must take additional steps to address the distortions it would create and recognize that there are only so many ways to tax the rich before having to turn to other sources of revenue for a progressive agenda.

Biden’s Budget Demonstrates the Problems With His $400K Tax Pledge

Posted on by Alyssa Brown

Last Monday, the Biden Administration released its budget proposal for 2025, offering a blueprint for what Biden hopes to accomplish in his second term. The budget includes some admirable initiatives and real revenue increases to pay for them, but it also relies on gimmicks to mask the reality that President Biden cannot sustainably finance his proposed agenda while maintaining his pledge not to raise taxes on any household with annual income under $400,000. Instead of allowing this shortsighted campaign promise to bind the remainder of his presidency, Biden should consider a broader set of tax and spending reforms that would allow him to cement a more durable progressive legacy.

The Biden budget proposes more than $3 trillion in new spending over the next decade to fund major initiatives that will help working families, including universal preschool, Medicaid expansion, and an expanded child tax credit. Biden also proposes to raise roughly $5 trillion in additional revenue through tax increases on businesses and wealthy Americans. Among his many corporate tax increases, Biden proposes raising the corporate income tax rate from 21% to 28%, hiking the corporate alternative minimum tax rate from 15% to 21%, and taxing more of businesses’ foreign income. On the individual side, Biden calls for restoring pre-2017 income tax rates on individuals making over $400,000, setting capital gains tax rates at 39.6% for those making over a million dollars, creating a new tax on centi-millionaires that includes unrealized income, and increasing Medicare taxes for high earners.

Thanks to these tax hikes and some modest proposed spending cuts, the president’s budget claims credit for reducing deficits by roughly $3 trillion over the next 10 years. Unfortunately, these savings are largely fiction. Many of the tax cuts enacted in 2017 are currently scheduled to expire in 2025, and the Biden budget proposes to make the tax cuts permanent for all households with incomes under $400,000, which represents about 98% of the population. The costs — which amount to roughly $1.7 trillion over 10 years — are not accounted for in any way beyond a vague reference to “additional reforms to ensure that wealthy people and big corporations pay their fair share.” Other costly tax provisions, such as Biden’s proposed extension of the Child Tax Credit and continuing a temporary increase in health insurance subsidies from the Inflation Reduction Act, are also assumed to be offset by unspecified tax increases after 2025.

Biden’s approach is certainly better than Republicans’ irresponsible plans to extend the 2017 income tax cuts across the board, which would cost $2.6 trillion plus interest over a decade and disproportionately benefit the wealthiest Americans. Yet with the trillions in tax hikes on the rich already proposed in his budget, there is little room for Biden to raise the additional revenue needed to offset the provisions he supports extending without violating his $400K tax pledge.

As PPI demonstrated in a recent report, Biden’s pledge takes off the table over 80% of annual income earned by individuals. Enacting the tax policies in Biden’s budget would likely put tax rates on the remaining 20% close to their revenue-maximizing rates, making it virtually impossible for further tax increases on this income to provide additional offsets. For example, when combining the federal and state rates, the 25.8% average tax rate faced by corporations is already at the OECD average. Biden’s proposed reforms would raise it to 33.8% — the second-highest among our peer countries. Moreover, while academics differ on exactly how high capital gains taxes could be raised without dampening growth or reducing revenues, a top federal rate of 39.6% would undoubtedly leave little room for future increases when considering how individuals also often pay state taxes on capital gains.

Even if Biden could squeeze out enough revenue from the ultra-rich to fully offset his new spending proposals, there would be no money leftover to pay for the underfunded promises our government has already made. Spending on Social Security and Medicare is growing faster than the revenue needed to finance them as our population ages, and if nothing is done to address the structural imbalances in both programs’ financing, they face automatic benefit cuts under current law within the next 10 years. Biden’s budget proposal this year mostly just relies on the same budget gimmicks to paper over the problem that it did last year.

Although it is unlikely Biden will walk back his $400K tax pledge during an election campaign, he cannot allow shortsighted campaign promises to prevent him from securing a durable and sustainable legacy in a potential second term. At a time when annual interest payments are already at their highest level in history relative to the size of our economy, we can’t afford to rack up even more debt. Doing so would leave policymakers with few resources to fund future responses to economic emergencies or progressive public investments. Instead, the president should be willing to entertain common-sense spending reforms and broader-based taxes, such as a value-added tax or a carbon tax, which would raise trillions in revenue without harming economic growth.

For a democratic society to be successful, lawmakers must be accountable to voters who can evaluate whether the new services they’re being offered are worth their additional tax dollars. As the lone remaining presidential candidate committed to defending democracy, if re-elected, Biden must be willing to spend his remaining time in office making the argument to voters that his initiatives are worth paying for rather than hiding the costs and leaving the next generation to pick up the pieces.

PPI Urges Democrats To Move Beyond $400K Tax Pledge

Posted on by Max Sherrill

Washington, D.C. — Government programs that benefit most Americans can only be sustained if most Americans are willing to pay for them. But for more than two decades, U.S. political leaders have kept taxes far below the level needed to pay for growing social spending on programs like Social Security and Medicare. America can afford to borrow when addressing temporary emergencies, but it cannot continue to sustain debts growing faster than our economy in perpetuity.

Today, the Progressive Policy Institute (PPI) released a new report titled “How The $400K Tax Pledge Undermines Policymaking,” which argues that President Biden and the Democratic Party should move beyond Biden’s 2020 pledge not to raise taxes on any household making under $400,000. Report author Ben Ritz, Director of PPI’s Center for Funding America’s Future, explains the need for pragmatic progressives to push Democrats to soften this tax pledge if they want to bolster public investment in a fiscally sustainable way.

The report argues that raising taxes only on households with incomes over $400,000 is insufficient to fund current promises, let alone the new initiatives Biden has proposed during his presidency or the wish list of expanded programs sought by progressives. While it made for a popular campaign promise, President Biden’s pledge undermines prudent democratic governance by severing the crucial link between citizens’ demands for more government spending and their willingness to pay for it. In addition, the report contends that the pledge prevents the adoption of common-sense tax simplification measures and efficient revenue-raisers that most other advanced economies use to fund their welfare states.

“The reality is that some form of higher tax revenue is necessary to finance the needs of our aging population — and asking only families that make $400K to bear an increased burden is neither fair nor practical,” said Ben Ritz. “Pragmatic progressives must start making the case to voters why progressive programs are worth paying for. That means advocating for not only progressive tax increases, but also for broadening the tax base and closing inefficient loopholes — even those that benefit the middle class. At the same time, progressives must propose to modernize rather than simply expand existing spending programs, because the public’s tolerance for taxation only goes so high.”

Read more about the report in Politico and download the report here.

 

PPI’s Center for Funding America’s Future works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. It tackles issues of public finance in the United States and offers innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on Twitter.

 

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Media Contact: Amelia Fox – afox@ppionline.org

How the $400K Tax Pledge Undermines Policymaking

Posted on by Alyssa Brown

INTRODUCTION

Americans have always understood that our nation’s prosperity rests on two pillars: A vibrant free-enterprise system that rewards innovation and risk-taking, and a fiscally responsible government that invests in basic public goods and services that cannot be provided by the private sector. But to benefit from these investments, citizens must pay sufficient taxes to finance them — and for more than two decades now, U.S. political leaders have not asked them to do so.

Last year alone, the federal government spent $2 trillion more than it raised in tax revenue. Our country can afford to borrow when addressing temporary emergencies, but it cannot sustain debts growing faster than our economy in perpetuity. Unfortunately, that’s the path we’re on today, as the costs of health-care and retirement programs such as Medicare and Social Security continue growing faster than the revenues needed to finance them. If this structural mismatch between taxes and spending continues unabated, rapidly rising interest costs will further crowd out critical public investments and smother our economy.

Anti-tax zealots on the right have argued the imbalance can be solved entirely through spending cuts. Yet they have been unable to produce a plausible plan to do so without eviscerating core functions of government, such as food safety and basic scientific research that plants the seeds for innovation. The reality is some higher tax revenue is necessary to finance the needs of our aging population.

President Joe Biden at least partially grasps this reality and has called for raising taxes by almost $5 trillion over the next decade. However, his approach also is marred by political expediency. In Biden’s telling, our current spending trajectory can largely be sustained — and even raised — simply by raising taxes on the top 2% of income-earners, without any contribution from the vast majority of Americans. During his 2020 presidential campaign, Biden famously pledged not to raise taxes on households making under $400,000 (hereafter referred to as “the $400K pledge”). Since taking office, his administration has reinforced this pledge by saying no household earning under $400,000 will pay a penny more in taxes from his policies and proposing to prevent $1.7 trillion of temporary tax cuts that benefit these households from expiring.

Biden is right that the rich need to pay more in taxes but that simply isn’t enough. As this report demonstrates, raising taxes only on households with incomes over $400,000 is insufficient to fund current promises, let alone the new initiatives Biden has proposed during his presidency or the wish list of expanded programs sought by progressives. In addition to starving the government of needed revenue, the $400K pledge prevents the adoption of commonsense tax simplification measures and efficient revenue-raisers that most other advanced economies use to fund their welfare states

But the final problem with the $400K pledge is perhaps the most serious: it destabilizes our democracy. Asking fewer than 3 million households to bear the burden of financing a government meant to serve 330 million people is neither fair nor practical. It removes the incentive for prudent fiscal policy by severing the crucial link between citizens’ demands for more government spending and their willingness to pay for it. After all, why should voters care about wasteful or corrupt government spending if “somebody else” is paying for it? Meanwhile, the few households that are footing the bill will likely reduce their output in response to confiscatory levels of taxation. Government programs in a democratic society can only be sustained if most of the citizens who can contribute are willing to do so.

Pragmatic progressives must pressure the Biden administration to soften the president’s misguided tax pledge heading into a potential second term. They must start making the case to voters why progressive programs are worth paying for. That means advocating for not only progressive tax increases, but also for broadening the tax base to close inefficient loopholes — even those that benefit the middle class — and adopting new taxes, such as the consumption taxes that fund European welfare states. Beyond that, progressives must propose to modernize rather than expand existing spending programs, because the public’s tolerance for taxation only goes so high. Bringing spending into alignment with revenues at a sustainable level voters truly support is essential for Biden to establish a durable legacy.

READ THE FULL REPORT. 

Duffy for The Messenger: New Tax Deal Imperfectly Invests in Our Future

Posted on by Max Sherrill

By Laura Duffy

After years of uncertainty, Congress may be on the verge of passing a $78 billion tax package to partially revive an expanded Child Tax Credit and business tax incentives for research and development that expired at the end of 2021. These popular — yet costly — provisions became linked in 2022 by Democrats arguing that benefits for working families should accompany tax breaks for businesses, but compromise has remained elusive until now. Although the deal, introduced Monday by Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Chairman Jason Smith (R-Mo.), is imperfect, it would temporarily reduce child poverty, incentivize innovation and minimally add to the national debt.

Expanding the Child Tax Credit (CTC) can play a key role in reducing child poverty, which is both a moral imperative and a smart investment in children’s health, educational and economic outcomes later in life. In 2021, Congress temporarily provided a pandemic-era expansion to the CTC to all families. These changes were expensive: If made permanent, they would have cost $1.6 trillion between 2022 and 2031. Yet, instead of adjusting the policy to provide more targeted support, lawmakers allowed the changes to completely expire.

Currently, the full $2,000-per-child value of the CTC isn’t available to many families that need it most.

Read more.

This op-ed was originally published in The Messenger on January 20, 2024.

Child Payments and a VAT Are Fairer than the So-Called “Fair Tax”

Posted on by Alyssa Brown

INTRODUCTION

Earlier this year, 31 House Republicans released a proposal to replace virtually all federal taxes with a 30% national sales tax. As other analysts have noted, a sales tax would be easy for companies to dodge and difficult for the government to enforce — meaning that to avoid revenue losses, the proposal would require a significantly higher tax rate, possibly as high as 60%.

The bill has also been criticized for being regressive. In tax terminology, a tax is “regressive” if it takes a higher share of income from the poor than from the rich; “flat” or “proportional” if it takes the same share of income from everybody; and “progressive” if it takes a higher share from the rich than from the poor.

The Republicans’ overall bill is certainly regressive and should be rejected on that account. But its core idea — taxing consumption rather than income — is not inherently regressive if properly designed. Much public commentary has mistakenly concluded that a national sales tax would fall predominantly on low-income Americans. But as this analysis demonstrates, taxes on spending fall on everyone roughly equally, and certain elements of the Fair Tax — such as its universal child payments — are actually progressive. While the Fair Tax ought to be rejected due to its regressive tax cuts and poor enforceability, two elements of it are worth keeping: its flat per-child cash payments and its emphasis on taxing spending rather than saving.

Read the full report.

Ritz for Forbes: Finding A Budget Compromise Despite Republican Extremism

Posted on by The Progressive Policy Institute

By Ben Ritz

Republicans have refused to raise or suspend the debt limit – which multiple independent forecasters have warned could cause the government to default on its debts for the first time in history as soon as June 1st – unless “substantive reforms” to federal spending are made. Biden spent most of this year refusing to indulge in the GOP’s hostage-taking but agreed to negotiate on a broader budget deal once Republicans made an opening offer. After Republicans coalesced around a position by passing the Limit, Save, Grow Act through the House, both sides began negotiations this week in the hopes of striking a deal that Republicans could claim is a precursor to raising the debt limit and Democrats could claim is independent.

Part of the challenge is that Republicans have entered into the negotiation with extreme positions that no Democrat could ever accommodate. The GOP’s bill would raise the debt limit through early next year and pair that increase with $4.5 trillion of spending cuts over the coming decade and other conservative policy changes. Cuts of this magnitude might make sense in the context of a balanced and comprehensive package that addresses all areas of the budget, including raising new revenues – particularly at a time when inflation remains high and our projected long-term debt growth is unsustainable. But the conditions Republicans have imposed to target these cuts are unrealistic at best and economically ruinous at worst.

Read more in Forbes

Five Tax Loopholes That Congress Should Close

Posted on by Alyssa Brown

Introduction

The federal tax code is riddled with provisions that benefit individuals and businesses working in certain sectors or engaging in specific activities. In 2019, these provisions — known as tax expenditures — cost the federal government 6.6% of gross domestic product (GDP) in lost revenue, which is greater than the amounts spent on Social Security (4.9% of GDP), Medicare (3.7%), national defense (3.2%), and the entire nondefense discretionary budget (3.1%). Although some tax expenditures help working-class people, 24.1% of their overall benefits go to the top 1% of income-earners, and 58.8% go to the top 20%. The regressive and economically inefficient nature of tax expenditures makes them a ripe target for progressive reform.

This isn’t to suggest that every expenditure helps special interests. For example, the earned income tax credit subsidizes the wages of low-paid workers and pulls four million Americans out of poverty every year. But according to the U.S. Treasury Department, the tax code is littered with over 160 expenditures, including highly regressive expenditures such as the mortgage interest deduction, the state and local tax deduction, the carried interest loophole, and the pass-through business loophole. These carveouts leave the federal government with a Swiss cheese tax code — one that fulfills its basic purpose but is littered with holes. Just as PPI has advocated a regulatory improvement commission to streamline economic regulations, the U.S. also needs to examine the many cracks and holes in the federal tax code.

A few large tax expenditures are already well-known. But most are quite small, and they survive largely by remaining out of sight and out of mind. They also sometimes benefit from lobbying efforts by well-connected industry leaders who prefer that their pet carveouts remain free from public scrutiny. This post, therefore, sheds light on five smaller tax expenditures — the types that don’t normally make the headlines — which ought to be eliminated to boost federal revenues and remove unfair loopholes. Specifically, Congress should:

 

  1.     Eliminate the percentage depletion deduction for certain fossil fuel producers;
  2.     Tax employee awards under either the personal income tax or the corporate profits tax;
  3.     Remove the special deduction for Blue Cross Blue Shield and certain other health insurance providers;
  4.     Eliminate the 5010 credit for wine and flavor additives in distilled spirits; and
  5.     Remove automatic partnership classification for companies that derive 90% or more of their income from fossil fuels and other depletable natural resources.

 

These five changes, if enacted by themselves, would raise just under $31 billion over 10 years. But more importantly, these five arcane loopholes are just the tip of the iceberg — policymakers who are willing to take a deeper dive into the tax code will find even greater savings hidden under the surface.

 

READ THE FULL POLICY BRIEF HERE

PPI Statement on President Biden’s FY 2024 Budget Proposal

Posted on by The Progressive Policy Institute

Ben Ritz, Director of the Progressive Policy Institute’s Center for Funding America’s Future, released the following statement on President Biden’s new budget proposal:

“With inflation still running high and the national debt on track to break its historical record as a share of economic output three years sooner than projected last year, both parties should be working together to improve our nation’s finances. We thus applaud President Biden’s decision to call for nearly $3 trillion of deficit reduction over the next decade in his Fiscal Year 2024 budget proposal to Congress — a target that’s three times as ambitious as the one he set in his proposal last year.

“However, we are concerned that this budget does not really tackle the financial challenges facing Social Security and Medicare. The budget’s proposed reforms are largely limited to improving the solvency of Medicare Part A Hospital Insurance, which only finances about 40% of Medicare spending. They do so in part by diverting savings from the other components of Medicare, such as Part D prescription drug benefits, thereby making the broader budget’s financial problems harder to solve. And the proposal makes no meaningful attempt to improve the solvency of Social Security, which faces automatic benefit cuts of over 20% when its trust funds are exhausted in roughly a decade.

“If the president’s preferred approach — one on which he hasn’t even had to try to compromise with Republicans yet — can only close part of the projected funding shortfall for 40% of the smaller of our two biggest underfunded entitlement programs, that’s a clear sign more options must be put on the table. To strengthen the foundation of American retirement security and put our budget on a more sustainable trajectory, we urge the president to reconsider his blanket opposition to benefit reforms and tax increases that may hit some folks earning under $400,000 per year.

“We also challenge House Republicans to counter the president’s proposed budget with their own vision for our fiscal future. If they continue to rule out reasonable revenue increases and heed Donald Trump’s calls to take Social Security and Medicare off the table, Republicans will have no way to produce a plausible plan for reining in the growth of our national debt. Combined with their threats for debt-limit brinkmanship, such an approach would prove the GOP to be far more fiscally irresponsible than the administration.”

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.

Launched in 2018, PPI’s Center for Funding America’s Future  works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. We tackle issues of public finance in the United States and offer innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.

Follow the Progressive Policy Institute.

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Media Contact: Tommy Kaelin – tkaelin@ppionline.org

Will Direct e-File really reduce errors on tax filings?

Posted on by The Progressive Policy Institute

Anybody who has ever filed taxes in the United States knows it is complicated, and that the level of complexity is getting worse. The Inflation Reduction Act (IRA) enacted last year directs the Internal Revenue Service (IRS) to study how to implement a direct e-File program. Under such a system, the IRS would pre-populate tax returns with any third-party information the agency has from employers and other entities, and information that the IRS believes is relevant from the prior years’ tax return.

The goal, according to Ariel Jurow Kleiman — an associate professor of law at Loyola Law School who will be one of the authors of the upcoming IRS report — is to “eliminate all tax compliance activities” related to filing taxes, because doing so “will be disproportionately more valuable to taxpayers than reforms that merely shave an hour or two off their total tax preparation time.”

Choi and Kleiman’s research is informative and well-researched. The authors are correct that tax reform should focus on simplification and ease of filing, eliminating as many compliance activities as possible, and dramatically reducing the risk of taxpayer error, which their study shows is most important to taxpayers.

The problem lies with some of their conclusions. Their argument that direct e-File and Free-File programs are answers to the problems noted above is not supported by facts.

In their paper, Choi and Kleinman cite exact withholding type systems in the United Kingdom and German as models for the U.S. But as tax codes around the world have become more complex, many countries that are currently using such systems are increasingly finding it necessary to re-engage taxpayers in order to ensure accuracy. A 2017 report by the UK’s All-Party Parliamentary Taxation Group on Pay-As-You-Earn (PAYE), found that as a result of a number of economic changes since the creation of PAYE, roughly one-third of British taxpayers were effectively filing their own taxes via a process known as Self-Assessment — negating much of the “will save the taxpayer time” rationale for direct e-file and free-file systems. The number of taxpayers who will need to file Self-Assessments is only expected to increase with the rise in two-earner households, self-employed workers, labor mobility, and targeted tax incentives that make the code more and more complex.

Furthermore, the report noted that error rates had been rising significantly in the United Kingdom, costing the government and taxpayers billions over the years. Asking the already overburdened IRS to take on e-File would siphon away resources from enforcement and create more opportunities for wealthy tax evaders like Donald Trump to reduce their tax liability.

Reducing the burden of tax compliance and error rates should be a top priority of any national government. However, gimmicks like direct e-file, the FAIR Tax, and various versions of the Flat Tax, are more gimmicks than good policy. All three are “quick fixes” intended to do away with the inconvenience of tax filing, while ignoring the need for a well-designed income tax. Policymakers should instead turn their attention to the hard work of reducing the growing number of tax expenditures that litter the code and simplifying important incentives such as the Earned Income Tax Credit.

Digital Decade 2030

Digital Decade 2030

Thursday, September 27, 2022

11:00 a.m. — 12:45 p.m. CET

 Résidence Palace

155 rue de la Loi, 1040 Brussels

 

About this event

Europe has ambitious targets for telco connectivity – and very real investment needs. But what’s the best way to attract the capital Europe so clearly requires? Some say the best idea is a tax or fee leveraged on so-called “content and application providers” to create a unique, two-sided market – generating new revenue streams for telcos but adding additional costs to consumers and content producers alike. Others see an opportunity for the European Commission to build on its landmark approach to modern telecommunications: creating framework conditions that attract investment, open markets to new entrants and drive forward a vibrant European data economy in a triple win for citizens, businesses and government alike.

At this high-level roundtable, co-convened by two leading transatlantic think tanks – The Lisbon Council in Brussels and Progressive Policy Institute (PPI) in Washington DC – leading telecommunications-sector experts will present new evidence and incisive analysis intended to form a backdrop to ongoing debate on Europe’s telco financing needs. Michael Mandel, vice-president and chief economist of PPI, and Malena Dailey, technology policy analyst, will present Funding the Next Generation of European Broadband Networks, a new policy brief comparing telco investment strategies between the U.S. and Europe and asking a crucial question: who got it right?

A High-Level Panel of leading telco experts will chime in with additional contributions on the outlook ahead.

Panelists:

Malena Dailey, technology policy analyst, PPI; co-author, Funding the Next Generation of European Broadband Networks

Michael Mandel, vice-president and chief economist, PPI; co-author, Funding the Next Generation of European Broadband Networks

Konstantinos Masselos, president, Hellenic Telecommunications and Post Commission, Greece; professor, department of informatics and telecommunications, University of Peloponnese; vice-chair (incoming), Body of European Regulators for Electronic Communications (BEREC)

Rita Wezenbeek, director, connectivity, directorate-general for communications networks, content and technology, European Commission TBC

Paul Hofheinz, president and co-founder, the Lisbon Council (Moderator)

RSVP here.

Gresser for the Wall Street Journal: I’ll Tax Your Feet

Posted on by The Progressive Policy Institute

By Ed Gresser

If you get irate over income or property taxes, don’t look down at your feet. You’ll feel worse if you do, because the costs that go into many Americans’ shoes contain the country’s most unfair taxes.

The American tariff system rarely draws attention. The Trump-era tariffs on metals and Chinese goods were unusual. They were hotly debated, drew foreign retaliation, and raised prices on many consumer goods and industrial inputs.

Those who investigate the permanent tariff system find a few predictable things: Tariffs are an inefficient form of tax that enable price increases without increasing supply or affecting demand, and they are a relatively small revenue source for the U.S. at about $85 billion in 2021. But they also find something both startling and grating: Tariffs are easily the most regressive of all U.S. taxes, forcing the poor to pay more than anyone else.

This is because permanent U.S. tariffs mostly tax a few basic household goods. Clothes, shoes, silverware, dinner plates and drinking glasses account for about 6% of imports, but (excluding the Trump tariffs) raise about half of all tariff revenue. This is because tariff rates on these products, which have hardly changed since the 1960s, average about 11%—compared with the 0.7% average for other goods.

Read the full piece in the Wall Street Journal

Mortimer for Newsweek: The House’s SALT Cap Proposal Is Bad Policy and Bad Politics

Posted on by The Progressive Policy Institute

The tax bill passed by Republicans in 2017 mostly made our tax code worse, increasing the federal debt by up to $2 trillion and delivering the bulk of its tax cuts to corporations and the rich. But the bill contained one very good, very progressive provision: capping the State and Local Tax (SALT) deduction at $10,000 per household. Unfortunately, House Democrats just made a proposal that would compound the GOP tax bill’s regressiveness: increasing the SALT cap and giving multimillionaires a $25,000 per year tax cut. The Senate must not follow their lead.

The SALT deduction has been around in some form for a long time, dating all the way back to the Civil War. It allows taxpayers to deduct what they pay in state and local income, property and sales taxes from their federal taxes. But not all taxpayers get to reap the benefits of the SALT deduction. Taxpayers must itemize their tax returns to be able to claim the SALT deduction—and only the richest taxpayers tend to itemize. Most taxpayers tend to take the standard deduction rather than itemize, unless they make at least $500,000 in a single year. And as one becomes richer, and consequently pays more in state and local taxes, the dollar benefit of the SALT deduction becomes larger.

Until the 2017 Republican tax bill capped the SALT deduction at $10,000, there was no limit on the amount that could be deducted. The cap amounted to a tax hike that applied almost exclusively to the richest Americans. It raises about $85 billion each year, 90 percent of which comes from the richest 10 percent of Americans.

Read the full op-ed in Newsweek.

The Biden Administration, Congress Must Allow Adult Smokers to Choose Better

Posted on by The Progressive Policy Institute

I used to smoke cigarettes. I don’t anymore. I completely stopped smoking and switched to an electronic inhalable tobacco product called IQOS. It’s the only one of its kind authorized by the Food and Drug Administration as a modified risk tobacco product and the only product that let me leave cigarettes behind. In less than two weeks this product could disappear from American stores and I’ll likely go back to smoking cigarettes and I won’t be alone.

The White House must not let this happen.

The U.S. International Trade Commission (ITC) ignored the tremendous promise IQOS offers to promote public health and recommended banning sales because of a dispute involving antiquated patents.  This decision completely ignores the public health needs of adult smokers.

In reaching its conclusion, the ITC discredited a years-long scientific review of IQOS by the Food and Drug Administration (FDA). With the stroke of a pen a patent court invalidated the conclusions of the only federal agency with the authority and the expertise to make public health decisions that can reduce smoking in this country.

The ITC’s decision is now working its way through what’s known as a “Presidential Review Period,” basically the Biden Administration has the power to reject the sales ban handed down by the ITC on public interest grounds—and there is a massive public interest issue at the heart of their decision. Many of the thousands of American adult smokers who have switched completely to IQOS, like me, will likely switch back to cigarettes, also like me, if they are no longer able to choose a better alternative that works for them.

So much progress has been made to reduce cigarette use in the United States, but there is still a long way to go. That journey only gets longer if patents prevail over health and smokers lose choice. We need to focus on reducing the harms caused by tobacco, not maintaining the status quo.

However, the clock is ticking. The Office of the U.S. Trade Representative (USTR) will soon make a recommendation to the White House on whether to reject the ITC’s ban or let it stand.  It is imperative that the FDA make its voice heard and make the case for letting its scientific acumen and public health mission prevail—and it is imperative that the Administration side with science.

As uncomfortable as the tobacco industry might be to USTR, and others in the Biden Administration, this is not about tobacco companies. This is about real people who must be put first.

Unfortunately, real people don’t seem to be on the mind of Congress, either.

Right now, the House of Representatives’ latest Build Back Better bill contains a truly bizarre proposal to dramatically hike taxes on better choices to cigarettes, like e-vapor and nicotine pouches, making them more expensive than cigarettes.

The Wall Street Journal this week reported that Sens. expressed by Sens. Catherine Cortez Masto (D-Nev) and Joe Manchin (D-WV) oppose the proposed tax—and they are right. I hope others join them.

According to research from Georgia State University, increasing the tax on e-vapor products would raise the number of daily adult cigarette smokers by 2.5 million nationally and reduce adult e-cigarette users by a similar number.  For every e-vapor pod eliminated by making it more expensive than a cigarette, an additional 5.5 extra packs of cigarettes will be sold.

This is not a science-driven path to lessening the public health burden of tobacco use.

My message to the White House and Congress is simple: let smokers choose better options to cigarettes.  Denying them that choice is also a simple matter: it’s not good government.