Tag: tax reform

Margaret Atwood And Tax Reform

Writing recently in The Financial Times, the renowned novelist Margaret Atwood nailed the lasting effects of the recent – and some would say continuing – global financial crisis. “Those at the top were irresponsible and greedy,” she wrote; consequently and with good reason, very few people now trust our banking elite or the system they operate.  Even Cam Fine, president of Independent Community Bankers of America, is now calling for the country’s largest banks to be broken up.

But the distrust goes deeper and further, just as Ms. Atwood implies. Many people understand perfectly well that the government let the bankers take excessive risk. There was a high degree of group think among prominent officials in the United States and top banking executives in the run-up to the crisis of 2008. As chief economist at the International Monetary Fund from March 2007 through August 2008, I observed some of this first hand.

And politicians are also tarnished. They appointed the officials who failed to regulate effectively. And in 2007-8 the politicians decided to save the big banks – and most of their managers, boards of directors and shareholders – both under President George W. Bush and under President Obama. Now attention turns toward the federal government’s fiscal problems, including the complicated mess that is our tax system. Politicians say they want “tax reform,” but can you trust them to do this in a responsible manner, without falling captive to particular special interests or to otherwise undermine the general social interest? Continue reading “Margaret Atwood And Tax Reform”

The Conventional Wisdom of Tax Reform

By James Kwak

In the Times this weekend, David Leonhardt has a generally good overview of the tax policy showdown that is scheduled for later this year, as the Bush tax cuts approach expiration on January 1. He outlines several of the central issues we face: “hypothetical solutions are a lot more popular than actual ones”; everyone says she wants tax reform, but the tax expenditures that would have to be eliminated are very popular; and any significant deficit solution will directly affect vast numbers of Americans.

I have a few differences with Leonhardt, however. First, after his colleagues David Brooks and James Stewart, he seems to have fallen briefly under the spell of Paul Ryan: “Mr. Ryan’s plan would cut the top rate to 25 percent, from 35 percent, and still leave overall tax collection roughly where it has been, by eliminating tax breaks.”

Continue reading “The Conventional Wisdom of Tax Reform”

Beware of “Centrists” Bearing Consensus

By James Kwak

Floyd Norris has written another good column skewering the Republican candidates’ tax proposals. It’s not hard: all you have to do is list the many ways they want to cut taxes—which make George W. Bush look like a veritable communist, out to confiscate all private wealth—and point out the vast increase in budget deficits that would follow.

Near the end, Norris has this paragraph:

To some deficit hawks, like Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, the campaign so far has been a disappointment. In tax policy circles, she said, there has been growing agreement that a reform similar to the 1986 Reagan tax reform is needed — cutting rates and eliminating loopholes and deductions. But while that reform was revenue-neutral, she said, this one would need to raise revenue.

I wouldn’t call myself a member of “tax policy circles,” so maybe there is such a consensus. “Cutting rates and eliminating loopholes and deductions” was a feature of Bowles-Simpson, Domenici-Rivlin, and the Gang of Six. But that doesn’t make it right.

Continue reading “Beware of “Centrists” Bearing Consensus”

Party of Higher Debts

By James Kwak

The Committee for a Responsible Budget recently released an analysis of the budgetary proposals of the four remaining Republican presidential candidates (hat tip Ezra Klein, who shows the key graph). In short, all of the candidates propose to increase the national debt by massive amounts relative to current law, which includes the expiration of the Bush tax cuts at the end of this year.

CFRB compares the candidates’ plans to a “realistic” baseline that assumes the Bush tax cuts are made permanent and the automatic sequesters required by the Budget Control Act of 2011 are waived, among other things. Relative to that extremely pessimistic baseline, Santorum and Gingrich still want huge increases to the national debt; only Paul’s proposals would reduce it. Romney’s proposals would have little impact, but that was before his latest attempt to pander to the base: an across-the-board, 20 percent reduction in income tax rates.

Continue reading “Party of Higher Debts”

Could Tax Reform Help Make the Financial System Safer?

By Simon Johnson.  My written testimony to the joint hearing of the House Ways and Means Committee with the Senate Finance Committee is here.

In the deafening cacophony of Washington-based voices on the debt ceiling, it is easy to miss a potentially more significant development.  There is growing bipartisan interest in tax reform, including changing the corporate tax system to make it more sensible – and a bulwark against financial sector instability.

The House Ways and Means Committee and Senate Finance Committee held a joint hearing last week – apparently the first time these two committees have met in this fashion to discuss tax in over 70 years.  The theme of the hearing might sound a little dry, “Tax Reform and the Tax Treatment of Debt and Equity,” but in fact it was well-designed to carve out some space for future agreement across the political spectrum.

The basic premise of the hearing was the question: Did the tax code contribute to the severity of the financial crisis in 2008-09?  At one level the answer is simple: Yes, because the tax deductibility of interest payments encourages families to take out bigger mortgages and companies to borrow more relative to their equity capital (as dividend payments to stock owners are not tax deductible).  But where within the tax code should we focus attention, if the goal is preventing similar crises in the future? Continue reading “Could Tax Reform Help Make the Financial System Safer?”

Republican Splits, Fiscal Opportunity

By Simon Johnson

An informative and potentially productive political debate has broken out over fiscal policy.  Ironically, this is not between Democrats and Republicans – the leadership on both sides of the aisle is trying hard to agree that a moderate stimulus is worth increasing the national debt by nearly $900 billion.  And the new debate is not particularly due to the Bowles-Simpson bipartisan commission or other serious efforts to put the real math on the table; those technical discussions have so far been brushed aside.

Rather the intensifying and illuminating debate is within the Republican Party – particularly between people who are reasonably presumed interested in running for the presidency in 2012.  Continue reading “Republican Splits, Fiscal Opportunity”