Lone Candle
Champion of Truth
Fiscal Policy – The Economic Lowdown Podcast Series Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-21-fiscal-policy How Can Fiscal Policy Help Reduce Inflation? Peter G. Peterson Foundation. 2023 3 7. https://www.pgpf.org/blog/2023/03/how-can-fiscal-policy-help-reduce-inflation US history lesson: Taxes on rich people helped to beat inflation (and
“a survey of more than 1,000 low-income Pennsylvanians found that taxes are often a major barrier to economic security—ranking ahead of more commonly discussed problems such as credit card debt and student loans. Among those surveyed, all of whom have incomes below 200 percent of the federal poverty level (about $53,000 annually for a family of four), the average respondent reported paying $4,575 per year in taxes.”
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“The paper asks officials to consider a counterfactual history: If Pennsylvania had enacted a rule in 2003 that capped future government spending increases at a combination of inflation and population growth (and had returned the surplus to taxpayers), the average low-income resident of the state would have an extra $20,000 in the bank today, simply due to the lower tax burden.”
“”Millions of people moved during the pandemic, driven by the opportunity to work remotely, the desire for more space, and better affordability,” Nadia Evangelou, senior economist for the National Association of Realtors, wrote January 30. “Twenty-six states experienced an influx of people, with more people moving in than out, while twenty-five states lost movers … California (-343,230), New York (-299,557), and Illinois (-141,656) experienced the largest net domestic outmigration.”
California, New York, and Illinois lost the greatest number of people in raw numbers during 2022, but they were also all in the top ten in terms of the net percentage of population that left each state. New York lost 0.9 percent, Illinois lost 0.8 percent, and California lost 0.3 percent (tying with Pennsylvania, Mississippi, and Rhode Island).
These states all have something else in common: high tax burdens. “Tax burden measures the proportion of total personal income that residents pay toward state and local taxes,” notes WalletHub, which ranks states by the measure. Using an assessment based on property taxes, individual income taxes, and sales and excise taxes, WalletHub ranks New York as the most highly taxed state in the country, puts California in ninth position, and Illinois at 10.”
“The FairTax, at its heart, is simple enough: It would take almost every federal tax and replace them with a fat 30 percent sales tax on everything. Virtually every American would get a monthly check from the government to cover the cost of paying the tax on essentials. It’s a radical idea, but one which since its first introduction to Congress in 1999 has been a favorite of conservative Republicans. Rep. Buddy Carter (R-GA) already has 23 co-sponsors for the current iteration. Prominent party figures like Ted Cruz, Mike Huckabee, John McCain, Rick Perry, and Herman Cain have all championed the idea over the years.
Not surprisingly, liberal groups who judge the proposal regressive are against it. But so are many enthusiastic conservative tax-cutters, like the Wall Street Journal editorial board and Grover Norquist. Here’s what National Review’s Ramesh Ponnuru had to say about it:
“Any House Republican who backs this bill can accurately be accused of voting for … raising the price of everything by a huge amount at a time when inflation is already high; shifting more of the tax burden to the middle class; instituting a large new wealth tax on senior citizens; increasing federal spending by a massive amount; increasing the deficit; and creating large black markets.””
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“he FairTax gets rid of the personal and corporate income taxes, and the estate tax, which are the three most progressive taxes in the federal code. For most poor people, the personal income tax already gives them money through provisions like the earned income tax credit or the child tax credit. Getting rid of it means all those benefits go away.
At the top end, the rich go from paying a top rate of 40.8 percent on their wages, as well as 23.8 percent on their income from investments, to just paying the 30 percent tax on everything they buy. But wealthy people save more of their income than non-wealthy people do, and everything they save would be tax-free. By one measure, rich people in the 2010s saved 8.5 percent of their income, while the bottom 90 percent had a negative savings rate, spending 2.8 percent more than they earned.
I know of no credible estimates of the distributional impact of the FairTax, if it were to replace income and payroll taxes, but when the Bush administration appointed a panel to study tax reform proposals, it concluded that using the tax to replace the income tax alone would sharply raise taxes on the middle class.”
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“Assuming a reasonable amount of tax evasion (20 percent) — and the question of evasion is important, as you’ll see — he found that the FairTax would increase the deficit by about $10.6 trillion over 10 years. In order to avoid increasing the deficit 10 years later, the FairTax would have to be set at 64.4 percent.”
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“I wouldn’t be so quick to reject sales taxes more broadly. There’s a reason every rich country except the US has a value-added tax: It’s a very efficient, easy-to-administer way to raise lots of money for progressive social programs like universal health care, child allowances, long-term care, and more.
Gale, the FairTax critic, is actually a vocal advocate for adopting a VAT in the US. I like his idea of pairing a 10 percent VAT with a small universal basic income to make sure low-income people come out ahead. He estimates the bottom 20 percent of earners would see their incomes rise by nearly 17 percent as a result, while households with income above $90,000 or so would pay more. If you use some of the revenue to pay for the now-expired expanded child tax credit, the net effect would likely be a substantial reduction in poverty.
You could also, as Columbia professor Michael Graetz and Sen. Ben Cardin (D-MD) have proposed, use the VAT to exempt all but the wealthiest individuals from the income tax, by creating standard deductions of $50,000 or $100,000 for couples. This isn’t as progressive as using it for a UBI, but it would vastly simplify income tax collection and enable the large majority of Americans to not worry about filing taxes ever.”
“Since 2010, a U.S. taxpayer purchasing an electric car could claim a nonrefundable tax credit of up to $7,500. However, only 200,000 credits could be claimed per automaker. Tesla, General Motors, and Toyota have all reached the limit.
The IRA removes the manufacturer cap and introduces a new credit of up to $4,000 toward a used EV, which could help anybody who can’t or doesn’t want to buy brand new. But the law also established several prerequisites that a vehicle must meet to qualify.
Since August, vehicles have been subject to a “final assembly” requirement, which says the car’s final assembly must have occurred in North America. That single restriction is complicated, as you can see from the Department of Energy’s list of eligible vehicles. The agency recommends that shoppers research cars by Vehicle Identification Number (VIN) to determine eligibility. Those requirements carry over into 2023.
Starting January 1, individuals earning over $150,000 per year or households earning over $300,000 will no longer qualify for the EV tax credit. Electric cars that retail for more than $55,000, and electric trucks and SUVs over $80,000, are also not eligible. According to Kelley Blue Book, the average price for an EV is over $65,000.
Under the IRA, the credit also depends on the materials used to assemble a vehicle’s batteries. Certain minerals—chiefly lithium, cobalt, manganese, nickel, and graphite—are essential to constructing the lithium-ion batteries used in electric vehicles. Starting in 2023, qualifying for half of the $7,500 credit requires that 40 percent of the minerals used to assemble an E.V.’s battery be sourced from the U.S. or a country with which it has a free-trade agreement. To qualify for the other half, 50 percent of the battery’s parts must be sourced domestically or from a free-trade partner. Each of these percentages will increase over subsequent years.
In December, the Treasury Department suspended the mineral requirement until March, when it can issue final rules. But notably, the law requires that starting in 2024, no battery parts can be sourced from a “foreign entity of concern,” such as Russia or China. The same requirement applies to minerals the following year.”
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“The E.V. tax credit is a convoluted mess. Because of the Treasury delay, most automakers will likely be able to offer half of the credit for two months. Then for the rest of the year, only certain models will qualify, forcing customers to check each individual car or truck to see. Finally, next year, fewer and fewer vehicles will qualify at all, as the U.S. is unable to source necessary materials from politically-favored places. Perplexingly, Treasury announced in late December that leases would be exempt from all sourcing and assembly requirements and eligible for the full $7,500 credit.”
“”if one ignores the fiction of auditing a millionaire through simply sending a letter through the mail, the odds that millionaires received a regular audit by a revenue agent (1.1%) was actually less than the audit rate of the targeted lowest income wage-earners whose audit rate was 1.27 percent!””
“”We agree that the government can seize the property to collect a debt,” says Christina M. Martin, a senior attorney at the Pacific Legal Foundation who has represented both women. “What it can’t do is take more than it’s owed.””
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“At the core of home equity theft cases is the Takings Clause of the Fifth Amendment to the U.S. Constitution. “Nor shall private property be taken for public use,” it reads, “without just compensation.” It would seem fairly straightforward.
It has not been.”
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“according to the 8th Circuit, Tyler—and the many people also in her shoes—simply have no recourse when the government profits off of their poverty. “In every other debt collection context, the debt collector is only allowed to take what is owed, plus the cost of collecting the debt. But here, the government gets to tack on penalties, interests, fees, and then they get to take everything that’s left over after that?” asks Martin. “That can’t be right.””
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“”We’re not asking for anything unusual here,” says Martin, who will be arguing the case in front of the high court. “We’re asking that the government not [receive] self-dealing, preferential treatment that allows them to just take a massive windfall, usually at the expense of the most vulnerable people.””
“One of the revelations of the Pandora Papers leaked in 2021 was the proliferation of tax havens inside the US. They’re used not just by wealthy Americans but by foreign politicians, business leaders, and criminals as well. South Dakota in particular has become a destination for the wealthy to stash their riches, and it currently hosts more than $512 billion in trusts, according to the IPS report. The ultrarich have parked trillions of dollars in secretive trusts within US tax haven states.
“It’s not just South Dakota, it’s not just Delaware,” said Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies and one of the authors of the tax haven report. “A bunch of states are in the chase.”
The benefit for states is attracting businesses and jobs, but there’s little evidence that becoming a trust-friendly tax haven boosts job growth for states. Populous states like Texas and Florida are getting in on the game, too. It could accelerate what Collins calls a “race to the bottom,” in which more states change laws to attract the trust industry.
A trust is a contract that stipulates what assets one person wants to pass on to another. When assets are put into a trust, the original wealth-holder technically no longer owns them. A third-party entity, known as a trustee, manages the assets for a named beneficiary until the terms of the trust are fulfilled — for example, a parent establishes a trust for their child that will transfer assets to them when they turn 25 or upon the parent’s death. A trust is supposed to end at some point, and ownership of assets is supposed to pass to the beneficiary; it’s a way station for wealth, not the final destination.
Except that a growing number of trusts don’t end. None of the 13 tax haven states has a strict life span limit on trusts. Several states have abolished a rule limiting the life span of trusts altogether. Others set the limit somewhere between 300 and 1,000 years. By carefully setting up a dynasty trust that lasts generations, a wealthy family can avoid paying inheritance or estate taxes for millennia. These trusts often obfuscate who really owns the assets, so they can continue using them — assets like real estate or yachts — or take out “loans” from the trust without triggering gift taxes. The secrecy and confusing ownership structures of trusts are big problems. The government can’t tax something that legally doesn’t belong to a person anymore, and it certainly can’t tax assets that it doesn’t even know exist.”
“Trump frequently made tens of millions of dollars annually during that period. But he was able to whittle away his tax bill by claiming steep business losses that offset that income.
In 2016, he paid $750. The following year he again paid just $750. In 2020, he paid nothing.”
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“In other years, Trump paid more. In 2018, he had far fewer losses to report and ended up paying $999,466.”
“The House GOP’s first bill out of the gate doesn’t address inflation or gas prices or immigration, but instead zeroes in on the Internal Revenue Service.
The bill set to be voted on Monday evening — barring a stalemate over approving the rules for the 118th Congress — would reverse much of the $80 billion in extra funding set aside for the agency by 2022’s Inflation Reduction Act.
While it has little chance of being enacted with Democrats in control of the Senate, the prominence of the issue shows just how much the IRS has become a target of Republicans even though experts say the funds in question would go toward more prosaic concerns like helping the agency chase down tax cheats and refresh its shockingly outdated technology.”
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“The claim from McCarthy, which has been echoed by many Republicans, is that the influx of money will lead to a flood of 87,000 new IRS agents who will then harass everyday Americans. Some critics of the agency go even further and claim these new agents will be armed.
But fact-checkers have repeatedly debunked the claims, and the agency itself pushed back in a Yahoo Finance op-ed from then-IRS Commissioner Charles Rettig in August.
The viral claims are “absolutely false,” Rettig wrote at the time, adding his agency “is often perceived as an easy target for mischaracterizations,” but he promised the new money will not lead to increased audit scrutiny on households making under $400,000.
The plan is instead for much of the money to go toward wealthy tax cheats. IRS estimates of the so-called “tax gap” — the difference between what taxes are owed to the government and what is actually paid — is hundreds of billions of dollars a year.
Much of the $80 billion will be focused on taking a bite out of the gap, focusing on wealthy tax payers. The investment is projected to pay for itself and then bring in over $100 billion in increased tax revenue over the coming decade.
In addition, a May 2021 report by the Department of Treasury estimated that more IRS funding could lead to 86,852 new employees, but many of those new employees would not be agents. Many would work in other areas like information technology.
And nearly all new agents would be unarmed.”