NYT: The Truth about Taxes (revenue RAISING, folks)

http://www.nytimes.com/2011/08/07/opinion/sunday/the-truth-about-taxes.html?_r=1&emc=tnt&tntemail0=y

A week later and we are still amazed at how the Republicans in Congress pulled it off. They held the economy hostage, won some cheap political points, and all of us will spend the next decade paying the ransom as government programs — $900 billion over 10 years in the first round — are slashed and the recovery is put at risk.

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The only glimmer of hope is that the battle is not completely over — if President Obama is finally willing to fight.
Under the terms of the ill-conceived debt agreement, Congress has to propose another $1.5 trillion in deficit reduction measures by December. Just to ensure that rationality does not have a chance, Republican leaders said they would not put anyone on the deficit-cutting “super-committee” who might entertain the idea of raising taxes.
A week later and we are even more amazed by the failure of Mr. Obama and the Democratic leadership to stand up to this intransigence. If they do not start pushing back, with the same ferocity, the results will be disastrous.
Standard & Poor’s made its judgment about both the political standoff and the all-cuts, no-new-revenues deal on Friday when it lowered the country’s long-term debt rating one notch, down from AAA. And while “no new taxes” pledges are almost always big political winners, Americans are also figuring out that the country cannot keep on this way. According to the latest New York Times/CBS News Poll, 63 percent support raising taxes on households that earn more than $250,000 a year to help address the deficit.
If that is not enough to energize the White House, here are a few more facts. To avoid across-the-board cuts, Congress must enact at least another $1.2 trillion in deficit reduction measures over the 10 years. For all of the talk of “big government,” there is no way to cut that much in discretionary programs without crippling basic functions. Lawmakers could eliminate the Federal Bureau of Investigation, Pell Grants, the Centers for Disease Control and Prevention, the National Institutes of Health and Head Start and still not cut $110 billion annually.
Entitlement reform is essential. But it is unlikely that lawmakers will agree on deep cuts to Medicare, Medicaid and Social Security. Finally, asserting that deficits can be tamed with spending cuts alone ignores that the Bush tax cuts — costing $1.8 trillion from 2002 to 2009 — are a big reason we got into this deep hole.
Here is the bottom line. There is no economically sensible or politically honest way to address the deficit without also increasing revenues and reforming the tax code. The major challenges are these:
LET THE BUSH CUTS EXPIRE Mr. Obama vowed to let the high-end tax cuts (for people making more than $250,00) expire in 2010. But in a preview of the debt fight, he agreed to extend the cuts for two more years when Republicans held unemployment benefits and other measures hostage.
Letting all of the cuts expire at the end of 2012 would save $3.8 trillion over the next decade. Letting the tax cuts expire for those making more than $250,000 would save $700 billion. That would make a real dent in the $2.4 trillion in total deficit reduction envisioned in the debt limit deal.
A sensible and fair approach would be to let the high-end tax cuts expire as scheduled, but keep the other tax cuts for another year. That would keep more cash in the hands of people most likely to spend it and prop up consumer demand while the economy is weak. It would give Congress and the administration time to undertake tax reform.
MAKE REAL REFORMS Most Congressional Republicans are willing to embrace reform, but only if it is “revenue neutral.” There is no question that the system is overly complicated; it is also riddled with hugely costly special deals for special interests. Any reform must streamline the code, make it fairer and — most important — raise more revenue.
TARGET TAX BREAKS AND LOWER RATES Each year, the government provides $1 trillion in tax breaks. Some of the largest breaks — for itemized deductions and retirement savings — should be retained because they subsidize important goals, like home ownership and old-age security. Right now, wealthier taxpayers get the greatest benefit. The process needs to be reformed so that most of the help flows to those who most need it: low- and middle-income taxpayers.
At the same time, super-low tax rates for investment income should be ended. Capital gains are taxed at a top rate of 15 percent, compared with a top rate for wages and salary of 35 percent. Proponents argue that the lower rate is an incentive to invest, but research shows that it also encourages gaming of the system. Tax breaks that have outlived their purpose must be ended, starting with subsidies for the oil industry, which is making billions in profits.
The revenue from such reforms could be used to pay down the deficit and allow all tax rates to be lowered, improving incentives to work. The amount of revenue raised and the drop in tax rates will depend on how much tax breaks are curbed.
OTHER TAXES Congress should consider raising revenues in other ways, like a value-added tax, or carbon taxes. That way all of the needed revenue for deficit reduction, and for what government provides, does not need to be squeezed from the income tax. A value-added tax is conducive to saving, and a carbon tax helps protect the environment.
The public is open to new taxes, and the economic facts are clear. Until tax increases are considered in equal measure to spending cuts, there will be no budget fix.

Taxing times: Americans pay less in taxes than many other industrialized nations

 By Thomas Hargrove of Scripps Howard News Service 

Posted April 16, 2011 at 8 p.m.

WASHINGTON — Americans pay much less in taxes than most other people in the industrialized world.

Surprised?

According to the latest estimates from the Organization for Economic Cooperation and Development (OECD) — a Paris consortium that tracks financial conditions in 34 nations — the United States pays 24 percent of its total economy (as measured by gross domestic product) to taxes collected by all levels of government.

That’s a bargain compared to most nations.

Australians pay 27 percent; the Japanese pony up 28 percent; Canadians, 31 percent; British, 34 percent; Germans, 37 percent; French, 42 percent; and Swedes, 46 percent. Danes lead the world by forking over 48 percent to their government.

Economic experts agree that America holds a tremendous international advantage because it has the world’s largest national economy and also enjoys one of the world’s most modest tax burdens.

Among nations tracked by the OECD, only Turkey, Chile and Mexico generally have lower tax rates, slightly below what Americans pay.

“The lighter tax burden on individual Americans is certainly a benefit not only to us but also to the rest of the world,” Mickey Kantor, commerce secretary in the administration of President Bill Clinton, said in an interview. “It means we can consume more and invest more. And we certainly have more foreign investments outside the United States than do other nations.”

Kantor, who also was Clinton’s U.S. trade representative, from 1993 to 1997, said Americans pay less in taxes but also have a much smaller “social net” of government benefits — such as free health care, government-operated pensions and individual retirement accounts and free college tuition — than most European nations.

Yet Americans can be forgiven if they think their taxes are burdensome. The United States leads most of the world in aggressive taxation on income, both personal and corporate, as the primary means of raising government revenue.

“We are the only major country that does not have a broad-based value-added tax. And, in many ways, that means we have a most unfortunate system of taxation,” said Gary Hufbauer of the Peterson Institute for International Economics, a research organization in Washington, D.C.

The value-added tax, often called VAT, is a consumption tax on the estimated market value added to a product or material at each stage of its manufacture or distribution. It is much simpler and broader than U.S. sales taxes, paid only by a product’s final consumer or buyer.

The tax can dramatically increase the cost of goods. The least-expensive version of Apple’s iPad costs $499 plus sales tax in the United States. The digital device costs $621 in Japan, $693 in Britain, $712 in Spain and $742 in Germany and France.

“Obviously, we pay a lot of taxes on products, especially luxury products. Things like alcohol, cigarettes or beauty products,” said public-relations executive Ulrika “Ulli” Wippel, 36, from her home in Uppsala, Sweden. “The tax might be 12 percent on groceries, but 25 percent on some of those other products.”

Since taxes already are counted in the list prices of goods, people in Sweden rarely notice they are being heavily taxed. Sweden’s consumption taxes raise almost as much revenue as its general income tax, which is lower than the federal income tax in the United States.

“We never talked about the taxes we’d pay,” said Ulrika Wippel’s American-born husband, Jim Wippel. “I think there is a misconception on income taxes here, that it is so much higher than it is. When I go back to the States and tell them what I actually pay in income tax, jaws drop. Everyone thinks we are paying 40 or 50 percent, but it is so not true.”

Editor's note

This is the final of three stories about the tax burden we face in the United States and Florida. Click below for the other stories or pick up a copy of the Daily News on Sunday.
Part one: Tax burden five to six times higher in some states than others
Part two: Florida’s better, but families struggle to deal with tax burden

The OECD estimates Swedes pay an average of 25 percent of their income to a federal income tax, although the rate is progressively smaller for low-income earners.

The United States relies on personal income taxes to provide 36 percent of all tax revenue, according to the latest OECD estimates. American businesses pony up another 12 percent in levies on their incomes. Most other nations collect no more than a third — and often much less — of their revenues from a general levy on income.

Personal income taxes — filed by nearly 139 million Americans in 2010 — are probably the most invasive kind of levy, because people must tally their earnings, calculate often-complicated exemptions and then estimate what share must be given to the federal government and to the 41 states that also tax income.

“The United States has a system of taxation by confession,” quipped former U.S. Supreme Court Justice Hugo Black during a complex tax ruling in 1953.

The VAT and other levies on consumption are the primary method of raising revenue in most of the nations monitored by the OECD. Experts agree it’s a less invasive tax than direct levies against income. And foreign governments are using their reliance on the VAT to influence international trade.

“They are imposing those value-added taxes on our imports and exempting them on their exports,” Hufbauer said. “It has the effect of making their products more attractive. U.S. firms don’t have that advantage.”

Perhaps that’s why a growing number of economists, both liberal and conservative, are calling for a cut in the current rate of corporate income taxes, something President Barack Obama endorsed in this year’s State of the Union address to Congress.

“American corporations are being taxed more than those in other developed nations,” Kantor said. “That hurts our companies by making them less competitive.”

America also faces another tax challenge, because its reliance on income taxes has made the nation more vulnerable to startling revenue reductions that have created trillion-dollar deficits at the federal level and billion-dollar shortfalls for most state governments.

The OECD finding that taxes represented 24 percent of America’s gross domestic product in 2009 was actually down from nearly 28 percent of GDP in 2007, before the recession struck.

Canada, Britain, France and most other developed countries reported less than a 2-percentage-point drop in tax revenues as a percentage of the economy during the recession.

“I suspect that a large part of the difference is in the way the U.S. collects taxes,” said University of California, San Diego, economist Valerie Ramey.

An OECD study has found that the United States has one of the world’s most progressive tax systems, she said.

“As a confirming example, California has one of the most progressive income-tax systems in the country. In particular, it taxes capital gains as normal income,” Ramey said. “As a result, its tax revenues decline more during recessions and rise more during booms than other states.”