Tag Archives: tax reform

The logic beneath the lunacy

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David Frum urges us to look past Republican obstinacy and acknowledge the fact that some of their debt package proposals are better than those put forward by President Obama. He identifies a few here:

Another large tax preference is the home-mortgage-interest deduction. This preference is justified by the claim that it promotes homeownership. Yet Canada, which doesn’t have the preference, has roughly the same home­ownership rate as the United States: a little over 60 percent.

Rather than put more people into homes, the deduction puts the same number of people into more home: before the Great Recession hit, new homes in the United States averaged 2,300 square feet; new homes in Canada, 1,800 square feet.

That’s bad economics: Americans end up borrowing more to buy houses and then cutting back on other forms of saving to make up for it. The deduction is also bad for the environment, because it encourages Americans to commute farther to bigger houses that require more heating and cooling.

Here’s the good news: the deduction has already been trimmed over the past generation. Americans can claim a deduction only on their principal residence and only on a mortgage of up to $1 million. Time to reduce that cap again.

Finally, there’s the deduction of state and local taxes against federal income tax. That costs $80 billion a year, or about the same as the federal Department of Education.

Why doesn’t it trigger a revolution when California raises its state income tax past 10 percent? Or when suburban communities around New York City hike property taxes to an astonishing 8 percent of median local annual income? The short answer: the people who pay the most local taxes also receive the biggest relief on their federal taxes. Ironically, as federal tax rates rise to 40 percent, the highest earners will receive an even bigger subsidy on their local taxes.

By cushioning the shock of local taxes, federal policy induces local governments to spend irresponsibly. New York state, for example, with almost exactly the same population as Florida, spends literally twice as much.

Why Democrats are so confident about the fiscal cliff

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It’s all about the numbers:

A majority of Americans say that if the country goes over the fiscal cliff on Dec. 31, congressional Republicans should bear the brunt of the blame, according to a new Washington Post-Pew Research Center poll, the latest sign that the GOP faces a perilous path on the issue between now and the end of the year.

While 53 percent of those surveyed say the GOP would (and should) lose the fiscal cliff blame game, just 27 percent say President Obama would be deserving of more of the blame. Roughly one in 10 (12 percent) volunteer that both sides would be equally to blame.

Kevin Drum can’t get over how lopsided these figures are:

The Post site has a tool that lets you look at various demographic subgroups, and it turns out that everyone would blame Republicans. I figured maybe old people would blame Obama instead. Nope. Southerners? Nope. White people? Nope? High-income people? Nope. Literally the only group that didn’t blame Republicans was….Republicans.

Politically speaking, President Obama’s main job is to keep things this way. Republicans pay a price for their anti-tax jihad only if the public blames them for the ensuing catastrophe. But if Obama sticks to reasonable asks—modest tax increases, modest spending cuts, and a debt ceiling increase—and pounds away at Republican intransigence, these numbers aren’t likely to shift much.

The beginnings of a thaw

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[youtube http://www.youtube.com/watch?v=X0Oa4gB28Co]

The Huffington Post reports on an unlikely ally for Obama’s attempt to allow the Bush tax cuts on the rich to expire:

Conservative commentator and Weekly Standard editor Bill Kristol said Sunday the Republican Party should accept new ideas, including the much-criticized suggestion by Democrats that taxes be allowed to go up on the wealthy.

“It won’t kill the country if we raise taxes a little bit on millionaires,” he said on “Fox News Sunday.” “It really won’t, I don’t think. I don’t really understand why Republicans don’t take Obama’s offer.”

“Really? The Republican Party is going to fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of whom live in Hollywood and are hostile?” he asked.

One of the biggest fights as Congress returns will be over taxes, as cuts put in place by former President George W. Bush are set to expire at the end of the year. Republicans want to extend those tax cuts for all income brackets, while Democrats want to raise revenue by allowing them to expire for wealthy Americans.

Earlier, FOX News talk show star Sean Hannity underwent a sudden conversion:

We’ve gotta get rid of the immigration issue altogether. It’s simple for me to fix it. I think you control the border first, you create a pathway for those people that are here, you don’t say you gotta go home. And that is a position that I’ve evolved on. Because you know what–it just–it’s gotta be resolved. The majority of people here–if some people have criminal records you can send ’em home–but if people are here, law-abiding, participating, four years, their kids are born here… first secure the border, pathway to citizenship…then it’s done. But you can’t let the problem continue. It’s gotta stop.

A presidential mandate?

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The Economist digs into the question of whether Barack Obama now has a mandate and concludes that there’s really no way to know:

Wittgenstein is helpful here. Consider proposition no. 114 in his “Philosophical Investigations”: “One thinks that one is tracing the outline of a thing’s nature over and over again, and one is merely tracing round the frame through which we look at it.” So in claiming that President Obama “has” a mandate or “lacks” one, we are just giving voice to our conception of what a mandate is and whether we’d like to confer one on a given president. The mandate is in the eye of the beholder.

Presidents have mandates, then, if we perceive them as having mandates, and don’t if we don’t. Which means that President Obama has one and doesn’t have one. And nailing down the matter is even more problematic than that. When we perceive a president as having a mandate, we are making a claim about what the American people meant when they cast their votes. To be a little too obvious: there is no “mandate” box to check on electoral ballots. You just vote for a candidate. There is no formal or informal way for the people to “give” a president a mandate. So when journalists and politicians weigh in on the subject they are really psychoanalysing the electorate writ large. That’s no mean task.

The magazine goes on to note that even exit polls may not be sufficient to imply the contours of a possible mandate for specific policies:

Polls can tell us something about voters’ policy preferences, but they cannot affirm or disprove the existence of a mandate. Let’s take tax policy in this fall’s election as an example. A Washington Post exit poll showed that 59% of voters nationwide “said the economy was the biggest issue facing the country.” A similar proportion seemed to share Mr Obama’s stance on taxation:

Six in 10 voters said that taxes should be increased, including nearly half of voters saying that taxes should be increased on income over $250,000, as Obama has called for. Just over one-third said taxes should not be increased for anyone. But more than 6 in 10 voters said taxes should not be raised to cut the budget deficit.

This may be the best evidence available for the existence of sufficient popular support to raise tax rates for the upper brackets, but its strength withers when the numbers are analysed. First, if 60% of voters want higher taxes, and only a fraction over 50% voted for Mr Obama, that means at least one-sixth or so of voters seeking tax hikes did not, for one reason or another, vote for the president. And if “nearly half” of voters sign on to the Obama plan to increase taxes on those who earn over $250,000, this means that more than half of voters prefer a different proposal. Where does that leave Mr Obama’s purported mandate?

Meanwhile, the same magazine analyzes the new prospects for tax reform.