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Over the past year or so, I've pointed out one of the reasons Greece is going down the drain is because of their massive tax evasion problem. Depending on what reports one reads, Greece is losing $36-$100 Billion dollars in tax revenue per year.

Last week, Mr. Inskeep on NPR blew it-- he was interviewing Senator Levin who clearly stated something needed to be done regarding "tax avoidance schemes" in our nation, and of course Inskeep didn't bother asking the Senator how much revenue are we losing due to these scams:

It's $1.1 Trillion dollars per year.

From today's NY Times:

The budget fight in Washington, which entered a new round last week as Senate Democrats and House Republicans introduced dueling plans, is usually cast as a contest between raising taxes and cutting spending. In fact, the taxes-versus-spending distinction is largely meaningless.

Each year, the government doles out tax breaks worth $1.1 trillion. That is more than the cost of Medicare and Medicaid combined. It is more than Social Security. It tops the defense budget, and it tops the budget for nondefense discretionary programs, which include most everything else.

Tax breaks work like spending. Giving a deduction for certain activities, like homeownership or retirement savings, is the same as writing a government check to subsidize those activities. Functionally, they mimic entitlements. Like Medicare, Medicaid and Social Security, they are available, year in and year out, in full, to all who qualify. Yet in budget talks, Republicans ignore tax entitlements, which flow mostly to high-income taxpayers, while pushing to cut Medicare, Medicaid and Social Security.

President Obama and Congressional Democrats have rightly asserted that tax breaks are ripe for cuts that could raise revenue without hurting most taxpayers. One method, as presented in the Senate Democratic plan, is to convert tax deductions, which increase in value as income rises, to tax credits, which would provide benefits more broadly and evenly among low-, middle- and high-income households.

Tax deductions, however, are only one kind of tax break. Many others take the form of arrangements that allow wealthy taxpayers to either escape tax entirely on specific transactions or to defer it indefinitely.

Obviously these subsidies have grown into a Frankenstein monster. When our economy was growing and our people "fully" employed, the monster could be (sort of) ignored. But that's over, the revenue pie significantly shrank, and now the monster has to be dealt with.

There are plenty of repugs and some "democrats" in congress who occasionally bring up the home mortgage deduction-- and suggest eliminating that, all while ignoring this tax avoidance scheme, and most if not all of the others:

NINE-FIGURE I.R.A.’S Remember Mitt Romney’s $100 million I.R.A? Private equity partners apparently build up vast tax-deferred accounts by claiming that the equity interests transferred to such accounts from, say, their firms’ buyout targets are not worth much. No one knows how much tax is avoided this way. What is known is that I.R.A.’s are meant to help build retirement nest eggs, not to help amass huge estates to pass on to heirs.
http://online.wsj.com/...

http://www.nytimes.com/...

Poll

It's time to eliminate most tax subsidies

92%39 votes
7%3 votes

| 42 votes | Vote | Results

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Comment Preferences

  •  Tip Jar (13+ / 0-)

    "The 1% don't want SOLUTIONS; they've worked very hard the last four decades to get conditions the way they are now".

    by Superpole on Sun Mar 17, 2013 at 06:24:10 AM PDT

  •  If the wealthy in Greece paid (5+ / 0-)

    their share of taxes, everyone in Greece would be better off, including the wealthy.

    Greece is an example of what could happen in the united States if Paul Ryan and Grover got their way.  The wealthy would pay even less in taxes, the government would shrink, unemployment would rise astronomically and our economy would shrink.

    Those with great wealth who aren't totally addicted to money to the point that immediate gains are all that matter to them understand that paying their share of taxes is an investment in their nation.

    At this time Republican leaders are simply not willing to invest in the United States.  Who is then UnAmerican?

    "Trust only those who doubt" Lu Xun

    by LookingUp on Sun Mar 17, 2013 at 06:45:19 AM PDT

  •  the biggest tax subsidies impact the middle class: (4+ / 0-)
    Recommended by:
    Eddie L, Superpole, coffeetalk, VClib

    far and away the largest is the exclusion of employer health insurance premium payments.  I don't think there's anything objectionable with correcting carried interest taxation (in fact, I'm a fan, and I've written several diaries to that effect) or limiting the size of IRAs, but those changes won't gain much in the revenue. (the NY Times estimate of extra revenue treating carried interest as ordinary income, for example, is almost certainly overstated.  I've spoken with fund managers, and they're already working on ways to change their deal structures, whether that be altering the structure of their comp or just reducing it or changing to less risky business models.)

  •  Right on Superpole. (5+ / 0-)

    An obvious problem with obvious solutions, but we're not likely to hear much about it out of Washington. The fat cats like their their tax breaks. We don't have a spending problem, we have a fat cat problem.

  •  OK, I guess this makes sense. (4+ / 0-)
    Recommended by:
    Superpole, lcrp, NoMoreLies, LookingUp

    Tax deductions and tax credits can both reduce an individual’s income tax liability, but they do it in different ways. Tax deductions reduce taxable income; their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Because deductions cannot reduce taxable income below zero, their value is limited to the filer’s tax liability before applying the deduction. In contrast, tax credits directly reduce a person’s tax liability and hence have the same value for all taxpayers with tax liability at least equal to the credit.  In addition, some credits are refundable; they are not limited by the taxpayer’s tax liability.

    http://www.taxpolicycenter.org/...

    I take a few deductions for mortgage and charitable giving and retirement savings, but if they were converted to credits, I guess I could live with that.

    Not sure the Repubs would go along, tho.

    "Michael Moore, who was filming a movie about corporate welfare called 'Capitalism: A Love Story,' sought and received incentives."

    by Bush Bites on Sun Mar 17, 2013 at 06:50:35 AM PDT

    •  In other words. (0+ / 0-)
      Tax credits are subtracted not from taxable income but directly from a person’s tax liability; they thus reduce taxes dollar for dollar. As a result, credits have the same value for everyone who can claim their full value.
      (from same source)

      "Michael Moore, who was filming a movie about corporate welfare called 'Capitalism: A Love Story,' sought and received incentives."

      by Bush Bites on Sun Mar 17, 2013 at 06:55:20 AM PDT

      [ Parent ]

  •  As originally conceived (2+ / 0-)
    Recommended by:
    Superpole, NoMoreLies

    The federal income tax was NOT a tax on wages - it was a tax on unearned income and consequently only hit the top 1%. From a purely economic perspective, taxing wages and consumption are counterproductive - taxing monopolies, land rents, royalties, etc and monetary hoards, adds to economic activity as it recirculates the capital through government spending on goods and services. That is unless the government spends less than it takes in. In that case the government's surplus is the private sector's deficit. When that happens private sector debt expands . . . for a while. Then another bubble pops and the 1% scoop up the spilled piles of cash.  

  •  Instead of just eliminating deductions (2+ / 0-)
    Recommended by:
    Superpole, VClib

    what needs to happen is an entire reform of the tax code.  

    Marginal rates need to be flattened, and deductions eliminated.  (If you do this correctly, it can raise revenue.)  

    Right now, there's a huge disparity in the tax code -- households with about the same income can pay vastly different amounts in federal income taxes, due to the fact that the tax code is skewered to favor some.  It results in some paying an effective federal income tax rate -- and actual tax dollars -- that is too high in terms of historical averages and others paying too low.  Keeping out tax code as is, and just fiddling with some exemptions and deductions, does not address that -- and only makes it worse.  Just by way of example, people with earned income will pay far, far more in federal income taxes than people with certain types of investment income.  

    Here's what you need to look at -- the historical averages for EFFECTIVE federal individual income tax rates.  See the SECOND chart here. And, you need to look at how much in percent of GDP the federal government is taking in (and spending, for that matter).  Again, data can be found here.

    What that chart suggests is that, starting next year (after the increased taxes from the fiscal cliff deal have kicked in) we will probably be about where we need to be in terms of federal receipts -- back up to 18 - 19% of GDP.  That suggests, frankly, that a whole bunch of new revenue is not necessary.  Not incidentally, it suggests that if the sequester stays in place over the next 10 years, spending will be down to about historical averages as well.  It's the 10 years after that where spending explodes, due largely to "entitlement" spending. (For a very sobering look at how unsustainable is, read the Medicare trustees report, pdf here.)  If you want, you can also look at how much of our total income goes to each group, and how much they pay in federal income taxes.  That is how you determine how progressive the income tax system is.  That data is here..

    Any discussion of changing our tax system, like starting to the health insurance benefits provided to you by your employer (the biggest "tax expenditure" of them all)  doesn't mean much unless you talk about what kind of goal you are aiming toward -- how much revenue as a percent of GDP do you want to take in, how much do you want to spend, and what percentage of what you take in should come from each income group.  Then you design a tax system to accomplish that.

    •  Of course you advocate changes to the tax code (3+ / 0-)
      Recommended by:
      carver, bluegrass50, Bronx59

      that eliminate benefits and programs that help lower and middle income people such as the deductibility of company sponsored health insurance (which should by the way be replaced with single payer, but I digress), and cite an organization, the right-wing Tax Foundation which is a source who has advocated for the further reduction of taxation on the rich and large corporations, and is funded by these organizations. The Tax Foundation data also conveniently ignores the impact of FICA taxation, state, local income taxes and fees, which are mostly regressive, on the lower 90 percent of the income distribution, and conveniently leaves out data showing that corporate taxation has dropped from over 30 percent of the total tax bite to around a third of that today, and effective Federal tax rates on the richest of the rich (400 richest Americans) dropped from 51 percent in the Eisenhower era to less than 17 percent today.

      And you advocate for a flatter tax code and eliminating deductions. Sounds like the Paul Ryan idea. Many states have already done this and the effect is regressive taxation.

      Trickle Down Economics 101: They get the golden parachute, we get the golden shower.

      by NoMoreLies on Sun Mar 17, 2013 at 07:38:12 AM PDT

      [ Parent ]

      •  Inaccurate in so many respects. (2+ / 0-)
        Recommended by:
        johnny wurster, VClib

        First, I cited the Tax Policy Center for the first two charts -- the historical effective tax rates, and the historical revenues and spending as a percent of GDP.  The Tax Policy Center is not "right wing."

        I agree that the articles on the Tax Foundation are geared toward lower taxation.  However, the one chart that I cited to the Tax Foundation, that is simply a more readable chart of IRS data.  If you want to look at the IRS data in IRS format, another link is here.  Check it out for yourself.   The IRS data is what it is.  On that page, the Tax Foundation simply summarized it in a more readable form.  

        And if you are talking about reforming the federal income tax code, you need to cite federal income tax data, because that is supposed to be progressive.  The IRS data, summarized in either of those two links, shows you how progressive it currently is.  You can argue that it should be MORE progressive -- but how progressive do you want it to be?  It is meaningless to say, "tax the rich more" without talking numbers -- how much, from whom, etc. (The Social Security system, in contrast, is not SUPPOSED to be as progressive as the income tax system.  It is wage insurance and was designed by FDR not to be a system where the rich subsidized the poor, because that -- what he called "the dole" -- would be easier to kill.)

        You can do tax reform that lowers marginal rates, eliminate deductions, and keeps progressivity - you need to look at the EFFECTIVE tax rates on each group.  If you lowered top marginal rates to, say, 25%, but had virtually no deductions, so the 1% were paying very close to an EFFECTIVE tax rate of 25%, (a significant increase for some in the top 1%) that would accomplish that.  For past several years, the average EFFECTIVE tax rate of the 1% has been about 21%, which means there are some people paying 28% (that is what the AMTdoes, for example, while others pay an EFFECTIVE rate of 13 or 14%, or even lower.  In historical terms, you don't need much more revenue -- the fiscal cliff deal put us about where we need to bein terms of revenue -- but we need to be far more even in terms of broadening -- especially among the top 10% who pay the vast majority of income taxes -- the base so that we don't have wide disparities.  If you lowered top marginal rates, and raised EFFECTIVE rates, you could also tax all income -- capital gains AND earned income -- the same.

        As for this:  

         

        conveniently leaves out data showing that corporate taxation has dropped from over 30 percent of the total tax bite to around a third of that today,
        We need to do the same thing with the corporate tax code.  Right now, we have one of the highest MARGINAL corporate rates in the world, which would kill us internationally, except for the fact that we have so many deductions/exemptions that the EFFECTIVE rate is far lower.  We need to bring our marginal rate down, and our EFFECTIVE rate up, so as to even out what is paid by similarly-situated companies.

        As for this,

        effective Federal tax rates on the richest of the rich (400 richest Americans) dropped from 51 percent in the Eisenhower era to less than 17 percent today.
        I have seen no real data that calculates the effective federal income tax rates prior to 1979, when the CBO began doing it. There is no reliable data that shows what any group -- the top 400 families, or the top 1% or whomever -- paid in terms of effective federal income tax rates prior to 1979.   At any rate, if you want to keep the top marginal rate of 39% on incomes of the top 400 -- say, on ALL income over $20 million a year?  -- with no deductions, fine.  But what that raises is pretty much a rounding error in the federal budget -- about $4.7 billion a year.  And that would affect income down to $1 million a year -- far, far, far more than the top 400 families.  (Doctors -- specialists -- can make $1 million a year on one income.)
  •  Selling tax deductions to the highest bidder (1+ / 0-)
    Recommended by:
    Superpole

    is a cash cow for Congress. That's why a flat tax would be impossible. For Gods sake, won't somebody think of the politicians!

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