A New View of the Corporate Income Tax

I really liked this quote:

One of the least well-known aspects of tax policy-making is the distribution table, which is produced by the Joint Committee on Taxation, a Congressional committee, for every major tax bill. The tables show how the legislation affects taxpayers at different income levels. It is a generally understood, if unstated, rule that tax cuts should be evenly distributed in percentage terms while tax increases should primarily fall on the well to do.

The article, though, is about the tax incidence of the corporate income tax:

While economists still believe that the bulk of corporate income taxes is paid by the owners of capital, in recent years they have come to believe that workers ultimately pay much of the tax in the form of lower wages. This results from lower capital investment due to a higher cost of capital, which reduces productivity and hence wages, and because capital investment moves to other countries where corporate income taxes are lower.  

We can see the tax incidence by income distribution in the table below:

Raising the corporate income tax hurts low income people more according to this new methodology (recently adopted by the powers that be in Washington).  Lowering the tax might make economic sense but not necessarily political sense.  And a different methodology will lead to a different distribution.  The more we know, the less we know.......
A New View of the Corporate Income Tax - NYTimes.com

Long-term Obligations Increase, but Where's the Funding?

This is an interesting article that illustrates the problems associated with promising benefits that cannot be funded. During the tax reform activity last night, some groups used a combination of cutting spending and increasing taxes. Springfield, IL spent 20%-25% of its operations budget on pensions in 2012. The price of this problem is visible in the town's decaying infrastructure and inability to pay for day-to-day needs. What do you think Springfield should do in order to combat this growing problem? Will the solutions proposed in this article be sufficient?

Tax on soda to be floated in San Francisco

http://www.sfgate.com/bayarea/article/Tax-on-soda-to-be-floated-in-San-Francisco-4932025.php

Wiener's proposal would levy a tax of 24 cents on each can of soda sold in the city, where fast-food restaurants are already prohibited from handing out free toys in kids' meals high in fat, salt and sugar.

The proceeds would fund health, nutrition and activity programs for city youth.

Similar tax measures were defeated last year across the bay in Richmond and in the Los Angeles County town of El Monte, after the beverage industry spent millions of dollars to kill the proposals.

Three big issues. 1) Do you see this as a Pigouvian tax? For the health of children, to reduce obesity? 2) Is this a just way to raise revenue or do you feel this affects your right to choose what's good for yourself? 3) Will such a reform ever be passed successfully? Will the giant corporations of the beverage industry like Coca Cola etc use their might to lobby against it?

Plan to Tax the Rich Could Aim Higher

http://www.nytimes.com/2013/10/26/business/taxing-new-yorkers-but-not-the-ultrarich.html?_r=0

To address the inequities of the two cities, Mr. de Blasio has proposed raising taxes on the wealthy, whom he defines as those making more than $500,000, to pay for prekindergarten and after-school care. This may be a laudable goal, but people making $500,000 who are actually living and working in the city already pay high federal, state and local income taxes as well as property taxes.

Tax law in New York City is determined by New York State, not the city, so the mayor has only the power of persuasion. But the mayor can be a strong advocate. A tacit goal of the Bloomberg administration seems to have been to woo the world’s superrich with generous tax treatment, in what seems to be a continuing global competition with London, Hong Kong and Singapore. Attracting the superrich may well bolster some tax revenue and confer benefits on the city and its more ordinary residents, but the question remains, can and should they be asked to pay more?

Nonresidents are an enormous potential source of tax revenue. According to the New York State Department of Taxation and Finance, in 2010, the most recent year available, there were 820,000 nonresident tax returns reporting $273 billion in income from all sources. Nonresidents appear to be disproportionately affluent. The idea that nonresidents should pay little or no tax has long rested both on notions of fairness, since they’re not around much to use city services, and pragmatism, because of the fear that higher taxes will drive them away.

Thoughts on a) Attracting the super rich and taxing them high like NYC and b) taxation on non residents?

Whom Do Tax Reformers Want To Help?

http://www.forbes.com/sites/taxanalysts/2013/10/23/whom-do-tax-reformers-want-to-help/

Who are the intended beneficiaries of the tax reform effort being pushed? In general, they promise to expand the tax base by taxing more kinds of income and eliminating lots of credits and deductions in order to lower tax rates. The generalized argument is that a reformed tax system would benefit everyone by leading to less government interference in decision-making and greater economic growth. That’s fair enough, but voters will reasonably ask: What about me?

This is a very thought provoking question and article. Your views?

Diseconomies of scale in federal programs

Click on the link below and look at the graph (quick and easy to do) that shows how many federal agencies have programs in particular areas.  For instance, 5 agencies do 15 unmanned aircraft programs.  Do you suppose this is efficient?  I am not saying that large corporations are much more efficient but it would seem that the profit motive would lead to some restructuring and streamlining that might make things more efficient.

West Michigan Economy and Politics: How to Manage the Federal Budget

Market failure is not just a theoretical concept. Think private prison.

 Slattery’s current company, Youth Services International, has retained and even expanded its contracts to operate juvenile prisons in several states. The company has capitalized on budgetary strains across the country as governments embrace privatization in pursuit of cost savings. Nearly 40 percent of the nation’s juvenile delinquents are today committed to private facilities, according to the most recent federal data from 2011, up from about 33 percent twelve years earlier.
Over the past two decades, more than 40,000 boys and girls in 16 states have gone through one of Slattery’s prisons, boot camps or detention centers, according to a Huffington Post analysis of juvenile facility data.
The private prison industry has long fueled its growth on the proposition that it is a boon to taxpayers, delivering better outcomes at lower costs than state facilities. But significant evidence undermines that argument: the tendency of young people to return to crime once they get out, for example, and long-term contracts that can leave states obligated to fill prison beds. The harsh conditions confronting youth inside YSI’s facilities, moreover, show the serious problems that can arise when government hands over social services to private contractors and essentially walks away.
Those held at YSI facilities across the country have frequently faced beatings, neglect, sexual abuse and unsanitary food over the past two decades, according to a HuffPost investigation that included interviews with 14 former employees and a review of thousands of pages of state audits, lawsuits, local police reports and probes by state and federal agencies.

Organaizational theory tells us that when outcomes are mufti-dimensional, it can be hard to structure contracts to ensure quality.  Hence the need for some sort of public provision (or vertical integration ) in that case.  Read the entire piece at the link below.
Prisoners of Profit - The Huffington Post

Income inequality in historical perspective

 

 incomeinequality.jpg (JPEG Image, 570 × 416 pixels)   The graph in the previous post came from same source.

Maybe it would be okay to raise marginal tax rates on the top income earners?  Just a little?

American income distribution, 2010

Federal budget negoitiations begin next week

From an Associated Press piece:

Long-standing, entrenched differences over taxes make a large-scale budget pact virtually impossible, according to lawmakers, their aides and observers who will be monitoring the talks. Most Republicans say they simply won't agree to any further taxes atop the 10-year, $600 billion-plus tax increase on upper-income earners that President Barack Obama and Democrats muscled through Congress in January. Without higher taxes, Democrats say they won't yield to cuts in benefit programs like Medicare. "If we focus on some big, grand bargain then we're going to focus on our differences, and both sides are going to require that the other side compromises some core principle and then we'll get nothing done," Ryan, who chairs the House Budget Committee, said in an interview Thursday. "So we aren't focusing on a grand bargain because I don't think in this divided government you'll get one." But a fellow GOP negotiator, Oklahoma Rep. Tom Cole, said Friday that additional revenue could be part of an agreement.
Added Cole: "Both sides would like to deal with the sequester. And we're willing to put more revenue on the table to do that, and we would like to do it with entitlement savings." Cole was not talking about raising tax rates; one option he mentioned would be to give corporations incentive to repatriate untaxed overseas profits.

The next round of sequester cuts are a big issue:

The White House and Democrats are pressing to include new revenue from closing tax loopholes and infrastructure spending to boost the economy. Before departing the White House on Friday for stops in New York City, Obama discussed the budget process by phone with Senate Majority Leader Harry Reid of Nevada, House Democratic Leader Nancy Pelosi of California, Murray and Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee. He did not make a similar call to congressional Republicans.  "Even if we do not have the big grand bargain, if you were to have a medium deal or small deal, those deals could have permanent loophole closures and permanent mandatory savings that would help our permanent long-term fiscal situation," senior White House official Gene Sperling told a business group Friday.
The automatic spending cuts are required because a 2011 deficit-reduction supercommittee failed to reach an agreement. The cuts would carve $91 billion from the day-to-day budgets of the Pentagon and domestic agencies in 2014 compared with the spending caps set by a 2011 budget deal. The Pentagon would absorb almost 60 percent of the cuts.


Starving the beast through sequester.....and continued austerity.  We live in interesting times, don't you think?

AP News: Both sides agree: No major budget deal foreseen

Deforestation surges as Ecuador kills Amazon protection plan

It's not my turn to blog but I find this article relevant to Tanzi's views at the end of the book. http://news.mongabay.com/2013/0903-ecuador-deforestation.html#2ZSb0hrSTLXGbrFf.01

Data released this week by Terra-i, a collaborative mapping initiative, shows that deforestation in Ecuador for the first three months of 2013 was pacing more than 300 percent ahead of last year's rate. The report comes shortly after Ecuadorean President Rafael Correa killed off a proposed plan to prohibit oil drilling in Yasuni National Park in exchange for payments equivalent to half the value of the park's unexploited oil reserves.

The failure to attract intergovernmental institutions and governments was effectively a nail in the coffin for the concept, which banked on the desire of Western governments to keep 407 million metric tons of carbon dioxide out of the atmosphere while protecting an area of forest that scientists say may be the richest in the Amazon. The biggest setback came in June 2011 when Germany pulled out of a $50 million commitment to the program. Since then, progress on the initiative has largely stalled. Chief stumbling blocks were concerns over how Ecuador would use the funds generated under the initiative, risk of political instability, and whether Correa would abide by his promises. According to U.N. data, Ecuador had one of the highest rates of deforestation in South America during the 2000's, losing 1.8 percent of its forest cover annually.

Tanzi talked about global public goods and the urgency for international governments to cooperate. This failed initiative was one such attempt in recent memory. How ready do you think governments around the world are to work together for the greater good of the world and do you think it is in their interest to do so any time soon? I suspect that even if they do such a thing, any "solution" they agree on is likely to create other problems in the future.

Family net worth plummets 40% after the great recession

 


 A picture is worth a thousand words.



Family net worth plummets 40% - Jun. 11, 2012

Oregon launching new program to tax drivers per mile

http://www.foxnews.com/politics/2013/10/21/oregon-plan-to-replace-gas-tax-with-milage-tax-raised-concerns-on-privacy-cost/

Oregon is moving ahead with a controversial plan to tax motorists based on the number of miles they drive as opposed to the amount of fuel they consume, raising myriad concerns about cost and privacy.

Does this move seem crazy to you? Or a correct way to proceed to gather additional tax revenue which is suffering from diminishing returns? Does it impinge on your right to move freely? Or do you see it in a more positive light, as saving the earth from environmental catastrophes and promoting public transport?

White House to Tweak Tax-Penalty Deadline

http://www.nytimes.com/news/affordable-care-act/2013/10/23/white-house-to-tweak-tax-penalty-deadline/?_r=0

Under President Obama’s health care law, most Americans will be required to have insurance next year, and they may be subject to tax penalties if they go without coverage.


Do you people see this as something fair? Or does it impeach your rights? You can surely opt to not buy insurance if you don't want to or lack the means to, right? Is your health your concern or the state's? 

Who Doesn't Pay Federal Taxes?

The Tax Policy Center is a great resource for understanding tax policy in the United States.  They have a fairly active blog as well as an archive of academic papers--both freely available.  Check out the graphs on who makes up the 47% of Americans who don't  pay federal income taxes. (go here) 

The problem is that incomes have grown more unequal.  Should we have some sort of income tax on these people?  Or let it go?  Any notions about vertical equity?

Interesting piece that aligns with discussion from last night's class

A few tidbits from  Us Versus Them « naked capitalism:

 Rising political polarisation in the US has gone hand-in-hand with rising income inequality, falling top-end tax rates, lower taxes on business, rising leverage and higher asset prices. These trends may be coincidental, but they seem to reinforce each other. The medium-term risk is that some of these trends reverse, as occurred after the 1920s.

Read more at http://www.nakedcapitalism.com/2013/10/us-versus-them.html#1XW01cfXWQHYh2w7.99

Congressional political polarisation and income inequality in the US are at multi-decade extremes (Exhibit 1). The polity is split; incomes are unequal.  The rise in polarisation partly reflects electoral gerrymandering that has sharply reduced the number of contestable seats (Exhibit 2). Only 20% of House of Representatives seats would change hands on a 5% swing. This increases the centrifugal influence of the party members who dominate the increasingly-decisive party primary elections.

 However, rising political polarisation pre-dates the decline in contestable seats: it started as incomes became more unequal. Inequality has not risen because the rich got richer faster than the poor. It increased because the income gains of the past 30 years have gone to the top 1%. Average income for the bottom 99% is now unchanged in real terms over the past 40 years.

You should read the whole thing.  It has a lot of graphs in support of statements made.  Are they believable to you?  Why or why not?

Why The IMF's 10% Wealth Tax Simply Will Not Work

http://www.forbes.com/sites/timworstall/2013/10/23/why-the-imfs-10-wealth-tax-simply-will-not-work/

Think about it for a moment in the way that Frezza does: government has overspent so wildly that it’s now going to demand 10% of everything you’ve ever managed to save and or squirrel away. To put it mildly it’s not exactly an appealing prospect is it?

We discussed wealth tax in class, and were unable to choose a value beyond 1%. Do you feel this 10% is fair? Or is it needed by the government? Share your thoughts.

A Chance to End a Billion-Dollar Tax Break for Private Equity

http://dealbook.nytimes.com/2013/10/22/chance-to-end-billion-dollar-tax-break-for-private-equity/

"At issue is “carried interest” — a term of art that refers to the profits that a private equity adviser makes from investing in companies. Because of what critics term a loophole and private equity firms call common sense, such income is taxed at the capital gains rate of 20 percent instead of as income, which would put it at a maximum of 39.6 percent. That tax treatment has meant that the heads of private equity firms like the Blackstone Group’s Stephen A. Schwarzman pay billions of dollars less in taxes."

We've been reading and discussing about how certain taxes need to be implemented. What are your views on this apparent inequality? These wealthy private equity owners are saving millions through this. Could this have otherwise been spent by the government in its welfare programs and/or to cut down the deficit? Or do you feel that it would be a wrong move for this economy in its current state to change the tax code?

Job Growth Slows

http://online.wsj.com/news/articles/SB10001424052702303902404579151250723752112


"The nation's unemployment rate, obtained by a separate survey of households, ticked down to 7.2% last month from 7.3% in August, due to more people finding work rather than dropping out of the labor force."

So our economy was able to add more jobs but not nearly as much as they were hoping for.  Another part of the article I found interesting was this..

"If there is positive news, it is that the economy continues to grind forward," said Jim Baird, chief investment officer at Plante Moran Financial Advisors. But, he warned, "lackluster employment conditions continue to keep consumer wage growth, confidence, and ultimately spending in check."

Why do you think companies are not able to provide more jobs when thats exactly what we need for the economy to get better?  Is there another issue at hand as to why we are not able to add enough jobs?

New Jersey makes Gay Marriage Legal

http://online.wsj.com/news/articles/SB10001424052702303448104579149343479016618?mod=WSJ_hpsMIDDLENexttoWhatsNewsSecond

New Jersey became the 14th state to allow gay marriage in the US.  Is this going to be a continuous trend? Are we going to see more states following in these footsteps? Is this a move towards equality?

Did you realize how concentrated poverty is?

Click through the maps in the link below.  Why isn't this front page news material?  I wonder if it is truly worse today than 10 years ago?  It would be interesting to see those maps.

Maps of Economic Disaster | The Economic Populist

Potential Defense Spending Cuts??

http://online.wsj.com/news/articles/SB10001424052702304384104579143873007691030?mod=WSJ_hpsMIDDLENexttoWhatsNewsSecond


"Defense Secretary Chuck Hagel has warned that the cuts could force the military to reduce the size of the Army by 20%, eliminate two Navy aircraft carriers, cut as many as 33,000 people from the Marines, and eliminate Air Force bombers and transport planes."

If you read the whole article they discuss the topic of compromise again and how difficult it can be with the complicated relationships that comes with politics.

But regarding the discussion of defense spending being cut, is it really so bad that we make these cuts? Isn't our military one of the most advanced and powerful nation in the world? Interesting to think about much such a little amount of money from defense spending could go towards for our country today.

Some statistics about wasting food......

Every year, we waste or lose 1.3 billion metric tons of food – one-third of the world’s annual food production. The sheer scale of the number makes it almost impossible to grasp, no matter how one approaches it. Try to imagine 143,000 Eiffel Towers stacked one on top of another, or a pile of 10 trillion bananas.
Read more at http://www.project-syndicate.org/commentary/on-the-massive-costs-of-food-wastage-and-loss-by-jose-graziano-da-silva-and-achim-steiner#BFim9hPSMmUpECuI.99

 Every year, we waste or lose 1.3 billion metric tons of food – one-third of the world’s annual food production. The sheer scale of the number makes it almost impossible to grasp, no matter how one approaches it. Try to imagine 143,000 Eiffel Towers stacked one on top of another, or a pile of 10 trillion bananas.

Farms can waste up to 40% in  processing.  (I read an article yesterday about how much of the Michigan apple crop this year will rot).  The UN wants to do something about food waste.  But what can it do?

Waste Not, Want Not by José Graziano da Silva and Achim Steiner - Project Syndicate

Facts About Wal-Mart To Blow Your Mind - Business Insider

Click through the graphic about Wal-Mart. It is fast and readable, more a list than anything else.  Then think about government and governance.   Wal-Mart doesn't need the same kind of government services that single site establishments needed.  So how will government change in a Wal-mart world?  That was Tanzi's question and I think it is an important one.


Facts About Wal-Mart To Blow Your Mind - Business Insider

Business Upset with GOP

http://online.wsj.com/news/articles/SB10001424052702304384104579139903054309502

Business is upset with how the Republican Party handled the budget situation and feel that the Republicans are beginning to move away from Big Business.

Do you think this is going to become a real problem?

There is a section in the article discussing compromise...

"Businesses worry that Congress will now be unable to tackle other big issues on their agenda, including immigration policy and overhauls to the tax code and entitlements. Success in any of these areas will require compromise, something business lobbyists and leaders say has been sorely lacking.

John Engler, the former Republican governor of Michigan who now heads the Business Roundtable, a trade group, said the normal legislative process—where bills are debated and passed by each house of Congress, and then marriedtogether—encourages compromise. "Today we have a significant number of people who don't want to compromise because they think they can win something that's been unwinnable," he said."

Do you think parties will be able to compromise in the future?

Creating Community: Can kindness movements make a difference?

 The World Kindness Movement represents the work of organisations from 23 different countries. "It has gone way past the level of community endeavour," says its secretary general Michael Lloyd-White..... Each year, the Charities Aid Foundation (CAF) publishes a World Giving Index, which attempts to track certain types of giving behaviour in 146 countries across the globe. The data is extracted from an annual poll conducted by research firm Gallup and ranks countries according to the proportion of people who have volunteered, helped strangers at random, or donated money to charity in a typical month....  "The trend that has been revealed is a disturbing one," says Dr John Law, the chief executive of the Charities Aid Foundation. The number of acts of kindness and charity dropped by hundreds of millions last year due to the global recession, he says.

 The United States dropped from first to fifth place last year.  Does this kind of behavior matter on a macro scale? 

See below for the entire story:
BBC News - Can kindness movements make a difference?

Government Reopens!!

http://online.wsj.com/news/articles/SB10001424052702303680404579139212598765046?mod=ITP_pageone_0

"The House voted 285-144 to reopen the government through Jan. 15, suspend the debt ceiling through Feb. 7 and lay the groundwork for talks over broader budget issues. The Senate earlier approved the bill 81-18."

They finally were able to complete an agreement. Will it be worth it though? Will they be able to work out the budget issues?

Senate Leaders Reach Bipartisan Deal - WSJ.com

Click on the article.  It looks like the deal will go through  both the Senate and the House.  It reminds me of a quote:

"Nothing would ever get done  but for the last minute."

Senate Leaders Reach Bipartisan Deal - WSJ.com

Changing The Debt Ceiling Game

Below is David McAdams (an econ professor at Duke) "Game Changing Resolution to the Debt Ceiling"

In the business world, such self-restraint often takes the form of legal contracts. For example, those who want to learn about a new invention often sign a nondisclosure agreement, since otherwise the inventor would not trust them enough to share the idea. Politicians can’t make binding commitments as easily as businesspeople do. Nonetheless, the basic idea of changing a game for the better by limiting options could in fact help Republicans and Democrats fashion an effective exit strategy from the current debt-ceiling crisis.

Here’s one way that could happen. Imagine that, in the negotiations over this problem, the Republicans were to suggest making the next debt ceiling automatically self-extending if an agreed-upon debt-reduction target were met. Such a self-extension provision would allow both parties to avoid the next debt-ceiling crisis. (If the debt-reduction target wasn’t met, we would have to endure another debt-ceiling crisis.) The strategic benefits of tying your own hands are counterintuitive, and some fiscal conservatives will undoubtedly hate this idea. Yet limiting your own options can be essential to getting others to do what you want.

Constantly wielding the threat of a debt default has, ironically, undermined fiscal conservatives’ ability to extract meaningful concessions on the debt, as it has hardened Democrats’ resolve not to give in to such threats. The best way forward for those who care about controlling our nation’s debt isn’t to make more threats, but to give up the ability to conduct last-minute brinkmanship, in exchange for tying the next debt ceiling to a fixed target for debt reduction.

Since both parties will have negotiated this debt-reduction target, both will have an incentive to reach an agreement. There will still be fierce disagreement over how best to achieve the target, but at least they may finally start moving toward a common goal, of putting America on a sound fiscal footing.

Good Advice?

False Equality in Michigan - NYTimes.com

Isn't it wonderful to make the New York Times?

 Can a state’s citizens amend the state constitution to ban affirmative action programs in public universities, even if the Supreme Court has approved those programs? That is the question the court is facing this week in the case of Schuette v. Coalition to Defend Affirmative Action....

This case is another reminder of the threat to minority rights posed by ballot initiatives, which can be prone to abuse. That was surely true in Michigan, where the process of gathering signatures to put the amendment on the ballot “was rife with fraud and deception,” according to the federal appeals court. In some cases, voters were tricked into believing that the measure actually supported affirmative action. The methods used by the amendment’s backers, the appeals court found, “undermine the integrity and fairness of our democratic processes.”

But even if the initiative process had been pure, the amendment would still be intolerable. The Supreme Court has repeatedly said that race-conscious admissions policies may further a compelling governmental interest in educational diversity. While the court does closely analyze how such policies are designed, it recognizes that universities have “experience and expertise” in judging the need for a diverse student body.

Is this democracy at work?
False Equality in Michigan - NYTimes.com

Drunk Dial Congress?

Revolution Messaging created drunkdialcongress.org 
This site  randomly selects a member of congress, you are then connected to their office phone and free to leave whatever message you'd like because I'm almost positive they won't answer. 

Try it out? Here's a link from Business Week talking a bit more about it.

On a positive note....

On a positive note The Federal Reserve plans to keep their 85 billion a month buying bond program unchanged despite the standoff. In fact they are looking at extending how long they continue to do this. Check it out!