These exemptions, deductions and credits (collectively known as “tax expenditures”) will cost America’s Treasury some $1.1 trillion in forgone collections this year, reckons Donald Marron of the Tax Policy Centre (TPC), a research group. The figure climbs to $1.3 trillion when forgone payroll taxes and the cash outlays for refundable credits are included. At around 6% of GDP, they are up sharply from 4.6% in 1990. Eliminate tax expenditures, and a big chunk of the deficit would vanish.
Archive for April 2012
Closing loopholes is politically painful
Apr 28th 2012 | WASHINGTON, DC | from the print edition
[Greg Ip] LIKE most sins, tax breaks are easier to condemn than to resist. Politicians regularly decry the inefficiency and complexity that tax breaks introduce to the overall tax system, while merrily adding to the pile. Bill Clinton created the child tax credit. George W. Bush slashed the rates on capital gains and dividends. Barack Obama created a new “American Opportunity” credit for university expenses while showering temporary tax benefits on renewable energy companies, homebuyers and employers who hired the unemployed.
Apr 25th 2012, 23:26 by G.I. | WASHINGTON
FOR the blogosphere, the most entertaining part of the Federal Reserve’s meeting today was Ben Bernanke’s defence during the press conference against Paul Krugman’s chargethat he has betrayed his academic past in failing to ease more aggressively and aim for higher inflation.
That is a pity because while it was great theater, it obscured a more important revelation. Not only is Mr Bernanke still a dove, he is increasingly an isolated dove, and that isolation has significant consequences for monetary policy, the economy and the markets.
The presumptive nominee is steering his economic policies to the right
Apr 21st 2012 | WASHINGTON, DC | from the print edition
[Greg Ip] WHEN Paul Ryan released his proposed federal budget a year ago, Mitt Romney greeted it coolly. He congratulated the House Budget Committee chairman for “setting the right tone”, but pointedly declined to endorse any of its details.
The coolness was understandable. Mr Ryan’s budget was political dynamite. It proposed to slash income-tax rates, especially for the rich and businesses, and replace traditional Medicare with vouchers for the elderly to buy health insurance. Conservatives loved it, but voters, once they saw the details, recoiled, as did some Republicans. Newt Gingrich, vying with Mr Romney for the party’s presidential nomination, called it “right-wing social engineering”. When Mr Romney released his own 160-page economic platform last September, it promised much more limited tax cuts. On Medicare, all he promised was a plan that would “differ” from Mr Ryan’s while sharing its objectives.
Over the next few months, though, Mr Romney steadily warmed to Mr Ryan’s plan as he faced a series of rivals from his political right. By December he was attacking Mr Gingrich for criticising it, and this past February he released a new tax plan of his own that slashed all personal tax rates by 20%. And when Mr Ryan produced a new, very similar, version of his budget on March 20th for next fiscal year, Mr Romney was effusive. “It`s a bold and exciting effort,” the front-runner for the Republican presidential nomination declared. It would be “marvellous”, he said, if the Senate passed it.
The rightward drift of Mr Romney has taken him a long way from where he started. His 2010 book, “No Apology”, reads more like a McKinsey report than a memoir (in fact, it regularly quotes McKinsey, a consultancy). It ranges from the business practices of Japanese doctors to how much profit Comcast, a cable company, invests. Leaf through it and last September’s policy platform with its 59 specific proposals, and you will encounter sober discussion of ways to deal with greenhouse gases, international trade and retraining. Read the rest of this entry »
The probable Republican nominee should stop pandering to the left on China and to the right on taxes
Apr 21st 2012 | from the print edition
TO UNDERSTAND why Mitt Romney has triumphed over his rivals for the Republican presidential nomination, look no further than March’s disappointing job numbers. With growth fragile and petrol prices soaring, the economy is Barack Obama’s gaping weak spot, and Republican primary voters have backed the candidate best equipped to exploit it.
Yet it is very far from clear what they are getting. Blame that, in part, on a nominating contest that repeatedly veered into irrelevancies. But blame the candidate, too. In the past year Mr Romney’s views have metamorphosed worryingly as he has tried to protect his flank against a succession of conservative challengers. It is no exaggeration to say that there are now two Romneys when it comes to economics (see article).
Apr 20th 2012, 18:16 by G.I. | WASHINGTON, D.C.
My tax plan actually does cut the marginal rates across the economy by 20 percent. I’m going to reduce and restrict deductions and exemptions at the same time. [That] and creating more growth will mean that the policy is revenue neutral.
—Mitt Romney, March 19, 2012
As Mitt Romney tightens his lock on the nomination, his economic proposals are getting more scrutiny. This week’s print edition analyzes his economic platform and how his fiscal positions have converged with Paul Ryan’s; an accompanying editorial urges him to flipflop away from his current positions on China and taxes.
Mr Romney himself drew more attention to his platform this week when he was overheard telling a group of wealthy donors that he might eliminate the tax deduction on mortgage interest for second homes, and on state and local taxes. This was notable because he had studiously avoided saying what tax expenditures (as deductions, exemptions and credits are known) he would eliminate to pay for his rate cuts. Matt O’Brien at The Atlantic and Deborah Solomon at Bloomberg View leapt on him for the pathetically small amount of money this would yield relative to the humungous cost of Mr Romney’s corporate and personal tax cuts.
I think this is a bit of a sideshow. Mr Romney has repeatedly said his tax plan would be revenue neutral, and knows he will have to cut more than just those two items. It’s cowardly of him not to say what those other things are now, but no more cowardly than the typical candidate for office. The odds of eliminating any tax break go down the more a candidate has to discuss it before an election.
The real question is, can Mr Romney plausibly produce a revenue neutral tax plan that cuts rates as much as he does? Read the rest of this entry »