Tax breaks as ‘Tax expenditures’

A major proposal to address the deficit is to eliminate various tax deductions–such as for home mortgages and charitable (such as church) giving.  Those tax breaks are being interpreted as the same as government spending.  Eliminating them would increase government revenue by billions of dollars, or even, according to some estimates, a trillion.  Glenn Kessler, the Washington Post “Fact Checker,” takes a look at these claims and finds that things are not so simple.  Actually, he shows, cutting out the tax breaks may not raise so much money after all.

His evidence and reasoning resists simple summary, so I urge you to read what he has to say:   Warning to budget mavens: ‘Tax expenditures’ may yield less than expected – The Fact Checker – The Washington Post.

He also mentions a simpler variation that might have a better chance of passage:

One interesting proposal, advanced by Martin Feldstein, Daniel Feenberg and Maya MacGuineas, would cap the total value of tax reductions that a person could take to just 2 percent of adjusted gross income. Their research suggests that such a cap would raise $278 billion in 2011, and it would encourage 35 million Americans to shift from itemized deductions to the standard deduction, thus simplifying their taxes. It might also be easier to implement than trying to eliminate or scale back some of these popular provisions.

We conservatives hate tax increases, and the notion that the government deigning to let us keep our money is the same as a government expenditure–as if everything we have rightly belongs to the government–is noxious on multiple levels.

And yet, addressing the deficit in a bipartisan plan will almost certainly call for increasing revenues.   Setting aside the question of whether that should be the case, what means of increasing government revenue would you find most, if only minimally, acceptable?  What tradeoffs would you be OK with?

For example, I would want to preserve the housing deduction (since to do otherwise would damage the housing market even more, which is where our economic woes hurt lots of ordinary Americans, as well as contributing to high unemployment).  I would also want to preserve deductions for charitable giving (since churches and other non-profit organizations depend on those).  But to preserve those, I might grudgingly accept a cap on deductions or an increase in other taxes.

HT:  FWS

Pastors’ housing allowance tax break update

Pastors and certain other church workers are allowed to deduct that portion of their salary used for housing from their taxable salary.  That “housing allowance” amounts to a huge tax break.  As we blogged about earlier, the Freedom From Religion Foundation has challenged that provision in federal court.  But in a parallel case, the United States Supreme Court has ruled that the atheist group lacks “standing” to sue on a similar tax issue, since they have not been materially harmed by the current law.  Some experts are saying that this deals a “lethal blow” to the housing allowance challenge.  See Church LawandTax.com.

Tim Pawlenty’s economic plan

GOP presidential candidate Tim Pawlenty, the former governor of Minnesota, laid out an ambitious and unusually specific plan to get the economy going again:

“Growing at 5 percent a year rather than the current level of 1.8 percent would net us millions of new jobs, trillions of dollars in new wealth, put us on a path to saving our entitlement programs,” Pawlenty said in his first detailed speech on economic policy since he formally declared his White House ambitions a little over two weeks ago.

The economy averaged 4.9 percent growth between 1983 and 1987, and grew at a 4.7 percent rate between 1996 and 1999. A sustained annual growth of 5 percent for a decade would be unprecedented in modern times. . . .

Pawlenty said such growth eventually would translate to $3.8 trillion in new tax revenue that would reduce the deficit by 40 percent.

Pawlenty’s plan also would simplify individual tax rates to just three options and cut taxes on business by more than half. His cuts go further than House Republicans’ recent proposal, which the Tax Policy Center said would cost about $2.9 trillion over the next decade. . . .

In a speech heavy on specifics, Pawlenty proposed a three-tier income tax system:

• The estimated 45 percent of U.S. households that did not pay income taxes in 2010 would see no change in their tax rates.

• Individuals would pay 10 percent tax on the first $50,000 of income. Couples earning $100,000 would also pay that rate.

• “Everything above that would be taxed at 25 percent,” Pawlenty said.

He said he wants to cut business taxes from the current rate from 35 percent to 15 percent, and he called for dismantling vast pieces of the government.

“We can start by applying what I call the Google Test,” he said. “If you can find a service or a good on Google or the Internet then the federal government probably doesn’t need to be doing that good or service. The post office, the government printing office, Amtrak, Fannie Mae and Freddie Mac were all built for a different time in our country and a different chapter in our economy when the private sector did not adequately provide those services. That’s no longer the case.”

via Pawlenty’s economic plan aims for 5 pct. growth – Yahoo! News.

Democrats are savaging the plan, calling it “ridiculous.”  But what do you think?

Sin tax for obesity

More creative taxation ideas, combined with the impulse for the government to make us better:

An Illinois lawmaker says parents who have obese children should lose their state tax deduction.

“It’s the parents’ responsibility that have obese kids,” said state Sen. Shane Cultra, R-Onarga. “Take the tax deduction away for parents that have obese kids.”

Cultra has not introduced legislation to deny parents the $2,000 standard tax deduction, but he floated the idea Tuesday, when lawmakers took a shot at solving the state’s obesity epidemic.

With one in five Illinois children classified as obese and 62 percent of the state’s adults considered overweight, health advocates are pushing a platter of diet solutions including trans fat bans and restricting junk food purchases on food stamps.

Today, the Senate Public Health Committee considered taxing sugary beverages at a penny-per-ounce, in effect applying the same theory to soda, juices and energy drinks that governs to liquor sales. Health advocates say a sin tax could discourage consumption, but lawmakers are reluctant to target an industry supports the jobs of more than 40,000 Illinoisans.

“It seems like we just, we go after the low-hanging fruit, where its easy to get,” said state Sen. Dave Syverson, R-Rockford. He said the state needs to form a comprehensive plan to address physical fitness and disease prevention, rather than taking aim at sugary drinks.

via Ill. lawmaker says raising obese kids should cost parents at tax time.

What do you think about extending the principle of the “sin tax”–currently levied at alcohol and tobacco–to “sugary” soft drinks?  (Is obesity, let alone smoking and drinking, an actual sin?)  Or to taxing parents for having overweight children?  Are the parents sinning and in need of punishment?  Should the tax code be used to police the behavior and choices of citizens?

New horizons in taxation

How do you think this would go over?

The Obama administration has floated a transportation authorization bill that would require the study and implementation of a plan to tax automobile drivers based on how many miles they drive.

The plan is a part of the administration’s Transportation Opportunities Act, an undated draft of which was obtained this week by Transportation Weekly.

The White House, however, said the bill is only an early draft that was not formally circulated within the administration.

“This is not an administration proposal,” White House spokeswoman Jennifer Psaki said. “This is not a bill supported by the administration. This was an early working draft proposal that was never formally circulated within the administration, does not taken into account the advice of the president’s senior advisers, economic team or Cabinet officials, and does not represent the views of the president.”

News of the draft follows a March Congressional Budget Office report that supported the idea of taxing drivers based on miles driven.

Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations.

The CBO report was requested by Senate Budget Committee Chairman Kent Conrad (D-N.D.), who has proposed taxing cars by the mile as a way to increase federal highway revenues.

Obama’s proposal seems to follow up on that idea in section 2218 of the draft bill. That section would create, within the Federal Highway Administration, a Surface Transportation Revenue Alternatives Office. It would be tasked with creating a “study framework that defines the functionality of a mileage-based user fee system and other systems.”

via Obama administration floats draft plan to tax cars by the mile – The Hill’s Floor Action.

New technology makes it easier to monitor all kinds of things that might be taxed.  What are some other possibilities for the taxman?  (Your suggestions may be serious, alarmed, or humorous.)

Taxing companies out of the state

Illinois needs more money.  So it has slapped more taxes on its businesses.  Whereupon more businesses are leaving the state.  So Illinois needs more money.  Here is a lesson in unintended consequences, how governments trying to raise revenue by raising taxes can end up killing the golden goose.  George Will tells the tale, focusing first on the effects of an Illinois law requiring that its on-line businesses charge their customers sales-tax, which has resulted in those on-line businesses leaving the state.  He concludes with this:

According to the Tax Foundation, Illinois has not only the fourth-highest combined national-local corporate income tax in the nation but also in the industrialized world. In Peoria, Doug Oberhelman, chief executive of Caterpillar, has told Illinois Gov. Pat Quinn that he is being “wined and dined” by other governors and their representatives encouraging Caterpillar to invest in their states.

It recently picked Muncie, Ind., for a major manufacturing plant. Says Indiana Gov. Mitch Daniels of his neighboring state, “It’s like living next door to ‘The Simpsons’ — you know, the dysfunctional family down the block.”

A study by the Illinois Policy Institute, a market-oriented think tank, concludes that between 1991 and 2009, Illinois lost more than 1.2 million residents — more than one every 10 minutes — to other states. Between 1995 and 2007, the total net income leaving Illinois was $23.5 billion. The five states receiving most refugees from Illinois were Florida, Indiana, Wisconsin, Arizona and Texas. Two are Illinois’ neighbors, three have warm weather, two — Florida and Texas — have no income tax. In January, a lame-duck session of Illinois’ legislature — including 18 Democrats who were defeated in November — raised the personal income tax 67 percent and the corporate tax almost 50 percent. This and the increase — from 3 percent to 5 percent — in the tax on small businesses make Illinois, as the Wall Street Journal says, “one of the most expensive places in the world to conduct business.”

via Working up a tax storm in Illinois – The Washington Post.

The issue isn’t so much lame ducks as golden geese.