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Wednesday, July 9, 2014

CTJ: Addressing the Need for More Federal Revenue

Citizens for Tax Justice, Addressing the Need for More Federal Revenue:

CTJAmerica is undertaxed, and the result is underfunding of public investments that would improve our economy and the overall welfare of Americans. Fortunately, Congress has several straightforward policy options to raise revenue, mostly by closing or limiting loopholes and special subsidies imbedded in the tax code that benefit wealthy individuals and profitable businesses.

Part I of this report explains why Congress needs to raise the overall amount of federal revenue collected. Contrary to many politicians’ claims, the United States is much less taxed than other countries, and wealthy individuals and corporations are particularly undertaxed. This means that lawmakers should eschew enacting laws that reduce revenue (including the temporary tax breaks that Congress extends every couple of years), and they should proactively enact new legislation that increases revenue available for public investments. Parts II, III, and IV of this report describe several policy options that would accomplish this. This information is summarized in the table to the right.

Even when lawmakers agree that the tax code should be changed, they often disagree about how much change is necessary. Some lawmakers oppose altering one or two provisions in the tax code, advocating instead for Congress to enact such changes as part of a sweeping reform that overhauls the entire tax system. Others regard sweeping reform as too politically difficult and want Congress to instead look for small reforms that raise whatever revenue is necessary to fund given initiatives.

The table to the right illustrates options that are compatible with both approaches. Under each of the three categories of reforms, some provisions are significant, meaning they are likely to happen only as part of a comprehensive tax reform or another major piece of legislation. Others are less significant, would raise a relatively small amount of revenue, and could be enacted in isolation to offset the costs of increased investment in (for example) infrastructure, nutrition, health or education.

For example, in the category of reforms affecting high-income individuals, Congress could raise $613 billion over 10 years by eliminating an enormous break in the personal income tax for capital gains income. This tax break allows wealthy investors like Warren Buffett to pay taxes at lower effective rates than many middle-class people. Or Congress could raise just $17 billion by addressing a loophole that allows wealthy fund managers like Mitt Romney to characterize the “carried interest” they earn as “capital gains.” Or Congress could raise $25 billion over ten years by closing a loophole used by Newt Gingrich and John Edwards to characterize some of their earned income as unearned income to avoid payroll taxes.  

In the category of reforms affecting businesses, Congress could raise $428 billion by repealing accelerated depreciation. (This reform would also raise an additional $286 billion in the first decade, but this impact would be temporary.) Accelerated depreciation is the most significant break for domestic businesses and a major reason some companies can avoid paying taxes. Or Congress could take much less dramatic steps and repeal smaller breaks that benefits businesses, such as the domestic manufacturing deduction. Proponents of accelerated depreciation and the domestic manufacturing deduction claim that they encourage investment and job creation in the United States, but neither seems to be accomplishing this goal.

In the category of reforms affecting multinational corporations, Congress could raise $601 billion over 10 years by closing the huge loophole in the corporate income tax that allows U.S. corporations to indefinitely “defer” paying U.S. taxes on profits that they generate offshore or that appear to be generated offshore because of dodgy accounting methods. (This reform would also raise an additional $158 billion in the first decade, but this impact would be temporary.) Or Congress could raise smaller amounts of revenue by curbing the worst abuses of deferral. President Obama has put forward several proposals to do this by closing loopholes in the deferral rules, and several of these proposals have been introduced as legislation by members of Congress.  

These are just a few examples among many that are described in more detail in this report.

http://taxprof.typepad.com/taxprof_blog/2014/07/ctj-addressing-.html

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Comments

"America is undertaxed, and the result is underfunding of public investments that would improve our economy and the overall welfare of Americans." -- Well, the starting premise is wrong. Trillions of dollars squandered by politicians haven't ended poverty and never will.

Posted by: Woody | Jul 9, 2014 10:28:38 AM

Excellent idea - Americans have been getting off so lightly to date - if you want to be the world's cop it costs - if you want to give control to your and foreign banks you should have to pay for same. Simple math - let us launch this soonest.

Posted by: Lokis | Jul 9, 2014 12:34:48 PM

Finally something we can be proud of CONGRESS for.

Posted by: Dave Mowers | Jul 9, 2014 12:53:19 PM

"Trillions of dollars squandered by politicians haven't ended poverty and never will."

This is rather like saying washing your hands hasn't ended the flu and never will.

The question is improvement at the margin, not 100 percent efficacy.

Posted by: Anon | Jul 9, 2014 2:19:58 PM

Get real people. Simple solution, stop the wars, stop paying foreign countries to be our friend (their are not), stop the influx of illegals, stop the pork spending, stop obummer care, fire the government, get rid of the Fed, get rid of the UN, get rid of the IRS, stop supporting all the special interest groups. Do all that and we would have no taxes at all in this country. All it takes is guts to take our country back.

Posted by: FarmerDave | Jul 9, 2014 5:14:02 PM

Anon, the policy of Democrats is not to help people to become independent but to keep them dependent to insure their votes. I don't expect government to end poverty, but at least get out of the way rather than perpetuate it for political gain. Use your brain....higher taxes will not help the economy nor the overall welfare of Americans. Higher taxes actually hurts economic growth.

Posted by: Woody | Jul 9, 2014 9:21:57 PM

Does anyone seriously think Congress would spend the next trillion dollars in increased spending any more intelligently than the previous trillion increase in spending?

Posted by: Steve White | Jul 10, 2014 5:16:45 AM

Lefties can always volunteer to pay more taxes - strangely very few do

Posted by: bandit | Jul 10, 2014 5:21:47 AM

The question is improvement at the margin, not 100 percent efficacy.
The question is whether the marginal benefit exceeds the marginal cost. To be charitable, it is far from clear that this is the case.

Posted by: ameryx | Jul 10, 2014 5:22:21 AM

For many years, the quick road to expanding the federal deficit has been to expand federal revenue. For every dollar the federal government succeeds in taxing from us via taxation, it spends roughly $1.20. The ratio has changed over the years, but since the end of World War II it's only been 1-to-1 three years out of 69. Verbum sat sapienti.

Posted by: Francis W. Porretto | Jul 10, 2014 5:37:20 AM


When your favorite tool is a hammer ... well, you know the rest. The left never finds a problem that can't be fixed by a tax increase and more spending.

Posted by: SongDog | Jul 10, 2014 5:59:49 AM

What do you need more taxes for? The Fed simply PRINTS money these days for the pols to hand out to their cronies, Mr. Solyndra.

Posted by: Buck O'Fama | Jul 10, 2014 7:07:38 AM

"Well, the starting premise is wrong. Trillions of dollars squandered by politicians haven't ended poverty and never will."

Not exactly. It's employed thousands upon thousands of useless bureaucrats, not to mention creating pleasant fiefdoms for connected donors and flunkies. And that's basically what gubbermint is about, rewarding cronies and donors with someone else's hard-earned money.

Posted by: Martin Scoreseasy | Jul 10, 2014 7:12:08 AM

Mkay...'Staggering': Government making $100B in improper payments every year:
http://www.foxnews.com/politics/2014/07/09/government-made-100b-in-improper-payments/

Posted by: Porkopolis | Jul 10, 2014 9:35:59 AM

Congress could save over 4 trillion of taxpayer money every year by simply going home and stopping pretending to represent the public interest.

Posted by: usurykills | Jul 10, 2014 2:05:05 PM