E-commerce: Click and pay

Both parties are getting keener to tax sales on the internet

Apr 6th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip]THE past few years have brought little relief for pinched state finances. But on March 22nd 75 senators, including majorities of both parties, approved an amendment to a proposed federal budget which, if enacted, would allow states to collect taxes on sales by internet retailers based in other states.

It makes no economic sense to tax sales in shops and over the internet differently. The prohibition is constitutional. In 1992 the Supreme Court ruled that states could not force out-of-state retailers to collect tax on sales to residents unless Congress, which oversees interstate commerce, said so. Only retailers with a physical presence—a “nexus”, in the legal jargon—in the state could be taxed.

The economy: Deficit-reduction disorder

Austerity and economic recovery are bringing down the deficit, but the long-term problem has not been fixed

Feb 9th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WITH the financial crisis over and the recovery gaining momentum, one big piece of unfinished economic business hangs over Barack Obama’s second term: arresting the relentless rise in America’s already sky-high debt. He is turning to the task with what seems an improbable claim: that the job is closer to completion than people appreciate.

There is, however, some truth to it. On February 5th the Congressional Budget Office (CBO) forecast that for the fiscal year ending on September 30th the deficit will clock in at $845 billion, or 5.3% of GDP, the lowest figure since 2008 and down by nearly half from its peak of 10.1% in 2009, Mr Obama’s first year in office.

To be sure, that projection assumes that Mr Obama and Congress do not override planned spending cuts and tax rises, most importantly the “sequester”. The sequester mandates $1.1 trillion of additional spending cuts over the next ten years, including $85 billion-worth this year that are due to begin on March 1st after being put off for two months. Even if those measures are overridden, the CBO still predicts that the deficit will fall to 5.5% this year and 3.7% of GDP by 2015. Thereafter, though, it will start to rise again.

The drop has been caused both by the improving economy, which boosts revenues and reduces the cost of safety-net programmes, and the expiry of the few remaining stimulus measures. It has also occurred, as Mr Obama now often reminds listeners, because in spite of their acrimonious relations he and Congress struck two deals in 2011 that cut spending and one at the start of this year that raised taxes. Cumulatively, these three deals have already cut a projected $2.4 trillion from deficits over the coming decade, or a little over 1% of GDP, according to the Committee for a Responsible Federal Budget (CRFB), a watchdog group (see table).

Cliff talks: Relief in sight

President and speaker draw near to a deficit deal

Dec 22nd 2012 | WASHINGTON, DC | from the print edition

[By Greg Ip] THE housing market has turned, Europe’s crisis is apparently in remission and the Federal Reserve has pressed its monetary accelerator to the floor. Yet as 2012 draws to a close, America’s economy is still growing at an annualised rate of only around 1%. That figure has been depressed by fears of the self-inflicted “fiscal cliff”: a package of tax increases and spending cuts, worth 5% of GDP in a full year, that is set to kick in on January 2nd.

That constraint may also be finally lifting.

Five myths about tax reform

By Greg Ip, Published: December 14

As the nation’s leaders seek to keep the country from heading over the “fiscal cliff” — a set of mammoth year-end tax increases and spending cuts — nothing has proved more contentious than taxes. President Obama wants the rich to pay more; Republicans want to keep tax rates where they are. One popular proposal is to eliminate the tax code’s hundreds of loopholes and use the money to reduce the deficit without raising rates. But while tax reform is wonderful in theory, in practice it might not be as politically palatable — or economically effective — as advertised.

1. Tax reform has bipartisan support.

The night he was reelected, President Obama said “reforming our tax code” was among his second-term priorities. A few days later, House Speaker John Boehner said tax reform could help solve the national debt.

The Senate tax bill: A dreadful third option

Dec 14th 2012, 19:54 by G.I. | WASHINGTON, D.C.

Negotiations over the fiscal cliff appear to have stalled. A meeting last night between President Barack Obama and John Boehner, the Republican speaker of the House of Representatives, produced no apparent narrowing in their positions.Since negotiations began, very little progress has been made: Mr Obama initially asked for $1.6 trillion in tax increases over the coming decade, later lowered to $1.4 trillion, and offered $400 billion in spending cuts.

Mr Boehner has, in return, offered $800 billion in higher revenue by eliminating tax expenditures (i.e., no increase in rates), and asking for $600 billion in entitlement cuts. Both sides say they are waiting for the other to specify details of their demands, in particular on spending. Mr Boehner is apparently headed home to his Ohio district for the weekend, a sign that no progress is being made.

Until this point there have been two likely outcomes: no deal at all and the country going over the cliff, or a grand bargain. But there is third option.

How to solve the fiscal cliff: The Obamney tax plan

Nov 8th 2012, 23:33 by G.I. | WASHINGTON, D.C.

This post has been updated.

PRESIDENTS choose their words carefully. So when Barack Obama talked of  “tax reform” but not “tax rates” in his acceptance speech early Wednesday, he was presumably sending a signal. And it was similarly significant that later that day John Boehner repeatedly stated his opposition to higher tax “rates” rather than tax revenue.

Within those two statements lies the nucleus of a deal: raising tax revenue through some means other than higher tax rates.

Taxes, spending and the deficit: Trillion-dollar questions

With the deficit at over $1 trillion for a fourth year running, taxes and government spending are critical to the campaign

Oct 6th 2012 | from the print edition

[Greg Ip] BARACK OBAMA won in 2008 largely because of the economy. He may lose this year for the same reason. The economy now surpasses all other issues in voters’ minds. Close behind are health care, taxes and the deficit. These issues are all intertwined. The candidates’ competing proposals on taxes and spending are central to how they plan to revive economic growth.

Both have laid out ambitious markers for the next four years. Mr Obama promises to create 1m more manufacturing jobs. Mr Romney counters with predictions of 12m new jobs in total. Neither figure is out of line when the economy has as much ground to make up as it has now. Over the coming decade, Mr Obama has projected average annual growth of 3.2%; private economists think growth of just under 3% is more likely. A team of Mr Romney’s advisers think his plan will spur the economy to grow by 3.5-4% a year.

Tax reform: The devil’s in the details (and the politics)

Feb 22nd 2012, 21:46 by G.I. | WASHINGTON

[Greg Ip] LIKE the weather, American politicians talk a lot about tax reform but do nothing about it. Which is a pity, because while Americans have been talking, other countries have been doing; since the late 1980s, top corporate tax rates around the world have dropped to a point that America’s, once below the international average, is now well above.

As this has happened, American-based multinational companies have shifted more activity offshore; their foreign employment steadily rose over the last decade as domestic employment fell. This is mostly because of the appeal of cheap labour and growing markets in the emerging world, but business groups and many economists think America’s tax rate is also to blame. Liberal analysts blame the tax code for a different reason: it allows multinationals to stash income in foreign havens and indefinitely defer taxes on it, encouraging the outsourcing of jobs.

Barack Obama claims to be ready to do something about it.

The president’s budget: Another doomed exercise

Politics has tied budget-making in knots

[Greg Ip] Feb 18th 2012 | WASHINGTON, DC | from the print edition

BACK in 2009 Barack Obama’s first budget called for repealing his predecessor’s tax cuts on the rich, eliminating tax breaks for multinationals and boosting the tax rate on capital gains. A year later Mr Obama repeated those proposals, and added new ones: no more breaks for fossil-fuel producers and a “financial crisis responsibility fee” on banks.

On February 13th Mr Obama issued his fourth budget. Besides recycling the proposed tax increases of previous years, it also proposes repealing the preferential tax rate on dividends for the wealthy, and penalising multinationals that outsource jobs. In all, the budget would raise taxes on companies and the wealthy by $2 trillion over the next ten years.

There is little reason to think Congress is any more likely to grant those tax increases than their predecessors. Of course, Congress tends to be unco-operative when it comes to fiscal matters; since the House holds the purse-strings, a president’s budget has always been as much aspiration as road map. But the gap between aspiration and reality is now enormous. Mr Obama’s first budget foresaw the budget deficit, then roughly 10% of GDP, falling to 3.5% this year. Instead, it will clock in at 8.5% (see chart). The public debt was supposed to peak at 67% in 2011. Mr Obama now sees that happening in 2014, at 78%.

In part that is because of a worse than expected economic situation. A smaller economy puts upward pressure on debt and deficit ratios, and leads politicians to shift priorities—sensibly—from balancing the budget to stimulating growth.

Taxing the rich in America: The politics of plutocracy

America’s rich should pay more, but there is no need to raise their income-tax rates

Jan 21st 2012 | from the print edition

 IN AN ordinary American presidential election, a candidate who had earned a fortune in business and then paid an absurdly low tax rate would barely raise eyebrows. Americans have long considered wealth something to admire and pursue, not vilify and redistribute. Alexis de Tocqueville said he knew “of no country…where a profounder contempt is expressed for the theory of the permanent equality of property.”

But this is no ordinary election. That so much scrutiny has fallen both on how Mitt Romney earned his fortune (in the ruthless world of private equity) and his tax rate (15%, less than what some middle-class families pay) is a sign something has changed. For that, credit a decade in which the median family in America saw its real income fall by 7%, even as the top 1% grabbed a share of national income unseen since the 1920s (see article), and a level of unemployment that, though falling, remains troublingly high. Not many Americans like the tactics or fashion choices of Occupy Wall Street, but quite a few share the movement’s opinion that the economy is tilted in favour of the wealthy.

And so the rich are now a campaign issue. Barack Obama calls for “millionaires and billionaires” to “pay their fair share”: introduce a minimum tax rate on millionaires and return the top income-tax rate to 39.6% from 35%, and the other 98% of Americans would not have to pay more, he claims. Republicans shoot back that raising any taxes would destroy jobs and business confidence. They think you can fill the budget hole by spending cuts alone; many want to cut taxes further.

Neither side is talking sense. America’s rich should indeed pay more tax; but marginal rates should not go up.

History shows that deficit reduction works best when most of the burden falls on spending cuts. That means that middle-class entitlements will have to be reduced, no matter what Mr Obama tells his supporters. But, just as in every other budget squeeze, a portion must come from higher taxes, no matter what the Republicans say.

Democrats say only the top 1% need pay more; that’s misleading. Others will have to pay too. But more of the increase should be shouldered by the rich who have done so well from recent trends. Technological change and globalisation have sharpened demand for the most skilled workers, in particular superstars, be they athletes or hedge-fund managers, thus sharply increasing inequality. Tax policy has exacerbated this trend instead of mitigating it. George Bush junior slashed top income-tax rates as well as rates on dividends and capital gains, which explains why Warren Buffett and Mr Romney have such low tax rates.

Follow the money

However, restoring the top income tax rates, as Mr Obama proposes, is not the best way of extracting extra revenue from the rich. It would raise revenues of about 0.3% of GDP and do nothing to make America’s grotesquely complicated tax system more efficient. It would be far better to close or limit loopholes and deductions, currently worth up to 7% of GDP, which distort behaviour (by, for example, encouraging people to take out big mortgages) and mostly benefit the affluent. Some deductions, including mortgage relief, would have to be phased out in stages; but many could go immediately. In a similar way, equalising the rates on capital, dividends and ordinary income would make it possible to lower America’s corporate tax rate, currently one of the rich world’s highest.

The result would be lower rates, more revenue and a more efficient and progressive tax system. If that’s where the debate about wealth ends, it will have been worth it.

The original article is linked here.