Feeds:
Posts
Comments

Posts Tagged ‘Taxes’

Here’s a good laugh line if you find yourself in a policy meeting about how to reduce gasoline use: suggest increasing the gasoline tax. During my time in the White House, I attended several meetings on this topic, and inevitably someone (sometimes me) would offer that simple idea. Everyone would then chuckle at its political insanity, and the conversation would turn to Washington’s policy of choice, increasing fuel efficiency standards for autos and cars.

Those standards certainly can reduce future gasoline usage. But they are an incredibly inefficient way to do so. For some new evidence of just how inefficient, let’s turn the microphone over to the aptly-named Valerie Karplus, an MIT researcher, writing in the New York Times:

Politicians of both parties understandably fear that raising the gas tax would enrage voters. It certainly wouldn’t make lives easier for struggling families. But the gasoline tax is a tool of energy and transportation policy, not social policy, like the minimum wage.

Instead of penalizing gasoline use, however, the Obama administration chose a familiar and politically easier path: raising fuel-efficiency standards for cars and light trucks. The White House said last year that the gas savings would be comparable to lowering the price of gasoline by $1 a gallon by 2025. But it will have no effect on the 230 million passenger vehicles now on the road.

Greater efficiency packs less of a psychological punch because consumers pay more only when they buy a new car. In contrast, motorists are reminded regularly of the price at the pump. But the new fuel-efficiency standards are far less efficient than raising gasoline prices.

In a paper published online this week in the journal Energy Economics, I and other scientists at the Massachusetts Institute of Technology estimate that the new standards will cost the economy on the whole — for the same reduction in gas use — at least six times more than a federal gas tax of roughly 45 cents per dollar of gasoline. That is because a gas tax provides immediate, direct incentives for drivers to reduce gasoline use, while the efficiency standards must squeeze the reduction out of new vehicles only. The new standards also encourage more driving, not less. (Emphasis added.)

A gas tax wouldn’t be a win-win all around, of course. People would pay more in taxes immediately. So you might well want to pair the tax with other policies (e.g., offsetting tax reductions) to ameliorate that hit. (The same concern applies to carbon taxes.)

Read Full Post »

Taxes are the Swiss Army Knife of economic and social policy. With enough ingenuity, you can attempt almost any policy goal, from encouraging health insurance to discouraging pollution to stimulating the economy, to name just three. Over at Bloomberg Businessweek, Rina Chandran explains yet another use: helping a troubled economy achieve the moral and economic equivalent of a currency devaluation, without actually devaluing. That’s particularly intriguing for countries in the Euro zone:

The idea of fiscal devaluation originates with John Maynard Keynes. [Harvard Professor Gita] Gopinath’s insight was to advocate fiscal devaluation for Europe’s beleaguered currency union in a 2011 paper she co-authored with her colleague Emmanuel Farhi and former student Oleg Itskhoki, now an assistant professor at Princeton. …

The paper examines a “remarkably simple alternative” that doesn’t require countries to abandon the euro and devalue their currencies to revive growth through exports, Gopinath says. By increasing value-added taxes while cutting payroll taxes, a government can affect gross domestic product, consumption, employment, and inflation much as a currency devaluation would.

The higher VAT raises the price of imported goods as foreign companies pay the levy on the products and services they export to that country. The lower payroll tax helps offset the extra sales tax for domestic companies, reducing the need for them to raise prices. Since exports are VAT-exempt, the payroll cost saving allows producers to sell goods more cheaply overseas, simulating the effect of a weaker currency, according to the paper. The policy also can help on the fiscal front, as increased competitiveness can lead to higher tax revenue, Gopinath says.

Read Full Post »

My Urban Institute colleague Gene Steuerle says yes: politicians have gone too far trying to control future policies and spending.

Read Full Post »

Tom Toles - Carbon Tax - December 2012

Artist/Source: Tom Toles at Go Comics

h/t: Greg Mankiw, A Cartoon for the Pigou Club

Read Full Post »

Are you suffering fiscal cliff fatigue yet?

I am, but that doesn’t mean I don’t enjoy a good fiscal cliff video. Here are six of the best, some wonky, some wacky.

1. David Wessel, Wall Street Journal: Standing on an actual Potomac cliff

2. Salman Khan, Khan Academy: For beginners

3. The Simpsons: The most popular fiscal cliff video by far

4. Felix Salmon, Reuters: Legos and Clifford the dog (get it?)

5. Merle Hazard: Surfing on the fiscal cliff

And if you will forgive a little self-promotion:

6.  Me, Urban Institute and the Tax Policy Center: What happens to taxes?

Read Full Post »

President Obama and administration officials have offered two different revenue targets for the fiscal cliff debate: $1 trillion and $1.6 trillion (sometimes reported as $1.5 trillion). You might be wondering (I was) where those numbers come from.

The $1 Trillion

President Obama wants to extend the majority of the Bush-era individual income tax cuts—enacted in 2001 and 2003 and extended in 2010—except for those that affect only households with incomes more than $200,000 (single) or $250,000 (joint). In addition, he wants to return the estate tax to its 2009 structure, rather than the one that applies today. Together, those changes would increase revenue by $968 billion over the next decade, according to Treasury estimates, relative to a current policy baseline (i.e., a baseline that has income and estate taxes in their 2012 form).

That $968 billion, which rounds to $1 trillion, has the following components, all applying only to taxpayers with incomes above the president’s thresholds:

The $1 Trillion

All of the provisions in this list are part of the fiscal cliff, which is why the President has emphasized them—and the trillion-dollar figure—in his comments about dealing with the cliff. The larger number—the $1.6 trillion—arises in discussions about the larger fiscal deal that might accompany the cliff negotiations.

The $1.6 Trillion

In his budget last February, President Obama proposed $1.56 trillion in tax increases. In round numbers: $1.6 trillion, sometimes misreported as $1.5 trillion.

That figure includes the $968 billion noted above plus another $593 billion in tax increases.

The largest of those, by far, is the president’s proposal to limit the value of itemized deductions and certain exclusions for upper-income taxpayers. Under that proposal, upper-income taxpayers would benefit only 28 cents on the dollar for their charitable deductions, mortgage interest, employer-provided health insurance, etc., even if they are in the 36% or 39.6% tax brackets.

That provision would raise $584 billion. The rest of his tax provisions, including both cuts and increases, then net out to just $9 billion.

As rough justice, therefore, you can think of the president’s $1.6 trillion target as being almost entirely composed of his proposed tax increases on high-income households: $968 billion + $584 billion = $1.552 trillion. That ignores dozens of his other proposals, of course, but gives a good sense of what’s in his overall revenue aspiration.

P.S. For details on any of these proposals, please see TPC’s comprehensive analysis of the president’s tax proposals.

P.P.S. The President’s budget actually proposed $1.69 trillion in revenue increases. That’s the figure reported in Treasury’s summary of the proposals (known as the Green Book) and in TPC’s analysis of the president budget. The difference between that and the budget’s $1.56 trillion figure reflects some arcane budget presentation decisions. For example, the president proposed a $61 billion fee on banks that the Treasury reports as revenue, but the budget does not include in its tax section.

P.P.P.S. 2010’s health reform included new taxes on upper incomes that go into effect on January 1. Including those taxes, the top capital gains rate under the president’s proposal would rise to 23.8% and the top dividend rate to 43.4% (not including the effects of Pease).

Read Full Post »

The WSJ’s David Wessel explains almost everything you need to know about the fiscal cliff. And, as a bonus, shows off the beauty of the Potomac Gorge:

If you want to dive deeper on the tax side of the cliff, check out this post and this video.

Read Full Post »

« Newer Posts - Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 119 other followers