The 1996 Defense of Marriage Act (DOMA) was not primarily a tax law but it certainly affects the federal taxes that same-sex couples pay. In fact, taxes are the basis for the second of the two cases concerning same-sex marriage that the Supreme Court will hear this week.
Although the federal government generally recognizes state laws concerning marriage, DOMA requires the federal tax code treat all same-sex couples as unmarried. That standard applies to both the estate tax and the income tax. While the Supreme Court will be reviewing an estate tax case, Windsor v. United States, its ruling will likely affect both taxes.
The estate tax issue is this: Under DOMA, same-sex couples cannot take advantage of the unlimited deduction for bequests to spouses or share the doubled exemption that benefits federally-defined married couples.
New Yorkers Thea Clara Spyer and Edith Windsor married in Toronto in 2007 because their home state didn’t allow same-sex marriage. New York did recognize their status when Thea died two years later, but the IRS didn’t. It denied Clara the estate tax’s spousal exemption, resulting in a tax bill of more than $360,000. Lower courts subsequently ruled that denial unconstitutional and the federal government has appealed. In an extra twist, the Justice Department is not arguing the appeal—the House of Representatives is making the case. ( Continue… )
Automatic enrollment is slowly gaining steam as the choice strategy to encourage retirement saving. A bold plan in California would eventually make the practice widespread and could revolutionize the state’s saving landscape.
Last September, the California legislature approved a framework for automatically enrolling private-sector workers in a retirement savings plan. Employers with more than five workers would have to offer a workplace retirement plan, automatically enroll employees in the newly established California Secure Choice Retirement Savings Plan (SCP), or face a fine. Workers enrolled in SCP would automatically contribute 3 percent of their pay to an IRA-like account unless they opted out; like an IRA, benefits would be based on account contributions and investment returns. Employers are only required to set up the plan, not to contribute to the account, and there is no explicit cost to taxpayers.
A third-party—either a private firm or California’s pension administrator (CALPERS)—would administer the plan, investing no more than half the pooled funds in equities. (A private administrator may be the superior option given CALPERS’ recent history of fraud and mismanagement.) Annual administrative expenses would be limited to one percent of fund assets. The framework also calls for a guaranteed return, although the details have yet to be ironed out.
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The plan is a long way from becoming a reality. The framework calls for further study of the plan’s feasibility and costs, and additional legislation will be needed to turn the idea into policy. In addition, the IRS and Department of Labor must still rule on the legality of some of the details. ( Continue… )
The Senate Democrats’ budget, like the House version, rips unfair and inefficient tax preferences that litter the revenue code. But the tax provisions of the Senate budget, which is being debated on the floor today, raise at least two big problems: They see flaws in only in those tax expenditures that benefit high-income households and big businesses. And while the fiscal plan promises to raise taxes on big business and the rich by $975 billion over 10 years, it tells us almost nothing about how.
There is a reason for that lack of detail: Raising nearly $1 trillion by eliminating tax preferences for some businesses and a tiny slice of households is very hard to do. Not impossible, perhaps, but very hard.
The Budget panel’s 345-page committee report describes its revenue aims in exactly six paragraphs (pg. 138 if you are following at home). In sum:
“Eliminating loopholes and cutting unfair and inefficient spending in the tax code for the wealthiest Americans and biggest corporations must be a significant element of a balanced and responsible deficit reduction plan….It is the clear intent of the Committee…that the savings found by eliminating loopholes and cutting unfair and inefficient spending in the tax code not increase tax burdens on middle-class families or the most vulnerable Americans.” ( Continue… )
f you’re discussing tax policy with someone who asserts that his or her point is “just common sense,” this could indicate one of two things: Either no deep thought is required—as the person would have you believe. Or no deep thought has been applied.
The “common sense” notion that capital income taxes hinder growth seems to be more a case of the latter.
Long term capital gains are taxed only when the asset is sold and at roughly half the rate on wages and salaries. Dare to suggest that the rate on investment profits could be raised a bit—so that perhaps the rate on labor income could lowered—and you’re liable to be reprimanded for failing to understand something as plain as the nose on your face: To tax capital income is to tax the reward for saving and thus to discourage saving. Less saving means less investment and less investment means slower growth, fewer jobs, and lower wages.
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Everyone knows that.
Everyone, that is, except the people who study the issue. ( Continue… )
House Budget Committee Chair Paul Ryan’s (R-WI) fiscal plan promises to balance the federal budget in 10 years, make major cuts in income tax rates for both individuals and corporations, and raise the same amount of revenue as current law. If House Republicans want to do all three, they will have to eliminate trillions of dollars in popular tax preferences.
The Tax Policy Center estimates that cutting individual rates to 10 percent and 25 percent, repealing the Alternative Minimum Tax and the tax increases included in the Affordable Care Act, and cutting the corporate rate from 35 percent to 25 percent would add $5.7 trillion to the deficit over the next decade. Thus, if House Republicans want to cut these taxes and still collect the revenues they promise, they’d have to raise other taxes by $5.7 trillion.
The tax cuts described in Ryan’s budget would generate a huge windfall for high-income taxpayers. On average, households would get a cut of $3,000. But those in the top 0.1 percent of income, who make $3.3 million or more, would get a whopping $1.2 million on average–a 20 percent increase in their after-tax income.
By contrast, middle-income households would get an average tax cut of about $900. Those in the bottom 20 percent (who make $22,000 or less) would get $40 and one-third of them would get no tax cut at all. ( Continue… )
Looking for a way to improve the operation of the economy, lower our dependence on foreign oil, reduce pollution, slow global warming, cut government spending, and decrease the long-term budget deficit? Then you should support a carbon tax, which could help the nation address all these issues simultaneously. A new paper I’ve written with Samuel Brown and Fernando Saltiel, Carbon Taxes as Part of the Fiscal Solution, argues the tax would even be a good idea if we didn’t have a budget problem.
Although a carbon tax would be new for the U.S. government, it already has been implemented in several European countries (though not always in the manner advocated by economists), Australia, and three Canadian provinces. California recently initiated a cap-and-trade system, which auctions carbon permits to companies and functions much like a tax.
A carbon tax makes good economic sense: Unlike most taxes, it can correct a market failure and make the economy more efficient. Although there are substantial benefits from energy consumption, there are also big societal costs that people don’t pay for when they produce and consume energy – including air and water pollution, road congestion, and climate change. Since buyers of fossil fuels don’t directly bear many of these costs, they ignore them when they decide how much and what kind of energy to buy. And that results in too much consumption and production of these fuels. Economists have long recommended a tax on fossil fuel energy sources as an efficient way to address this problem.
A carbon tax could significantly reduce emissions. Tufts University economist Gilbert Metcalf estimated that a $15 per ton tax on CO2 emissions that rises over time would reduce greenhouse gas emissions by 14 percent.Another study estimated that the European countries’ carbon taxes have reduced emissions significantly. ( Continue… )
House Budget Committee Chair Paul Ryan (R-WI) has proposed a controversial plan to balance the budget in 10 years, entirely by cutting planned spending by $4.6 trillion. While Ryan includes lots of specific spending cuts, his tax agenda is far less clear.
In some respects, the former GOP vice presidential candidate mimics the tactics of the 2012 campaign: Promise tax reform built around wildly ambitious but gauzy rate reductions without a word about how to pay for them.
His plan aspires to collapse today’s seven-bracket individual income tax to a two-rate system that would raise the same amount of money as current law. It would set a top rate of 25 percent, down from today’s 39.6 percent, though it calls this merely a goal. He’d repeal the Alternative Minimum Tax and slash the corporate rate from 35 percent to 25 percent. He’d do all this while maintaining revenues at levels projected in the Congressional Budget Office baseline—19.1 percent of Gross Domestic Product in 2023.
Interestingly, this 19.1% target assumes a revenue base that includes the tax hikes on high income households from Obamacare and the New Year’s Day fiscal cliff deal (the American Tax Relief Act). ( Continue… )
States trying to decide whether to expand their Medicaid programs to cover more low-income uninsured might want to take a look at the fate of a more obscure federal program—cash subsidies to state and local governments that sell certain kinds of bonds, especially Build America Bonds.
If they do, they’ll see what happens to a federal promise of aid when that commitment gets caught up in bigger fiscal issues.
For months, states have been mulling the Medicaid expansion–one of the most controversial provisions of the 2010 Affordable Care Act. Obamacare made what sounded like an offer governors couldn’t refuse: Agree to cover 16 million more low-income people under Medicaid and the feds will pick up the full cost of the expansion from 2014 through 2016 and pay 90 percent through 2020.
Bubbling just beneath the surface of the debate over whether states should take the deal is an issue of trust: Would the feds keep their part of the bargain? After all, there is nothing in the ACA to prevent a future Congress from reneging on this promise and, as part of a deficit cutting agreement, slashing the federal contribution to, say, 75 percent. That’s still a better deal than the usual federal Medicaid match that averages about 60 percent, but lots less generous than 90 percent. ( Continue… )
Changing the way government adjusts spending and taxes for inflation is one of those issues that continues to hang around the edges of the budget debate. Republicans and many economists argue for shifting to a more accurate inflation measure, called the chained Consumer Price Index (CPI). President Obama would support a version as part of a fiscal grand bargain. Because Social Security benefits would likely grow more slowly under this measure, many Democrats and social insurance advocates strongly oppose the idea.
But a new Congressional Budget Office estimate shows fiscal effects that chained CPI backers might not want to see. It turns out that shifting to the new inflation measure would raise taxes by nearly as much as it would slow Social Security spending over the next decade. Indeed, after 2021, the adjustment would raise taxes more than it would cut projected Social Security benefits.
CBO figures chained CPI would raise taxes by nearly $124 billion over 10 years. It would reduce projected Social Security spending by $127 billion and cut planned spending for all programs by a total of $216 billion. Note that CBO counts a nearly $18 billion cut in refundable tax credits as a spending reduction. If you prefer to include it among the tax hikes, the overall revenue increase would reach $142 billion over 10 years.
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Back in 2011, the Tax Policy Center figured the shift would raise taxes by an average of about $140 per household. Most households within a vast income range (from $20,000 to $200,000) would see their after-tax income fall by about 0.2 percent on average. Those making more would see their incomes drop by about half as much. ( Continue… )
I suspect that by early next week, the sequester will be old news. We’ll be on to the next crisis—the impending government shutdown scheduled for just a month from now. And there may be good reason for that—any deal to avoid the shutdown will almost surely replace the effects of the sequester, at least for the rest of this fiscal year.
Indeed, when Congress and President Obama decide over the next month how they are going to keep the government running through Sept. 30, lawmakers will have the opportunity to adjust the across-the-board spending cuts any way they want. In fact, much of the debate will be over just how much of the sequestered funds will be restored in that six month spending bill.
And that won’t be the end of it. Congress will then have exactly the same argument over the fiscal 2014 budget. Lawmakers are supposed to finish that fiscal blueprint by the end of September, though they almost certainly will not. The point is, the sequester is not written on stone tablets. Like every other budget gimmick Congress invents, this one can be rewritten, waived, and otherwise adjusted. And like every one before it, it probably will be.
The result is that many of the dreaded consequences of the sequester will never happen. Or, they’ll be overwhelmed by the effects of a government shutdown. Take, for example, federal employee furloughs. The sequester forces as many as one million workers to take limited time off without pay—on average for about 14 days spread over the next seven months. But those furloughs can’t take start until April 1. ( Continue… )