Transcript Document

TAXES AND THE
ELECTION 2012
15 October 2012
Len Burman
Syracuse University
Policy Context
• Expiration of Bush Tax Cuts and Temporary
Stimulus Measures (The fiscal cliff)
• Weak economy
• Tax revenues at lowest level since Truman
Administration
• Tax code is complex, unfair, and inefficient
• Corporate tax rates high and base is porous
• Rising economic inequality
• Existential threat created by the “lucky duckies”
The Bush-Obama Tax Cuts
• Rates cut:
• top rate from 39.6% to 35%; new 10% bracket
• Repealed PEP and Pease
• Marriage penalty relief
• $1,000 child credit/larger dependent credit
• Estate tax repeal in 2010
• 15% rate on capital gains/dividends
• Higher IRA/pension limits
• Saver’s credit
• Education incentives
• AMT patches
+Stimulus Tax Cuts
• American Opportunity Tax Credit
• Larger EITC for 3+ kids
• Payroll tax cut
• Temporary business tax breaks
• [R&E credit and other “extenders”]
It all turns back into a pumpkin at the end
of 2012
Historical Outlays and Receipts
50
45
40
Outlays
35
30
25
20
15
10
Receipt
5
0
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: Office of Management and Budget, Historical Tables, 2012. http://www.whitehouse.gov/omb/budget/Historicals
2010
Deficit Projections, 2010-21, in $billions
Including Effect of Budget Proposals
1,400
9.0% of GDP
8.8%
Obama Budget
Baseline
4.7%
1,200
4.6%
6.6%
4.5%
5.0%
1,000
4.5%
4.3%
2017
2018
4.7%
5.2%
4.4%
800
600
400
200
0
2010
2011
2012
2013
2014
2015
Source: Office of Management and Budget, Midsession Review 2012.
2016
2019
2020
2021
9
Ratio of Workers to Retirees
Primary Spending as % of GDP, with and without
Excess Health Costs, 2062-2080
10
11
Combined Federal, State, and Local Corporate Tax
Rate in OECD Countries, 2011
40
35
30
25
20
15
10
5
0
Source : 2011 OECD Tax Database
Tax as Percent of GDP, OECD Countries, 2007
60
50
40
30
20
10
0
Source: OECD, 2009, Revenue Statistics
13
What is the AMT?
Value and Number of Tax Expenditures
10
250
8
200
7
6
150
5
4
100
3
2
50
1
0
0
Source: For tax expenditures as percent of GDP, GAO analysis of OMB, Analytical Perspectives, Budget of the United States
Government, Fiscal Years 1985-2011; for count of provisions, Joint Committee on Taxation (annual tax expenditure
compilations), and authors’ calculations.
Number of Provisions (dashed)
Value as Percent of GDP (solid)
9
10 Largest Tax Expenditures, FY2013
In Billions of Dollars
Provision
Amount
1
Exclusion for employer-sponsored health insurance
294.3
2
Mortgage interest deduction
100.9
3
401(k) plans
72.7
4
Lower rate on capital gains
62.0
5
EITC
55.7
6
Pensions
52.3
7
State and local tax deduction (excluding property tax)
46.3
8
Tax deferral for multi-nationals
41.8
9
Child tax credit
40.8
10
Charity deduction (other than education, health)
39.8
Source: US Budget, Analytical Perspectives, FY2013, and author’s calculations
Note: Health insurance estimate includes $113.7 billion payroll tax expenditure; EITC and child tax credit include
outlays of $52.6 and $22.4 billion, respectively
16
Inequality is Growing:
Income Shares of Top 1% and Top 0.1%, 1913-2010
25
20
15
Top 1%
10
5
Top 0.1%
0
1910
1920
1930
1940
1950
1960
Source: Picketty and Saez, http://elsa.berkeley.edu/~saez/TabFig2010.xls.
1970
1980
1990
2000
2010
Top Income Shares in Selected Countries, in Percent, 1949 vs. 2005
20
18
United States leads the pack in 2005
16
14
12
10
8
6
4
2
Around 1949
Around 2005
0
Tony Atkinson, Thomas Piketty, and Emmanuel Saez, "Top Incomes in the Long Run of History" , Journal of Economic Literature, 49(1), 2011, 3-71.
18
Taxes and the Safety Net
• And the existential threat to our democracy created by the
“lucky duckies”
19
Tax Credits Have Become an Important Part of the
Social Safety Net
Program
Amount in 2009, $Billions
Medicaid
392
SSI
47
TANF
29
SNAP
55
Housing
41
EITC
49
CTC
44
Source: Jim Ziliak, “Recent Developments in Antipoverty Policies in the United States,” IRP 1395-11,
2011; and Budget of the United States, Analytical Perspectives, FY2011.
Note: Tax credits include effect on both outlays and receipts.
Real Federal Spending on EITC, CTC and Welfare: 1975-2009
70
60
Earned Income Tax Credit
50
Billions of 2009
40
Child Tax
Credit
30
AFDC/TANF
20
10
0
Source: Budget of the United States Government, Fiscal Year 2012 for AFDC/TANF; Internal Revenue Service Statistics
of Income , various years for EITC and CTC; Bureau of Labour Statistics for CPI Deflator.
Effect of Various Components on Poverty Rate For Kids and All
Households, in Percent, 2010
4
3
Under 18
All
2
1
0
-1
-2
-3
-4
-5
EITC
SNAP
Housing
subsidy
School
lunch
WIC
LIHEAP
Source: Census Bureau
Note: Poverty rate is the “supplemental poverty measure.”
Child
support
Federal
income
tax
FICA
Work
expense
MOOP
22
Mitt Romney and the “47Percent”
“There are 47 percent of the people who will vote for the
president no matter what. All right, there are 47 percent
who are with him, who are dependent upon government,
who believe that they are victims, who believe the
government has a responsibility to care for them, who
believe that they are entitled to health care, to food, to
housing, to you-name-it. That that's an entitlement. And the
government should give it to them. And they will vote for
this president no matter what…These are people who pay
no income tax.”
-- Mitt Romney, May 17, 2012, Boca Raton, FL
WSJ: “Lucky Duckies”
“Who are these lucky duckies? They are the beneficiaries of tax policies that
have expanded the personal exemption and standard deduction and targeted
certain voter groups by introducing a welter of tax credits for things like child
care and education. When these escape hatches are figured against income,
the result is either a zero liability or a liability that represents a tiny percentage
of income. The 1986 tax reform, for example, with its giant increase in the
personal exemption and standard deduction, took six to seven million people
off the tax rolls.
“This complicated system of progressivity and targeted rewards is creating a
nation of two different tax-paying classes: those who pay a lot and those who
pay very little. And as fewer and fewer people are responsible for paying more
and more of all taxes, the constituency for tax cutting, much less for tax reform,
is eroding. Workers who pay little or no taxes can hardly be expected to care
about tax relief for everybody else. They are also that much more detached
from recognizing the costs of government.”
Source: “The Non-Taxpaying Class” (editorial), Wall Street Journal, November 20, 2002.
Who are the Lucky Duckies?
Households who don’t pay income tax, 2011
Others
1%
7%
Nonelderly,
Income < $20K
Elderly
10%
Don't Owe
Income Tax
Owe
Income Tax
54%
Owe
Payroll Tax
28%
Source: http://www.taxpolicycenter.org/taxtopics/federal-taxes-households.cfm.
Some Statistics About Households that
Pay Neither Income Nor Payroll Tax
• More than half are elderly
• Over one-third are nonelderly with income under $20,000
• Only about 1 in 20 is nonelderly with income over $20,000
Source: Tax Policy Center
Income and Payroll Tax as Percent of Income
by Income Group, 2011
25
20
15
10
5
Income Tax
Payroll Tax
0
-5
-10
Lowest Second Middle Fourth Top
Quintile Quintile Quintile Quintile Quintile
Source: Tax Policy Center, table T11-0099
80-90
90-95
95-99
Top 1 Top 0.1
Percent Percent
Percentage of Taxpayers Who Pay More Payroll Tax
than Income Tax, by Income Group, 2011
100
90
80
70
60
50
40
30
20
10
0
Lowest Second Middle Fourth
Top
Quintile Quintile Quintile Quintile Quintile
80-90
90-95
95-99
Top 1 Top 0.1
Percent Percent
Source: Tax Policy Center, Table T11-0192.
Note: Chart shows statistics for tax units that pay at least some income or payroll tax. Thus, it excludes most
elderly households. Payroll tax includes only employee share.
Solution
• More tax cuts?
• Especially for the rich?
• Or… the “Buffett Rule?”
• And new AMT for multinationals?
• Welcome to campaign 2012!
President Obama’s Tax Plan
• Extend most Bush tax cuts
• Top two rates revert to 36% and 39.6%
• Restore PEP and Pease
• Gains and dividends taxed at 20%
• Limit the value of itemized deductions to 28%
• Index the AMT
• Tax carried interest
• Buffett Rule
Obama (continued)
• Extend AOTC
• Extend and increase CDCTC
• Extend EITC increase for 3+ kids
• Restore Estate and gift tax to 2009 levels
Obama (continued)
• Reduce the corporate income tax rate from 35% to 28%
• 25% for Manufacturing
• Eliminate tax loopholes and subsidies
• Establish a new minimum tax on foreign earnings
• Expand, simplify, and make permanent the R & E Tax
Credit
• Allow small businesses to expense up to $1 million in
investments
• Double the deduction for start-up costs
Mitt Romney’s Tax Plan
• Make permanent the 2001-03 tax cuts
• Cut all individual income tax rates 20%
• 35% becomes 28%; 10% becomes 8%
• Repeal the estate tax and the AMT
• Keep gift tax with a max rate of 35%
• Eliminate investment income taxation for low- and middle-
income taxpayers
• Allow the 2009 stimulus act tax provisions to expire
• Pay for by eliminating tax expenditures and economic
growth
Romney (continued)
• Reduce top corporate income tax rate from 35%
to 25%
• Make the research and experimentation credit
permanent
• Extend expensing of capital expenditures for one
year
• Grant a “tax holiday” for repatriation of corporate
profits of foreign subsidiaries
• Implement a territorial system
Average Tax Cut in 2015 From the Specified Parts of
Gov. Romney's Tax Plan, by Income
300,000
250,000
200,000
150,000
100,000
50,000
0
Less than
10
10-20
20-30
30-40
40-50
50-75
75-100
Income in $1,000
Source: Tax Policy Center, table T12-0040.
100-200 200-500 500-1,000 More than
1,000
Average Tax Change in 2015 from Eliminating Unspecified Loopholes
and Deductions, by Income
?
0
Less than 10
10-20
20-30
30-40
40-50
50-75
Income in $1,000
Source: Romney campaign
75-100
100-200
200-500
500-1,000
More than
1,000
Change in Tax by Income Group Under President Obama's
Proposal, 2013
400,000
350,000
300,000
Dollars
250,000
200,000
150,000
100,000
50,000
0
Lowest
Quintile
Second
Quintile
Middle
Quintile
Fourth
Quintile
Source: Tax Policy Center, table T12-0152
Top
Quintile
80-90
90-95
95-99
Top 1
Percent
Top 0.1
Percent