ataxingmatter

Everybody's Talkin' 'Bout Taxes--especially Wealth Taxes and Mark-to-Market of Capital Gains

Not surprisingly for those of you who are members of the ABA Tax Section, there is a meeting of that group next week in Florida when a thousand tax lawyers (give or take a few) will be talking about everything from basis to wealth taxes; GILTI, BEAT, Dual BEIT, to EITC.  Yours truly will be on a panel of the Tax Policy and Simplification Committee, meeting Friday morning, to discuss how the tax system should respond to the wealth gap.  Joining me on the dais will be Roger Royse (moderator and panelist), Rich Prisinzano from the Penn Wharton Budget Model, and Dan Shaviro, Wayne Perry Professor of Taxation at NYU and a blogger at Start Making Sense.  We'll talk about the income and wealth gap data, including the different perspectives of  Saez & Zucman, serving as wealth tax advisers to Senator and Democratic presidential candidate hopeful Elizabeth Warren; Penn Wharton Budget Model, applying a more standard budget model to determine harms and benefits of the Warren Wealth Tax; and Cato INstitute.  We'll also discuss Sen. Ron Wyden's proposal for a mark-to-market system of capital gains taxation (including a lookback charge of some kind for hard-to-value assets, Prof. (and former Cleary partner) Edward Kleinbard's Dual Business Enterprise Income Tax proposal, and other means of making the regular tax system more progressive such as rates, removing the capital gains preference, and reinvigorating the estate tax that has been the object of a GOP murder squad for the last 20-30 years at least.

Meanwhile, today in Florida there was a Tax Policy Lecture at  the University of Florida on Taxing Wealth, with Alan Viard, resident scholar at the American Enterprise Institute, David Kamin, Professor at NYU School of Law, Janet Holtzblatt, Senior Fellow at the Tax Policy Center, and William Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy7 at the Brookings Institution. 

Last fall, the Tax Policy Center held a program on Taxing Wealth (webcast recording available at this link) with Mark Mazur, Ian Simmons, Janet Holtzblatt, Beth Kaufman, Greg Leiserson, Victoria Perry, and Alan Viard.  Sony Kassam from Bloomberg Tax served as moderator.  The link has a series of power point presentations from that meeting as well, for your edification.

Ian Simmons, for example, includes the letter from billionaires dated June 24, 2019, asking that "[t]he next dollar of new tax revenue should come from the most financially fortunate, not from middle-income and lower-income Americans."  Such a tax "enjoys the support of a majority of Americans--Republicans, Independents, and Democrats."  It's not a new idea, since all those millions of middle-income Americans who own their home "already pay a wealth tax each year in the form of property taxes on their primary form of wealth--their home."   The billionaires are asking "to pay a small wealth tax on the primary source of our wealth as well"--such as Elizabeth Warren's proposal, which would tax "only 75,000 of the wealthiest families in the country" (those with assets over $50 million) and would generate an estimated $3 trillion over ten years to "fund smart investments in our future, like clean energy innovation to mitigate climate change, universal child care, student loan debt relief, infrastructure modernization, tax credits for low-income families, public health solutions, and other vital needs."  All this is necessary because of the wealth gap: "[t]he top 1/10 of 1% of households now have almost as much wealth as all Americans in the bottom 90%." The signatories support a wealth tax because:

• it's a powerful tool for solving our climate crisis
• it's an economic winner for America through increased public investments
• it will make Americans healthier, addressing the difference in longevity (15 years) between the richest and the poorest Americans
• It's fair -- "[t]axing extraordinary wealth should be a greater priority than taxing hard work."
• It strengthens American freedom and democracy, since high levels of economic inequality lead to political power and pluotocracy and higher levels of distrust in democratic institutions
• It is patriotic -- 'The richest 1/10 of the richest 1% should be proud to pay a bit more of our fortune forward to America's future."

Janet Holtzblatt discussed whether wealth should be taxed, with a set of powerful powerpoint charts.  As she notes, there are a number of reasons to think taxing the wealthy is a good idea because it (slide 4) :

• curbs the accumulation of power that comes with the accumulation of wealth--and, I will add, this is power to get laws and regulations written in your favor, including tax laws, as well as power that allows pollution, rent-seeking, on-demand schedules for workers and other 'evils' that come with plutocracy
• ensures that the wealth pay their fair share of taxes
• finances new initiatives (child care, student debt relieve, climate change policies, housing initiatives)
• provides better data for research on wealth inequality

Those not supportive (or, as JH puts it, "less optimistic") suggest that (slides 5, 7)

• even with a wealth tax, the rich remain the richest and the most powerful
• incremental changes to current tax system would be more easily implemented
• wealth taxes would have a negative impact on savings, investment, entrepreneurship
• wealth taxes won't raise as much revenue as claimed
• OECD countries with wealth taxes haven't been all that successful (in 1990 12 had them, in 2018 only 3 still retained wealth taxes: Norway, Switzerland, and Spain)

There are lots of issues with wealth taxes: (slides 8-20)

• on what assets
• at what rate (tax burden will depend partly on rate of returns on investments
• using what exemption threshold (liquidity constraints at lower thresholds; taxing  middle income instead of wealthy)
• using what means to prevent tax avoidance (dependents' wealth with parents? include assets in family-run foundations? restrictive limits for trusts? exit taxes?)
• and tax evasion (enhance IRS enforcement, enhance penalties, enhance IRS access to third party data--but the wealthy have resources to battle IRS claims)
• assuming what actual amounts of tax revenues could be raised ("street fights over revenue estimates...among top public finance economists") (Slide 15)
  • how much wealth is there?  JH notes several 2016 estimates between 86.9 trillion and 101.2 trillion (slides 16-17) {Zucman  says just under $115 trillion]
    
    • Fed Reserve Survey of Consumer Finance ( 3 year intervals; leaves out Forbes 400 and some pension wealth)
    • estate tax data (adjusted for mortality probabilities and population)
    • income tax data (capitalized using assumed rates of returns)
  • how is that wealth distributed between the top 0.1% and the rest?  Bricker 2016 study estimates range from about 15% to 22%  (Slide 18)
  • how much wealth is hidden by "tax net misreporting rates"?  IRS 2016 misreporting: farms 71%; nonfarm proprietors 64%; CGs 27%; PS/SCorps/Estates/Trusts 16%  (slide 19)
  • how much tax revenues?  between 815 billion and  1.098 trillion between 2021-2030 (slide 22, Urban-Brookings TPC Microsimulation Model [ with lower thresholds and rates than those proposed by Warren]
  • who pays?  40,000 tax units in the top 1% minus the top 0.1%; 127,000 tax units in the top 0.1%,with those in the top 0.1% paying between 97% and 100% on the different options considered

Greg Leiserson discussed the idea of mark-to-market taxation (an idea that Ron Wyden has endorsed), in "Taxing wealth by taxing investment income: An introduction to mark-to-market taxation" (Sept 11, 2019).  The key to MTM taxation is that a tax is assessed annually on investments, whether or not they are sold or otherwise disposed of ('through a transaction that results in "realization" for federal income tax purposes).  The burden of such a tax falls predominantly on the wealthy, since those are the primary owners of bonds, stocks, real estate empires, and pass-through businesses that produce investment income, as well as the appreciation of those assets that is taxed currently as a capital gain on disposition.  Leiserson provides a chart (below) showing the nominal investment income of US households and nonprofits including an offset for inflation.

As he notes, much of this income is taxed at preferential capital gains rates, and much of the income tax is deferred because capital gains and losses are generally taxed only when the asset is sold.  Deferral amounts to a reduction in taxes paid under time-value-of-money principles.  But yet another way in which owners of investment assets escape taxation is the estate tax: appreciation in property in the estate (such as unrealized capital gains from stock that has appreciated in value significantly over decades) is never taxed, since the heirs get a step up in basis to market value, so that if the asset were then immediately sold, there would be no gain remaining.

MTM taxation eliminates the deferral advantage.  MTM taxation combined with elimination of the preferential rate for capital gains would  eliminate the preferential treatment of capital gains that exists in current law.  Leiserson notes the difficulties for a MTM system: which assets are covered, rate of tax applied, and whether there are special rules for volatility. Further, "[i]f a comprehensive system of mark-to-market taxation is enacted, then there would be no unrealized gains at death going forward, because gains will have been taxed on an annual basis, including in the year the person dies" so long as the system applies over some transition period to gains accrued prior to enactment.  Otherwise, the system would have to tax gains at death (repealing step-up in basis rule) or at any other disposition, including gifts, to ensure fair and equal treatment.  He suggests other measures--such as limiting the home sales capital gain exclusion or requiring mandatory distributions of pension account balances above a threshold, that would be reasonable in a MTM context.

One difficulty with MTM taxation is valuation of assets that are not regularly traded.  Ron Wyden's proposal suggests a lookback charge--an additional tax payment for assets not subject to MTM taxation that is collected upon disposition to account for the deferral value while still relying on realization as a trigger for taxation. Wyden and Leiserson suggest different possible methods.  One is to take the gain upon sale and allocate it ratably to each year between purchase and sale, compute the tax on each year's income at the rate applicable in that year, and then calculate interest on those unpaid taxes for the years til payment. Unrealized gains would be deemed realized on death or gift and taxed accordingly.

Three key ideas here:

• To protect lower and middle income taxpayers from the tax, there could be a lifetime gain  exemption threshold ($0.5 million, say) that has to be reached before the rules apply or an asset value threshold ($2 million; $10 million, etc.).  Under the latter, taxpayers would fall into and out of the MTM regime as assets fluctuate.  (The asset approach is suggested by Wyden.)
• The revenue raised is significant though it depends on the particular model.  Leiserson suggests MTM combined with elimination of the preferential rate on capital gains "could easily raise $1 trillion over the next decade--and potentially much more."  He notes that just eliminating the preferential CG rate gives a much lower estimate--that's because of "the ease of tax avoidance under current law such as the ready opportunity to defer tax by not selling assets and potentially avoid tax entirely through step up in basis--all while simply borrowing against these same assets to finance any spending."
• "The wealthiest 1 percent of families holds 31 percent of all wealth, and the wealthiest 10 percent holds 70 percent of all wealth."  "The highest-income 1 percent of families receives 75 percent of the benefit of the preferential rates for capital gains and dividends under current law." The wealthiest 10% would bear the burden of MTM reforms.

 

Of course, while everybody is talking about taxes, some of that talk is the same old endless market fundamentalist myth (Reaganomics) about how tax cuts are what make the economy grow and will actually pay for themselves -- in spite of near 4 decades of evidence to the contrary, where highest growth rates have generally been in times of higher tax rates, with some consideration for stimulus impact of tax cuts after periods of recessions.  See, e.g., NY Times editorial, There's No Such Thing as a Free Tax Cut (Jan 22, 2020).  The op-ed notes that Treasury Secretary Steven Mnuchin "repeated the risible fantasy that the Trump administration's 2017 tax cuts will bolster economic growth sufficiently for the government to recoup the revenue it lost by lowering tax rates" [in the 2017 tax legislation] even though 2 years in, the "budget deficit has topped $1 trillion." This is because, as most of us who haven't drunk the Laffer-curve tax cut kool-aid know and the Times op-ed reiterates, "businesses responded to increased demand more than they did to the lower tax rates."  Nonetheless, we should not be surprised that the Trump Administration is talking about two "big ideas" for taxes if the man gets reelected:  1) cutting Medicare and Social Security: see, e.g., Trump Opens Door to Cuts to Medicare and Other Entitlement Programs, NY Times (Jan 22, 2020) and 2) passing another tax cut bill: see Steven Mnuchin Confirms Trump's New Tax Plan is Imminent, USNews (Jan 23, 2020).  Those two ideas go hand in hand. 

Though Trump doesn't dare state what he is really doing to his base, who he has deceived with typical right-wing rhetoric into thinking that he is trying to rightsize the economy to serve them when he instead engages in class warfare to stuff his own pockets, he is hip to hip with Newt Gingrich's desire to "starve the government" to create a huge deficit (we are up to $1 trillion in our new "gilded age economy") that then provides cover for the wealthy to suck in even more of the country's wealth by downsizing Medicare and Social Security, programs essential for those who are not among the wealthy. 

 

Dan Shaviro (NYU) and Tim Smeeding (WISC) on NPR's Detroit Today Show

For those of you who may not have the opportunity to tune into Stephen Henderson's radio program Detroit Today on NPR, it might be useful to have a short summary of the January 9 discussion of the "wealth gap" from that program.

Background

Tax lawyers have traditionally talked of the "tax gap"¹  and frequently mentioned the growing "income gap" between the top 1% of the income distribution and the remaining 99%, but the "wealth gap"² discussion among tax lawyers, tax policy thinkers, economic analysts and indeed progressive legislators about the relative net assets of different segments of the population has become increasingly important as people have recognized the trend of increasing wealth for the top 0.1% in the US and stagnating wealth for most of the US population.  The wealth gap is even more significant when race/ethnicity is taken into account: the 400 wealthiest families in 2015 owned as much as the country's entire African-American population plus 1/3 of the Latino population.⁴  The median white household in 2011 had about $111 thousand in wealth, while the median black household had $7 thousand and the median Latino household had $8 thousand, with the impact of slavery and post-WWII homeownership policies being the underlying source of most of the disparities.³ See also How Ameria's Vast Racial Wealth Gap Grew: By Plunder, New York Times, Aug. 14, 2019.  The generational wealth gap is also worrisome: older Americans' wealth grew between 1989 and 2013 but all other age groups had their wealth decline.³  The gender wealth gap underlies the power distinction that lies at the bottom of the MeToo movement: women earn less than men for the same work at the same level, and they save less and are more likely to live in poverty in old age.

That means that children in this country born to families in the top 10% of the wealth distribution have enormous advantages from birth:  they are essentially guaranteed the best medical, educational, and institutional support imaginable, with every opportunity for learning and advancement laid before them.  Their parents can afford to ensure they are able to get into top colleges (e.g., Harvard alumni preferences for their children), meet the "right" people for success in their preferred field (the "connections" that wealthy families build), take a preferred non-paying internship in another city with family funds supporting living expenses and more, all the way up the ladders of success.  Children born into families in the bottom half of the wealth distribution face a struggle at every point along that ladder:  schools that are inadequately funded after decades of Republican concentration on assessment and hurdles rather than support and educational opportunities; lack of exposure to different possibilities and the people who can open doors into those possibilities; lack of funding to make it possible to accept an opportunity when it presents itself.

These wealth disparities don't just impact these choices--they also affect aging parents who have inadequate retirement savings, young adults who have inadequate resources to deal with sudden medical emergencies, or aspiring students who get tangled in the payday loan vicious cycle of ever-escalating interest payments. And the wealth gap is compounded by at least three key components of the US federal tax system: 

1. the income tax system that claims to be progressive yet has income tiers that ignore the escalating heights of the highest paid corporate managers, university presidents, and other high-income labor and a capital gains preference that privileges ownership over labor;
2. the estate tax system that has been a GOP target for decades that has too low a rate on too little income of the dynastic estates that the run up in wealth over the last four decades has created while passing the estate along to heirs without taking any tax bite because of the absurd step-up in basis rule;
3. the cap on the social security tax that requires even the poorest laborer to pay in while letting the CEO earning a $10 million annual salary pay on only a pittance of the total compensation.

The wealth gap has in some sense always existed, but it is increasing⁵ and today begins to look like the Gilded Age before the Great Depression.  While the tax system isn't solely responsible for the increasing wealth gap in this country, it has played a significant role in aggravating the problem and thus deserves focussed attention as a matter of tax policy.

Key Points from Dan Shaviro's Interview

Dan noted that the wealth gap had its beginning in the 19th century when the government didn't respond to increasing disparities.  The progressive era under Roosevelt and Wilson, then the New Deal era under FDR did see some reduction in the wealth gap, much of which could be attributed to the reduction in wealth because of the stock market crash and the Great Depression.

As wealth increases, power increases.  Even proposals that have huge public support are rejected by Congress--including the idea that corporations and the wealthy should be taxed more.

Finding policies to ameliorate this current situation is not easy.  There are a variety of ideas--Warren and Sanders have proposed wealth taxes, though there are  constitutionality concerns that might defeat such a tax given the current conservative Supreme Court.  And a wealth tax won't solve all the problems of inequality. Other ideas include more progressive income taxes or a mark-to-market system of taxing appreciation of capital assets.

The reasons for attempting to address the wealth gap are many, and include the need for better transportation, health care, education, end of life and geriatric care, etc. 

We live in a capitalist system, but markets don't work well for addressing all problems.  In particular, they don't work well for the kinds of things that are so important like health care and education. 

Any transition, of course, will be very difficult.  The top 10% own 77% of the wealth while the bottom 50% own less than 2%.  Those with financial wealth live very well indeed, since that wealth isn't taxed til it is used and may never be taxed.

 

Key Points from Timothy Smeeding's Interview

Understanding the wealth gap is critical, because wealth provides a "cushion for consequential life moments" such as when a parent covers a child's tuition or supports the child in their first apartment in a different city.

Deciding how to respond to the wealth gap is difficult, but various possibilities exist, including a wealth tax, a reinvigorated estate tax, elimination of the capital gains preferential rate compared to ordinary income, elimination of the carried interest provision that allows private equity managers to be compensated with capital gains at a 23.8% rate rather than a 38% plus 3.8% rate and avoid paying social security taxes, elimination of the one-time exclusion for capital gains on sales of residences, etc

There are many important institutional advantages that can better lives as well, especially providing access to health care and to university education.

Responding to a question about labor, Smeeding notes that unions will be important in areas such as the public sector, nursing, education.  But in the corporate context, an important change might be to consider bringing a labor voice to corporations' Boards of Directors.  Other possibilities are to reward corporations that reward their employees:  a tax break that goes only to corporations that raise their employees' wages, for example.

¹ Generally speaking, the tax gap is the difference between the tax burden owed and tax liabilities acknowledged and paid and thus provides some understandable standard for judging trends in compliance by taxpayers with their federal tax obligations. It is calculated periodically by the IRS and published on the website.  See The Tax Gap;  IR 2019-159 (Sept 26, 2019),  The 2019 document provides estimates for tax years 2011 through 2013 and shows an estimated average gross tax gap of $441 billion per year which, after enforcement efforts and late payments, yields a fibure of $381 billion a year.

² See, e.g.,  Lola Fadulu, Study Shows Income Gap between Rich and Poor Keeps Growing, With Deadly Effects, New York Times (Sept. 10, 2019) (summarizing research from the U.S. Government Accountability Office in August 2019 entitled Retirement Security: Income and Wealth Disparities Continue Through Old Age);  St. Louis Federal Reserve Bank Open Vault Blog, What Wealth Inequality in America Looks Like: Key Facts and Figures (Aug 14, 2019) (showing income distribution from 1989 to 2016 (before the impact of the highly distortive 2017 tax legislation) skewed to favor the top 10% of income earners at the expense of the bottom 90%).

³ See, e.g., Amelta Josephson, What is the Wealth Gap? SmartAsset.com (Jul 23, 2019) (noting that the CBO's 2013 wealth data showed a figure of $67 trillion for total family wealth, with the top 10% of families holding 76% of that total wealth (and having incomes of $942,000 a year or more).

⁴ See, e.g., Institute for Policy Studies, 2015.

⁵ See, e.g.,  Pedro Nicolaci da Costa, America's Humongous Wealth Gap is Widening Further, Forbes (May 29, 2019). Noting that "distribution is everything" in response to proclamations that the economy is healthy because of stock market trends or eomployment numbers, the article states that "a steady economic expansion and historically low jobless rate can mask deep inequalities in income and wealth that leave American families in vastly different financial situations."  It relies on a recent Federal Reserve Bank (Fed) report that shows that the poorest 50% are "getting crushed" by "rising inequalities."  The increase in net worth since 1989 (growing almost 4X the prior figure) has accrued mostly to the top of the distribution, with the bottom 50% seeing essentially zero net gains in wealth over 30 years.   Figure 2 from the article is duplicated below.

Donald Trump's Tax Returns

We are now a few months from election day, when Americans across the country will go to the polls to vote for the person they think should be placed in the highest elective office in the land as president of these United States.

There are many reasons to hope that Trump is not the person selected.

His supporters seem to come especially from that group of white males who have experienced so much anger as their privileged position as the dominant group in society has given way to a more inclusive society in which women, the LGBT community, people of color and people of various religions are both more visible and more able to achieve positions of greater influence and power.  Those Trump supporters are so eager to re-affirm their own self-worth that they apparently see in his rudeness, bigotry, narcissism, and bullying only his willingness to be confrontational to "powers that be", which somehow translates into their view that he will be a good leader.  They cannot seem to see that, like most bullies, he uses confrontation, rudeness, impoliteness, bigotry and bullying as his defense against his inability to respond in substance to issues that are raised, that he grabs a wordbat and hits out against anybody, no matter how decent they may be, if they do not stroke his huge ego.  As with all bullies, that is not a sign of strength but a sign of weakness.  Worse, it is a weakness that provides a vulnerable target for shrewd autocrats like Putin in Russia who can use Trump's narcissism to manipulate him, as we've already seen in Trump's willingness to abandon NATO to cuddle up to Putin and to appease Putin for his aggressive annexation of Crimea.  In all of this, we are left to worry how such an ill-tempered, poorly matured, unwise narcissistic and bigoted character could possibly make the difficult, nuanced decisions necessary of a powerful leader, especially when lacking in rudimentary knowledge about geopolitical, scientific, and economic affairs.

Trump seems to be claiming that we should think him suited for president because he inherited millions and maybe (he claims) amassed "many billions" more through a long-term pattern of stiffing and suing his suppliers, contractors, and workers--mostly ordinary working guys like the white men that have been bamboozled into supporting him-- in order to grab more money for himself.  Along the way, he and his businesses went through six bankruptcies.  Maybe one bankruptcy could be forgiven in a presidential candidate, and one big business failure could be seen as a life lesson that has the possibility of enriching experience and creating a more mature mindset.  But six bankruptcies by a person prone to use litigation as a tool to avoid paying for work done appear to be just another way of stiffing the "little people" to whom Trump owes money.

It is in this context that Trump's refusal to release even one year of his back tax returns suggests that he knows they would look bad to ordinary Americans.  So let's consider 1) whether Trump's excuses are worth giving any weight and 2) what kinds of information can be revealed by tax returns that would help us judge Trump's credibility as a candidate.

1. WHAT REASONS MIGHT TRUMP HAVE FOR NOT RELEASING TAX RETURNS?

a. There is no law that requires a candidate to release tax returns.

There is no law, but there is strong precedent supporting release.  Many presidential candidates and presidents, including Republicans Richard Nixon, Ronald Reagan, George W. Bush, George H.W. Bush, George Romney, and John McCain, have released multiple years of returns.  Trump's opponent, Hillary Clinton, has released many years of tax returns that are readily available online (see, e.g., Hillary Releases 8 years of Tax Returns, Politico, July 31, 2015; Hillary Clinton's 2007 through 2014 Tax Returns) and the Clinton Foundation's Form 990 is of course available.

b. Trump's most recent tax returns are under audit. 

It is apparently true that Trump's most recent few years of tax returns are under audit (though of course we have nothing other than Trump's say so even on this), and this is the current excuse Trump relies upon for not releasing any of his tax returns. His campaign manager, Paul Manafort, told CBS This Morning on July 27 that "Mr. Trump has said that his taxes are under audit and he will not be releasing them." See here.  He has suggested that when the audits are done, he will release but even that isn't certain. 

Note, however, that there is no law that says returns under audit cannot be released:  a taxpayer may release his own tax returns whenever he pleases.  Commissioner Koskinen of the IRS has made clear that it is very rare for people to be audited every year (even for billionaires), and returns can be released by taxpayers while under audit.See here.

Moreover, Trump has many years of tax returns that are clearly no longer under audit, and the excuse doesn't apply to those returns.  Even if he withheld (for personal reasons and not because of the audit) the last 3 years' returns, he should be able to release the 10 years before then.  

Furthermore, there is no precedent for refusing to release returns because of an audit: Richard Nixon released his returns while they were under audit.

c. Trump's tax returns might provide some useful "trade secret" or other private, proprietary business information to competitors. 

The concern about competitor's acquiring proprietary information is, of course, an argument made by businesses for maintaining the current rules regarding confidentiality of returns--ie, the rules that do not allow publication of filed returns or release to government officials other than as authorized by the Code.  These confidentiality rules were put in place by the 1974 Privacy Act and the 1976 Tax Reform Act.  They were in large part a reaction to Republican President Richard Nixon's Watergate mess and the discovery that the Nixon Administration had been using tax information as a tool against its "enemies". 

Of course, these concerns about protecting taxpayers that gave rise to the confidentiality rules have little bearing on a taxpayer-candidate's release of his own returns for the voting public's benefit.  Any truly important "trade secret" information could simply be redacted by the taxpayer for the release. 

Furthermore, Trump has a habit of bragging about all his business ventures and how much money he claims to have made or contributed and even how well he has avoided paying taxes.  He has continued to use the campaign context to promote his 'brand', so  privacy on exactly these issues does not seem to be an important issue for him.

d. Trump's tax returns might reveal information about Trump himself. 

It is undoubtedly true that release of tax returns does reveal information about the taxpayers, which is the main reason that the decades-long precedent of return release by candidates was established in the first place.  That information is helpful to voters in understanding who the candidate is, how the candidate has operated, and what kind of stake the candidate has in this country (and other countries). 

Trump's tax returns, while not all-revealing, would disclose information that is directly relevant to claims that Trump has been making on the campaign trail since the start of the primaries.  The returns might provide further information about Trump's purported charitable contributions, income, extraordinary business success and other matters. They might even show that Trump "is deeply involv[ed] in dealing with Russia[n] oligarchs", according to George Will.

Odds are the real potential for the real information, whatever it is, to be seen as problematic by voters is the real reason Trump has not released his returns:  he knows what is in them, and he knows how those facts match (or don't match) the many and varied claims he has made.

2. WHY IS IT IN THE PUBLIC INTEREST FOR THE PUBLIC TO BE ABLE TO REVIEW TRUMP'S TAX RETURNS?

a. Tax returns reveal the categories and amounts of income and losses that a candidate has reported.

Tax returns generally provide considerable information about how much income a taxpayer receives from various sources, or what activities have led a taxpayer to claim losses.  Those categories and amounts of income and loss paint a picture of the taxpayer-candidate that can substantiate the image the candidate is trying to project or undermine it, depending on how honest and trustworthy that candidate has been in his or her self-description.  If a candidate, like Trump, claims that he is qualified for the presidency because he is an enormously successful businessperson which has resulted in enormous wealth, then to the extent that tax returns reveal low income (even though there could be significant assets) that implies mediocrity or failure or much less wealth and business acumen than claimed, the candidate is revealed as untrustworthy, something that really matters to voters on the left and on the right, as evidenced by the growing distrust of "career" politicians.

Further, if a candidate's income is almost entirely from capital assets at the very low rate at which our tax rules currently tax income on capital, taxpayers can assess whether this person is actually capable of understanding the situations of ordinary taxpayers who work for a living rather than living off inherited wealth plus the kind of capital that builds on that inherited wealth, status, and connections.  Remember that Mitt Romney's returns showed a very low effective tax rate (less than 15%) , which resulted in part from his gaining much of his income from tax-favored work in a private equity firm for which compensation is not taxed at ordinary income rates as it is for most ordinary workers.

Moreover, if a candidate's income is primarily from being paid for essentially licensing the use of his name without any real work attached (as apparently was the case with the profits to Trump from the so-called "Trump University" that sold itself as representing his chosen experts and his business wisdom when he apparently did not select any of the experts and the "wisdom" was a ten-year-old publicly available real estate investment manual, see, e.g., Trump University Lawsuit Advances as Judge Curiel Deals Blow to Donald, Huffington Post, Aug. 2, 2016 ), that fact reveals something about a candidate's character and ability to carry out the arduous job of president.

Finally, Trump has represented himself as having "huge" amounts of income annually and said that his "sacrifice" matching a Muslim couple's loss of their son in service in the U.S. military is earning millions through having a hugely successful business.  (I'll leave readers to imagine what I think about Trump's ridiculously self-centered response to the Khan family's sacrifice).  If in fact Trump's returns show relatively smaller amounts of income and project less success than the "yuuge" success he claims, the public could rightly conclude that the candidate has misrepresented himself to them. If a candidate lies about his wealth and sources of income, what else might he lie about?

b. Tax returns reveal the candidate's charitable contribution record.

Trump has claimed often that he gives away a lot of money for good causes, yet most investigative journalism has produced very little evidence that the claim is true.  Trump had promised huge contributions from a January 2016 event he sponsored for veterans in place of participating in one of the primary debates, but didn't make his own promised $1 million contribution until late May after considerable pressure from the national press. See, e.g., At Least $1.9 MIllion in Donations Trump Collected For Vets Was Sent Last Week, NPR (May 31, 2016).  Some investigative reporting on Trump's foundation suggests that Trump and the foundation have a "pitiful" record when compared to other billionaires like Gates, Buffett, and Bloomberg.  See, e.g., Trump: The Least Charitable Billionaire, The Smoking Gun.com (Apr.12, 2011); Missing from Trump's list of charitable giving: His own personal cash, Washington Post (Apr. 10, 2016).  Such behavior raises legitimate doubts about his claims of generosity.

Tax returns include the taxpayer's claimed deductions for charitable contributions.    Does Trump give very little or 1% or 10% or more of his "yuuge" income to charity?  Tax returns will tell.

c.Tax returns show (if reported as required) if a taxpayer has income from overseas accounts.

Robert Willens mentioned this  in a Washington Post article as a potentially worrying thing for Trump: if he has "money parked overseas" he is supposed to disclose those accounts to the IRS.  For someone who has claimed that he wants to see money invested in America, it would be a clear indication that his actions speak louder than his words if in fact he has moved money overseas.

d. Tax returns reveal something about the taxpayer's willingness to push the boundaries of reasonable tax positions.

Most ordinary taxpayers have little room to engage in transactions designed to lower their taxes.  Most of us work at jobs where tax is withheld out of each paycheck, with a little more due or a little bit due back as a refund on filing.  We may have more or less in charitable contributions one year or have large medical expense deductions in another.  But we have neither the vast sums of money nor the expensive legal assistance to engage in transactions designed primarily to reduce our taxes.

Wealthy people routinely use sophisticated legal tax advice to get the lowest tax rates possible, to "milk the system to their advantage." Trump has bragged about doing so, of course, and that is not necessarily bad in itself.  But tax returns can reveal (though depending on the detail released, it may be hard to see) whether a candidate goes beyond reasonably prudent tax planning to participation in shelters. If a candidate who says we should be investing in the United States moves his wealth out of this country to avoid paying taxes to the country that made that wealth creation possible, voters should care.  If a candidate uses questionable tax dodges in his business or personal life, voters should care even more.  If a candidate has engaged in some of the bogus tax shelters pushed by aggressive shelter promoters, voters should be outraged.  If there is evidence that a candidate has submitted false information on a return (see new evidence that Trump Didn't Pay Taxes, Drudge Report (June 15, 2016) (reporting on two tax appeals lost by Trump in the 1990s in which (i) he claimed expenses but not related income and (ii) apparently filed a return signed by someone who stated he had not prepared the return), voters should care deeply about what that  would mean in the office of the President.

 *********

In conclusion:

It's worth remembering that Trump's position during the 2012 campaign was that Romney should release his tax returns and that he, Trump, would have no problem doing so because "it's a great thing when you can show that you've been successful, and that you've made a lot of money, that you've employed a lot of people.  I actually think that it's a positive." (See the video at this link for this January 30, 2012 Fox & Friends statement by Trump.)

 

 Back in the 2012 campaign, he also said he would (maybe) release his tax returns when Obama released his birth certificate. (See the video below for this interview with Stephanopoulos.)  Beyond the fact that such a condition (a sitting President's release of a second, full-form birth certificate) is irrelevant to the release of tax returns, of course, Obama did release his full long-form birth certificate to quell the stupid controversy Trump manufactured out of thin air, so that excuse is just as flimsy as every other one.  Trump hasn't released his tax returns.

 

  When push comes to shove and it is Trump's turn to release his returns, he has come up with only flimsy excuses and bombast.  He's clearly depending on his campaign methodology of attacking all those who press him on issues and defying common rules of courtesy to carry him through.  Voters shouldn't buy it.  We can learn a lot about a candidate from reviewing his tax returns, and what we learn is very relevant to that person's qualifications for the presidency.  If Trump doesn't release those returns soon, it leaves us to assume that there is something really negative in them in respect of the picture he has tried to project of himself as a successful, wealthy, and generous businessman who can get things done.

Addendum:  Worth noting on this topic is Michelle Ye Hee Lee's August 1, 2016 article in the Washington Post, What we know about Donald Trump and his taxes so far.   It includes some information from the 1970s and 1980-90s (including the two tax cases mentioned above).

Related articles

Donald Trump and the Pitfalls of Anti-Intellectualism

Don’t count on a Republican presidency to help you out in your everyday life

Romney's Failure to Release Tax Returns and His Tendency to Misstatements of Fact

This is election day.  We decide today whether to give President Obama another four years to complete the turnaround from the budgetary mayhem and Great Recession created in large part by the "Cut Taxes for the Wealthy and Spend on the Military" policies of George W. Bush. 

Romney hopes that instead we will trust his know-it-all posture of noblesse oblige--the wealthy guy  who claims, without specifics, that because he got rich (at a vulture capitalist enterprise where he enjoyed firing people), he simply "knows how" to take care of the economy.  Taking care of the economy, of course, means that he will cut taxes even more (especially for the wealthy) (yet claim to balance the budget, without giving us specifics); spend even more (like by increasing military expenditures and perhaps even getting us into another war, this time with Iran);  privatize (he calls it "reform") Social Security and Medicare so the big banks can make the profits and the vulnerable elderly can be left paying for more of their already outpriced medical care and having even less retirement income with which to do so.  Romney bases it all on his vulture capitalism experience of making millions supported by government tax subsidies (the preferential rate for carried interest compensation income) and government risk-underwriting (the preferential treatment of financial institutions, and thereby the lower costs of funds for those engaging in the financialized economy's "enterprises" such as hedge and privatge equity funds), combined with the use of "other people's money" in the way private equity uses debt, not the fund managers' actual funds, to buy the businesses and pay themselves big profits whether the businesses succeed or go bankrupt (and no matter whether the workers are mostly fired and their jobs outsourced to other countries).  Remember that Romney is the guy that enjoys firing people. 

He wants us to trust him on all that, with no specifics that might allow people to understand that his program can't work, just like he thinks we should trust him on what we know about his taxes from the pitiful two returns that he provided.  He knows he didn't provide enough for us to assess a good bit about his return:  passive versus active income requires more years to assess; hobby losses versus business deductions require more years to assess; and of course use of shelters is made much clearer when you've got more years to look at.  (And if he engaged in the voluntary disclosure program for his offshore account, he certainly wouldn't want anyone to know about that.)  Trust him for his "I know how to do that" bragging, when he won't even release 10 years of tax returns like every other candidate?  That says it all.

Well, maybe it doesn't say quite all.  There's the little matter of how often his campaigning has slipped away from the facts.  The truth, it seems, doesn't matter much to "etch-a-sketch" Romney.  The campaign seems to think it can gloss over, or simply state the opposite of the facts frequently enough and pull the wool over enough voters' eyes to win the election.  See Kevin M. Kruse, The Real Loser: Truth, New York Times (Nov. 6, 2012), at A25.

PolitiFact has chronicled 19 “pants on fire” lies by Mr. Romney and 7 by Mr. Obama since 2007, but Mr. Romney’s whoppers have been qualitatively far worse: the “apology tour,” the “government takeover of health care,” the “$4,000 tax hike on middle class families,” the gutting of welfare-to-work rules, the shipment by Chrysler of jobs from Ohio to China. Said one of his pollsters, Neil Newhouse, “We’re not going to let our campaign be dictated by fact checkers.”

... [N]othing in [the Obama campaign] — or in past campaigns, for that matter — has equaled the efforts of the Romney campaign in this realm. Its fundamental disdain for facts is something wholly new.

 

Tax Questions about the Romney-Ryan Ticket--from Romney's Tax Returns to Ryan's Vouchercare

As the election approaches, I find myself asking what concerns me most about the Romney-Ryan ticket.  There's a lot.

1. Rommey's disparaging comment about "the 47%".

Romney treated the vulnerable elderly, those still unemployed who were left jobless by Bush's "Great Recession", and the vast majority of the bottom three quintiles of the income distribution for which the standard deduction and personal exemption are INTENDED to ensure they don't have to pay an income tax as though they were all deadbeats who had not sense of personal responsibility and just wanted a government handout.  Remember that the income tax is just one piece of the federal tax system--payroll taxes take a significant bite out of low income taxpayers' income, and they usually have state income taxes and sales taxes (which are highly regressive) as well.  Romney's disdain for this group--and his assumption that he needn't bother to think about them--augers ill for the future of a Romney-Ryan administration.  We would take a significant step closer to rule by oligarchs, if we put oligarchs into the presidency who don't even recognize how their wealth and status has been achieved at the cost of ordinary folk.

2. Romney's refusal to release additional tax returns

Romney has simply stonewalled on information of direct relevance to a Romney presidency.  This is bad for two reasons. 

First, it suggests that he would serve as president with the same arrogant view of himself as the one who decides what the people need to know and the same arrogant notion that he got where he did on his own "merit" rather than on the foundation of years of wealth, prestige and status with a large helping of government support for his father's industry (roads are built free of charge to auto manufacturers, and what should be their primary competitors--public passenger railroads--are starved by the GOP in Congress to the point that they can't keep schedules because of being shoved aside by the freight owners of the rails they run on). 

Second, it suggests that there is likely information in those returns that would reflect poorly on him as president.  Even more use of offshore tax havens?  More questionable use of trusts to hide who owns what or where it is?  Failure to report offshore financial assets (that could be the basis for a criminal charge) until participation in the "voluntary disclosure initiative"?  

How can we expect a Romney-Ryan administration to deal appropriately with the obscene "carried interest" provision when he is ashamed of revealing the returns that benefitted him and his donors so magnificently from it?  How can we expect a Romney-Ryan administration to take the fair stand taken by President Reagan's administration on capital gains taxes--in the 1986 reform act under Reagan, the preferential rate that has benefitted Romney and Ryan so enormously and given them much of their wealth was eliminated!

This willingness to stonewall around relevant information and the potential that the information that isn't being disclosed would at least reflect poorly on him suggests that as president he would similarly engage.  Would Romney be another Bush who pushed for preemptive war in Iraq without adequate planning, without regard to the long-term costs, without regard even for a just rationale because of his willingness to railroad everyone to adopt the neo-con approach of loving warfare?  Romney's type of secrecy could easily allow for manipulation of public information to the extent that we are led down another blinder-gate like the Iraq war.

3.  Romney and Ryan's various positions on privatization and/or reduction of benefits under social safety net programs like Social Security and Medicare and Medicaid.

Ryan has made no bones about where he stands--he condemns earned-benefit programs, likely because he never expects to need them (and, after all, Congress has had marvelous health care for itself all these years).  Romney has waffled as he has with every policy, depending on the audience and the stakes, but his core "market fundamentalism" (as revealed by item 1) makes clear where he really stands--privatization and voucherization and benefit cutbacks and program decimation for programs like Medicaid (under the guise of "federalism") would be the future under a Romney-Ryan administration.  Our economy cannot be sustained that way.

4. Attitudes towards inequality, lack of progressivity in the tax system.

One of the most worrisome aspects of a Romney-Ryan presidency would be the lack of concern about the growth of inequality in this country and its disastrous impact on broad-based economic growth and a sustainable democracy.  The far-right GOP from which Ryan springs and which supported Romney's candidacy extols market fundamentalism above all else, celebrates wealth no matter how acquired or at what cost to society, and disregards the decline in the middle class that has been a direct result of the dominance of market fundamentalist policies over the last four decades.  Deregulation, privatization, militarization, the celebration of greed and tax cuts for the wealthy and big corporations are the cornerstones of the new right-wing consensus. 

Those are also the policies that gave us the financialization of the economy, the decimation of U.S.-based manufacturing through our subsidizing of the movement of active businesses offshore, and ultimately the Great Recession and the loss to ordinary Americans of most of their savings represented by the value of their homes.  Bush and his Treasury secretary Paulson took measures to save the big banks, but they didn't put the kinds of conditions on those savings measures that would have gone a long way to ameliorating the impact of the Great Recession--such as requiring clawbacks of mortgage loans in bankruptcy and other measures to prevent the foreclosure crisis that has driven honest, hardworking Americans from their homes. 

 Romney-Ryan and the far-right political machine funded by Sheldon Adelson, Charles and David Koch and their one-percenter peers will simply reinstate the Bush tax-cuts-for-the-rich and damn-the-rest policies.  Under Romney-Ryan, we can expect elimination of the estate tax, which will increase the budget deficit while adding to the enormous inequality gap and allowing multibillionaires to pass their wealth to heirs who do nothing to earn it free of any tax ever (most such estates haven't been taxed on their appreciation during the lifetimes of the decedent, and won't be taxed on death, and won't be taxed to the beneficiary either).  We can expect elimination of any taxes on income from capital, so that the oligarchs will bear none of the tax burden on their primary source of income.  Spending on public infrastructure and safety net programs will cease (as military spending continues to expand to fund the oligarchs who own the military-industrial complex).  Progressive tax rates, which have been steadily reduced to a flatter structure, will likely disappear, replaced by a regressive VAT or by a flat structure that puts more of the tax burden on the middle and lower income groups and much much less on the oligarchs.  Corporate taxes will continue to decrease, as a way of rewarding the multinationals who fund GOP political power and the oligarchs who manage and own the corporate giants.  Wages of workers will accordingly continue to languish.  Corporatism and class warfare will win the day, and ordinary Americans will bear the brunt of it.

This is not a pretty picture.  It is the reason I find the Romney-Ryan ticket such a worrisome prospect for our future.

Romney's Tax (Mis)Calculations: if your two and two don't add to four, pretend the laffer curve gives you more

Anybody watching last night's presidential debate surely became aware at some point that Romney's so-called "plan" for economic growth is an empty shell based on the idea that he's made money for himself so he knows how to run a country. 

Romney's plan is pure market fundamentalism--a mistaken view that the "market" will take care of all problems and vigorously grow to elevate everyone's livelihood just so long as government regulators stay out of the business of regulating and allow business owners and managers (particularly huge multinational corporate owners and managers) to do whatever they want, including fire workers, outsource business assets, and engage in complex schemes to turn tax laws into tax avoidance bonanzas.  Oh, and the government should provide all kinds of subsidies to aid those businesses at minimal or no (tax) cost--from interstate roadways to easy rights to exploit national lands owned by the public; from localo fire protection to federally funded international security; from state-based contract protection to federal courts that provide handy forum choices to the wealthy and big corporations; from state and local property tax exemptions and waivers to federal intellectual property rights that provide monopoly power and stifle innovation (exactly the opposite of the Founders' dream).

And when Romney claims that he can "simplify" the tax system and lower everyone's rates without increasing the deficit, reducing the taxes paid by the upper crust, or increasing the taxes paid by the middle class, while at the same time increasing the military budget and striking more threatening poses a la the Bush neo-cons on Iran?  That's gibberish, as many respected studies have shown.

So to his rescue comes one of those propaganda tanks in the guise of an intellectual "institute"--the Institute for Policy Innovation (IPI).  The Institute puts out a "Tax Bytes" newsletter/blogpost supporting right-wing, market fundamentalist, Friedman-lite tax policies.  Not surprisingly, the Institute is sanguine about making a Reagan-style across-the-board rate reduction program work even in an economy that is still in transition back from the brink that the Bush market fundamentalist tax and fiscal policies put us in.  That is,  in spite of the fact that Romney-Ryan stand for things like making the Bush tax cuts permanent, eliminating the estate tax, maintaining the preferential rate structure for capital gains and carried interest, and even extending that very low rate preference to all other capital income (like interest) for those earning less than $200,000 (who don't have much capital income to worry about though, since the vast majority of it goes to the people in the very top 5% who make millions, not thousands)--the Institute says "increased private sector growth" will make the plan work.  See "Of Course It Can Work", IPI, TaxBytes 9.25 (October 17, 2012).  That's just the Laffer Curve idea at its worst--the wacky concept that when you cut taxes, there will be more tax revenues because of all the wonderful things that a self-regulated market does for economies.     

So IPI thinks you can cut government revenues even more than Bush did (when the Bush tax cuts of 2001-2003-2004 (and the rest) amounted to about one-third of the cause of the Great Recession).  It buys into the fairy tale that has been used by the far right to justify obstructionist, non-realistic policy positions and that has created the fiscal debacle we are still climbing out of.  That fairy tale is the market fundamentalist "pie in the sky" concept that broad economic growth can be magically generated just by letting the rich continue to get richer even if the middle class is falling into poverty and infrastructure is crumbling. 

Romney shows he's a "know-it-all" who has no real ideas at all

I missed almost all of the first debate but watched most of this one.  My quick sum-up of the action was the Obama was straightforward, prepared, and much more energetic than in the first debate.  While I don't think he has been a great president, he has nonetheless acted on a number of matters in ways that move us away from the disastrous policies of the Bush years--fairer immigration actions, more interest in the middle class and jobs, wise action to save the auto industry when Romney would have allowed one of the midwest's major industries to rot on the vine, attempting to move the corporate tax debate away from giveaways for the multinationals and towards more reasonable tax policies, movement on health care reform (though still not towards the single-payer option that we must eventually embrace), movement on financial institution reform through Dodd-Frank (though still not sufficient control of the financialization of the economy).

Romney, quite frankly, came across as an arrogant shell who doesn't have any substance underneath the expensive coif of hair and Armani suit.  He constantly blames Obama for the Great Recession that stemmed directly from the failed Bush economic policies favored by the Republican party's right wing, the same policies that Romney and Ryan want to re-install if they take over the White House.  He consistently fails to acknowledge that the deficits under Obama were temporary ones caused by the trillions of dollars of unnecessary Bush individual and corporate tax cuts, the Bush preemptive wars, the class warfare of tax policies that favor the 1%, privatization of education and the militaryh, and the financialization of the economy egged on under Bush by the right's misguided views of "free" trade (meaning business can run over the workers and the environment at will and pay less taxes even while causing more societal harm).  Romney (as Obama noted in the debate tonight) goes George W. Bush even further--he would ruin Medicare by turning it into "voucher-care" that was insufficient to meet vulnerable seniors' needs, and he would destroy Social Security by privatizing it so that seniors are at the whim of the stock market and Wall Street traders for their very livelihood.

Yet this guy born with a silver spoon in his mouth and with a family of connections to power really thinks that he got where he is on his own!  What a laugh.  And then he thinks that he can bamboozle the American people by saying "I know how to do that" about creating jobs, getting rid of the deficit, creating growth, solving immigration, making us "energy dependent in 8 or 5 years" and everything else he can promise us.  But he doesn't think he has to bother to tell us anything about how he will do that.  Often when asked specific questions, he fell back on his "The last four years with Obama have been awful and I feel your pain" absurdity,   His claim of empathy with the ordinary folks asking questions in the audience was absurd because one only has to harken back to that tape of his disdain for the 47%--and his arrogant view that anyone in that group was dependent on government and unwilling to take personal responsibility for themselves--to know that he doesn't really give a damn about ordinary folk like those in the audience tonight.  He'd follow that with another claim that he would fix everything because "I know how to do that", yet in every instance there was nary a specific word about  exactly what he would do.  

 One thing is for sure--Romney's view that cutting tax rates across the board by 20% will jump-start the economy is "nonsense", as even conservative GOP economist Bruce Bartlett acknowledges.  See Bruce Bartlett, Romney's Tax Plan and Economic Growth, Economix Blog, New York Times (Oct. 16, 2012) (statng that "the idea that tax reform will jump-start an economy suffering from the after-effects of a cyclical downturn is nonsense" and concluding that "even if Mr. Romney’s plan is enacted as proposed the growth effect will be small to nonexistent").

On taxes, Romney now claims that he will not cut the amount of taxes paid by the top 5% but will give everybody else a tax cut.  Note that isn't the same that he has said for months on end, when he made clear that everybody would get the same 20% rate reduction (which would give the wealthy a huge dollar cut, and the middle class a piddling cut) and mocked Obama for wanting to hold the upper-crust more accountable for helping reduce the deficit.  He claims he'll not increase the deficit, even though he wants to cut taxes and eliminate the estate tax and increase military spending.  He won't say what deductions he'll cut or what protections for the poor he'll keep.  He claims the numbers add up but won't tell us what the numbers are.   I think it's perfectly clear:  he won't say how he can do that in a revenue-neutral way because it can't be done.  The New York Times editorial yesterday chimed into the growing list of reputable organizations asserting that his numbers simply don't add up, noting "the many deceptions in the campaign’s blue-sky promises of low taxes and instant growth."  See Editorial, Mitt Romney Needs a Working Calculator, New York Times (Oct. 15, 2012). 

[The Joint Committee on Taxation] asked its staff what would happen if Congress repealed the biggest tax deductions and loopholes and used the new revenue to lower tax rates. The staff started adding it up: end all itemized deductions, tax capital gains and dividends as ordinary income, and tax the interest on state and local bonds, along with several other revenue-raisers.

The answer came last week: ending all those deductions would only produce enough revenue to lower tax rates by 4 percent. 

Mitt Romney says he can lower tax rates by 20 percent and pay for it by ending deductions. The joint committee’s math makes it clear that that is impossible. Id.

Note that Romney doesn't intend to tax dividends and capital gains at the same ordinary income rate that us ordinary folks pay on our compensation income, so he wouldn't even get to a 4% reduction in rates with his version of tax "simplification."  He wants to keep allowing people like him to get a tax-advantaged "preferential rate" on carried interest that they get as their compensation in vulture capital "private equity" funds that buy up American businesses and load them with debt and offshore their jobs.  He wants to keep taxing capital gains and dividends at the ridiculously low rates achieved by the Bush tax cuts that were a major factor in driving us from surplus to deficit.  He even wants to cut capital gains and dividend and interest tax rates to zero for those making less than $200,000.  (Of course, that group doesn't have much of that kind of capital income--it is mostly the province of the very rich at the top.  One suspects the rate cut for the upper middle class that would apply to is just a prelude, like most of the Bush-era tax cuts, to a Republican push to eliminate taxes entirely on capital income, which Romney and Ryan have supported in the past.)  He wants to cut taxes for the huge multinational corporations and encourage them to continue moving our jobs offshore.

There is no way that such a tax policy makes sense for America.  It will let the rich get richer, when we are already at a point where the middle class is shrinking because of the way big business has grabbed all the productivity gains for the managers and owners and left ordinary workers hanging out to dry.

Reaganomics--with its push for privatization, tax cuts, militarization, and deregulation--stabbed at the heart of the US economy.  The Bush tax cuts drove us from surplus to deficit in one fell swoop and set the stage for the Republican obstructionist games that have gone on during the four years of the Obama administration, in which the radical right GOP has cared more about pushing for extremist policies beneficial to the wealthy and the big corporations they run rather than considering what is good for the country.  Romneyomics would be even worse--right-wing market fundamentalism at its most extreme, with the rich making off like bandits and the rest of us left to scramble for crumbs. Surely the American folk aren't going to buy this idea of rehashing the very ideas that got us into the Great Recession mess from the guy who says "I know how to run the country because I got rich as a vulture capitalist". 

Romer's deficit reduction suggestions worth a read

Christina Romer's recent piece in the New York Times is worth reading.  See C.D. Romer, Cutting the Deficit, with Compassion, New York Times at BU5 (Sept. 9, 2012).

Now, I generally have found Romer too willing to advocate austerity economics and too unwilling to support progressive tax policies.  But nonetheless, this piece hits some good notes.  For example, while arguing that reducing the deficit needs to be a priority, she acknowledges that it must be done "in a way that does as little harm as possible to people, jobs and economic opportunity."  Similarly, she recognizes that requires going slowly--" a comprehensive, aggressive deficit reduction plan [should be passed] as soon as possible, but the actual spending cuts and tax increases should be phased in as the economy recovers."  Why?  Because "[a] crude rule of thumb is that every $100 billion of deficit reduction will cost close to a million jobs in the near term."  A big price to pay that makes it reasonable to consider not only LONG-TERM deficit reduction plans but also SHORT-TERM job creation measures.

ASIDE:  And in case you wonder, tax cuts for the wealthiest amongst us, as advocated by the Romney-Ryan team--are NOT job creation measures.  The Romney-Ryan budget proposes to achieve revenue neutrality, huge tax cuts for the rich, and no tax cuts for the middle class by not proposing any specifics.  The reality is that the Romney-Ryan plan is just politico-wishspeaking:  there is no plan that will do what they claim, because they depend on the now-well-disproven idea that huge tax cuts for the wealthy will generate more tax revenues while creating more jobs.  Nope.  Neither likely nor even possible.  And by not specifying what they'd cut, they are merely trying to fool the people.

Here are what Romer proposes, with some commentary:

1) tax credits for businesses that actually increase employment

Not a bad idea to replace the endless suggestions of business tax cuts, but any accountability will have to be long-term--i.e., payroll will have to increase over a period of 2 years and the particular jobs created will have to stay in place for at least 2 years before any tax reward should be available

2) "well-designed tax reform that raises at least some additional revenue" and "let[s] the Bush tax cuts expire for those earning more than $250,000 a year [while] [i]ncreasing rates on top earners" and "lowering tax expenditures" including "the low tax rate on capital gains and dividends"

Hmmmm.The clarion call for tax reform has consistently been used by DC lobbyists to push for tax CUTS for the wealthy and big business.  It is not so clear that we need a huge tax reform.  What is usually meant by tax reform is "simplification," which is just another way to justify unneeded tax cuts  .We do not need to cut the corporate tax rate.  We do not need to reduce tax regulations. 

 But I do agree with Romer's notion that we need some tax increases.  My preference would be to allow the entire panoply of Bush tax cuts--passed by a Congress that unfortunately and wrongly believed the Laffer lie that cutting taxes would increase revenues--to expire as the Republicans originally purported to intend.  Let the sunset happen.  And then come next year, think about what, if any, of the cuts make sense. Perhaps a cut to the income tax rates of those who make less than $100,000 a year.  But an increase for those that make more than that, and a significant increase for the top two quintiles, would be in order.  We should raise rates on the wealthiest by creating additional tax brackets for those making 500,000 to a million, 1-2 million, 2-10 million, and above 10 million.   We could reasonably examine the many tax expenditures/subsidies in the Code and begin to cut back on them--starting with the capital gains rate preference, and moving through the exorbitant support for wealthy mortgages (limit it to an interest deduction on the first $250,000 of mortgage interest and phase that out for anyone with an income above $500,000) and including the R&D credit (rather than deduction), the "active financing exception" and the subsidy for moving active businesses offshore (and along with that, eliminating any idea that there is such a thing as a "profits" partner who isn't taxed on a "transfer" of a partnership interest at the time the interest is provided).

3) slowing spending growth for government health care spending- by reducing overpayments to health care providers (as the $716 billion cut misrepresented by the GOP does); by increasing those cost-cutting reforms to find other ways that we are inefficient; by "making the wealthy pay a larger share of their Medicare costs and gradually raising the Medicare eligibility age"

Here we see the problem that no one in government dares to say what must be said--that until we move to a single-payer system like the rest of the advanced world, we will see private parties continuing to rip off rent profits from providing health care.  We must eventually expand to "medicare for all"--and we should do that soon.  In the transition, it would be reasonable to have a means-adjusted payment scale, so that the Medicare tax is higher for those with more income (corresponding to the increased brackets for the income tax).  And it might be reasonable to have a few major categories of jobs for determining base retirement age--workers in steel plants who work in 115 degree interiors when it is 90+ degrees outside likely should retire earlier than workers in academia who work at their desks in air-conditioned offices.  But that won't be easy and will need to be developed by consensus over some reasonable time, rather than through partisan, anti-worker politics.

4) cut other spending--protecting children, displaced workers, and wounded veterans in the process,as well as money for education (including Pell grants) and infrastructure and scientific research--but cutting "agricultural price supports and subsidized crop insurance programs that mainly benefit large commercial farmers," the Pentagon's budget, and high-speed rail.

We certainly can cut a lot of waste and warmongering out of the Pentagon's budget, which is one reason that I'm all for letting the sequester approved by Republicans go through.  We could save a great deal there that could be used for infrastructure and other spending that builds opportunities and jobs instead of supporting the military-industrial complex.  I'd also support  cutting most of the agricultural subsidies, which primarily support Agribusiness that produces tasteless food at a high environmental cost.  But I disagree strongly on high-speed rail.  If we don't as a nation invest in transportation infrastructure that moves us beyond the costly highways (costly in human lives, dollars to build and maintain, and environmental degradation), we will not advance our economy as we must.

 

Paul Ryan's tax and other lies

It's interesting that Paul Ryan is being cast by the GOP and the media as an intellectual who is sharp with numbers and that rare breed--a truth-telling politician.  Too bad none of it is true.

Ryan is an Ayn Rand devotee who somehow failed to recognize the anarchism and me-ism of the Randian philosophy.  He's a scion of a wealthy family who pretends that his short stints at humble jobs like waiting tables were the same as what the disadvantaged suffer when they are stuck in dead-end jobs and have no recourse to a wealthy family to create new opportunities. 

And he is a person who has devised plans that privatize and cut Medicare benefits for the most vulnerable, leaving them to pay more and more out of pocket over time while cutting taxes for the wealthiest--eliminating the estate tax to hand billions more of windfall dollars to heirs that do nothing to earn them; eliminating capital gains taxes entirely to hand billions of dollars to the weallthiest few who own most of the financial assets and passing the burden of supporting important government programs to the middle class. 

Joan Walsh's article in Salon is worth reading, Paul Ryan's Brazen Lies, Salon (Aug. 29, 2012).

IRS goofing on foreign trust letters, says AICPA

The American Institute of CPAs (AICPA) is asking the IRS Commissioner to resolve what it suggests is a "widespread problem" for taxpayers.  Download AICPA Letter to IRS on Erroneous Form 3520 Letters to Taxapyers.082812.   For 2010 and earlier years, the IRS apparently has made a wide range of systemic mistakes in processing the form required to be filed annually by owners of a foreign trust--Forms 3520, the Annual Return to Report Transactions with Foreign Trusts and REceipt of Certain Foreign Gifts.

  The AICPA reports errors including:

• instructions to fill out Part II about ownership of a foreign trust, when the taxpayer is not the owner of a foreign grantor trust;
• instructions to provide additional information required when a taxpayer answers a question "yes" when the question on the form was answered "no";
• instructions to provide identifying information required to be submitted when the information was already submitted; and
• insturctions to provide an explanatory statementwhen such statement was already submitted.

This looks like one of those kinds of things that happen when staffing at a government agency is reduced beyond what is reasonable for the kinds of tasks that have to be carried out.  Query--isn't it likely that the right's  (and now officially the GOP's) drive to reduce staffing at all levels of government agencies (except, of course, for the right's pet project, expansion of the military) likely to increase the headaches for ordinary citizens because those government agencies simply won't be able to get their jobs done well with the reduced staffing and morale problems that will cause?