Taxes

CBO's Analysis of the Distribution of Taxes

In an appearance on C-SPAN this morning, CRFB president Maya MacGuineas referenced a Congressional Budget Office (CBO) analysis that shows that high earners do not pay a particularly high percent of their income in taxes but do pay a large share of taxes.

What's New in the President's FY 2017 Budget

The final budget of the Obama Presidency continues a mix of long-standing policies (including a few that have been in all eight budgets) and policies that are finding their way into the budget for the first time. With regards to new policies, some were previewed during the State of the Union address last month, while others have been laid out in the weeks since then. Here's a rundown of some of the major new proposals in the President's budget.

Business Tax Reform

In his past three budgets, President Obama had proposed a revenue-neutral reserve fund for business tax reform, which included several corporate tax changes amounting to a net tax increase that would offset a reduction in the corporate tax rate to 28 percent. This year, the President has largely maintained the policies that were included in the reserve fund but is now dedicating the $549 billion of revenue to deficit reduction to pay for the business tax cuts in last year's tax deal.

Clean Transportation Investments

The President's budget includes several proposals to tackle climate change, the most ambitious being a $312 billion over ten years clean transportation investment plan. The proposal includes $200 billion for transportation projects including subways, buses, rail, and the TIGER grant program (part of this funding reflects a previous budget proposal to increase surface transportation spending by $116 billion). Another $100 billion would go to state and local governments for clean infrastructure projects. Finally, $20 billion would go to clean transportation research for things like self-driving cars, electric vehicle charging stations, and clean energy airplanes. These policies would be paid for with another new policy in the President's budget: a $10.25 per barrel oil tax. This tax comes on top of a pre-existing policy to reinstate Superfund taxes, which include a 9.7 cent per barrel oil tax.

Medicare Advantage Competitive Bidding

Explaining Clinton's Taxes on the Wealthy

Democratic presidential candidate and former Secretary of State Hillary Clinton has proposed several new taxes that would raise taxes on the wealthy by between $400 billion and $500 billion to pay for new investments helping the middle-class.

2015’s Fiscal Follies and Reasons for Hope

It’s the end of the year and like so many organizations, CRFB wanted to share with you our top 10 list: a look back at Congress’s 10 top fiscal achievements of 2015.

The problem is, we couldn’t. Even pooling the creative minds of our entire staff, we could not produce 10 solid Congressional actions that reduced the national debt or deficit, or were a clear step toward a responsible federal budget.

Compiling a list of the year’s 10 greatest fiscal follies was a lot easier, so we are delighted to share that with you now. 

The Fiscal Irresponsibility of the Tax Deal in 6 Charts

It's no surprise that a deficit-financed tax cut deal costing $830 billion after interest would be bad for the budget. We've been describing the emerging deal in various blogs over the last month, but below are the most important charts, updated for the actual numbers from the announced deal.

The Deal Would Add More Than $2 Trillion to the Debt Over 20 Years

The Joint Committee on Taxation has scored the deal as costing $680 billion over ten years, which would rise to $830 billion if interest costs are included. Although 20-year estimates are inherently uncertain and imprecise, we estimate that the costs grow over time to exceed $2 trillion over 20 years.

The Deal Squanders Recent Deficit Reduction

Although lawmakers have been adding to the debt repeatedly for the past few years, the $680 billion tax deal is easily the largest step backwards and is comparable in magnitude to the deficit reduction lawmakers enacted between 2011 and 2013. The deal easily swamps the net savings from the 2013 Ryan-Murray agreement, almost equals the revenue raised in the fiscal cliff agreement, amounts to three-quarters of the sequester savings, and is more than two-thirds of the savings from the Budget Control Act spending caps.

Negotiated Tax Deal Would Cost $680 Billion

Lawmakers have announced a negotiated package of business and individual tax breaks costing about $680 billion over ten years. After interest, we project the cost at about $830 billion over ten years. The package is split between two bills, one extending most of the tax breaks, and the omnibus bill providing discretionary spending for the rest of the fiscal year.

The deal largely focuses on reviving tax breaks that expired at the end of 2014, making some permanent and extending others for either two or five years. However, it also permanently extends three refundable tax credit expansions that would have expired in 2017, originally enacted in the 2009 stimulus bill. The bill also pauses or delays three taxes from the Affordable Care Act, opening the door to further delays or possible repeal of the taxes, undermining the health care law's deficit-reduction and cost-control efforts. Specifically, it would pause the medical device tax for 2016 and 2017, pause the health insurance tax for 2017, and delay implementation of the so-called "Cadillac tax" for two years while subsequently making the tax deductible against a company's corporate income tax (and tasking a study of how the tax's thresholds are indexed). If these three taxes are subsequently repealed, it would cost a combined $257 billion over ten years:

Hoyer Slams Tax Extenders Deal

House Minority Whip Steny Hoyer (D-MD) took to the House floor on Tuesday to assert his opposition to a potential tax extenders deal, citing a recent piece by CRFB president Maya MacGuineas to back up his opposition.

He cited a large increase in deficits that would result from the package and the double standard between spending and tax cuts when it comes to offsets, an argument also made in a recent letter by a group of Senate Democrats.

The cost of such a package runs in the $600 - $800 billion range – none of which is paid for, ballooning our deficits in a way that reinforces a misguided double standard that investments in the growth of jobs and opportunities must be offset, but tax cuts are always free.

Short-Term Extenders Package Is Still Irresponsible

Faced with the possible opposition over a $700 billion deal to extend permanently some of the expiring "tax extenders", Congress may consider a bill that would only extend them for two years. Yet the legislation introduced in the House, despite its lower price tag, would still be fiscally irresponsible – not only because it would add to the debt without offsets, but because it would actually expand a number of tax breaks beyond their traditional cost.

According to the Joint Committee on Taxation, simply reinstating all recently expired tax breaks for two years (2015 and 2016) would cost about $96 billion. The House bill by itself would cost $12 billion more, or $108 billion. Even more troubling, the House bill sets the stage for continued expansions; and if made permanent those would cost $860 billion  – that is $120 billion more than a permanent extension of all provisions, and nearly $160 billion more than the permanent deal we discussed last week.

Senate Democrats Ask for Extenders to be Offset

Last week Senators Tammy Baldwin (D-WI), Sheldon Whitehouse (D-RI), Jack Reed (D-RI), Angus King (I-ME), and Elizabeth Warren (D-MA), sent a letter to Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) making the argument that tax extenders legislation should be paid for by closing tax loopholes.

This excerpt captures the argument of the letter spearheaded by Sen. Baldwin (full letter here):

Last month, Republicans and Democrats were able to come together in a bipartisan manner to pass legislation preventing harmful cuts to federal programs for two years. However, that legislation also included a variety of spending cuts and revenue increases to ensure that the federal spending would not add to the deficit. Therefore, extending expired tax breaks, or making them permanent, without offsetting the cost is a troubling double standard whereby tax cuts and credits don’t need to be paid for but investments in education, job training, infrastructure, research and innovation must be paid for. Not requiring the same standard for these mostly business tax cuts is not only unfair, it would also add to the deficit and increase pressure to make additional cuts to domestic programs.

Instead of passing tax cuts and credits that increase the deficit, we urge you to offset the cost of extenders by closing loopholes in the tax code.

GOP Campaigns Discuss Tax Plans

The Conservative Reform Network and Americans for Tax Reform recently hosted a forum where representatives from the Republican presidential campaigns of Gov. Jeb Bush, Sen. Ted Cruz, Gov. John Kasich, Sen. Rand Paul, and Sen. Marco Rubio discussed their candidates’ tax reform proposals. You can read our brief summaries of the candidates' tax plans here.

Cruz and Paul both advocate for flat tax proposals combined with what is essentially a value-added tax, while Bush, Kasich, and Rubio propose reforms to lower corporate and individual rates while broadening the tax base. Bush’s primary goals for tax reform are growth and increasing workforce participation. Cruz wants to fix the broken system with a simplified tax regime. Kasich proposes a three-part test for tax reform: it should increase jobs, growth and freedom; it should be able to pass Congress; and it should unite the Republican Party. Paul argues for eliminating the payroll tax for workers, taxing business on what they produce, and taxing imports while exempting domestic production. Rubio promotes a pro-family policy that also establishes parity among all corporate and non-corporate businesses.

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