budget – R&R – Reachout and Rebuild

New York: Most Unequal State in the Nation!

David Posnett — Mon, 14 Nov 2022 22:18:11 +0000

A new report from the Institute on Taxation and Economic Policy (ITEP) recently found that New York State is home to the highest concentration of extreme wealth in the United States. New York State also has the greatest income inequality in the United States. By both of these measures, New York is the most unequal state in the nation.

The Fiscal Policy Institute’s latest brief, Inequality in New York and Options for Progressive Tax Reform, details ITEP’s findings as they apply to New York State, reviews additional research and data on New York State’s income and wealth inequality, and lays out their implications for New York State tax policy.

Key findings include:

New Yorkers worth over $30 million collectively own $6.7 trillion in wealth. These ultra-rich New Yorkers are just 0.4 percent of the state population.

New York’s ultra-rich also hold about one-fifth of the total wealth held by all ultra-rich Americans — the highest concentration of wealth in any state.

Of the $6.7 trillion held by ultra-rich New Yorkers, ITEP estimates that $3.1 trillion consists of unrealized capital gains. Much of this wealth will never be taxed under current law.

New York State tax implications include:

New York’s current tax system, taken as a whole, is regressive: the wealthy pay about the same combined state and local tax rate as the bottom 40 percent.

Because of the substantial overlap between high income earners and owners of extreme wealth, increasing the progressivity of the existing Personal Income Tax would help to address extreme inequality.

At a minimum, the state should not allow the current PIT rates on high earners to expire, as they are currently set to, in 2027.

New York can further address extreme inequality, and increase the overall progressivity of its tax system, through a number of tax policy options, including:

Increasing tax rates on long-term capital gains for high-income taxpayers

Taxing unrealized capital gains on a mark-to-market basis for wealthy taxpayers

Increasing taxes on business profits, such as those earned through pass-through entities such as LLCs, and targeting the profit-shifting of multinational corporations

Taxing inherited wealth, or fixing the estate tax by lowering the exemption threshold and eliminating step-up in basis

Revising the state constitution to permit a direct wealth tax

This will be relevant after December 6, 2022, when “Invest in Our New York” establishes its strategy/agenda for the legislative session.

Geraldine R. Maslanka

How to Climb out of the Financial Rut in NY State

David Posnett — Sat, 06 Feb 2021 20:16:07 +0000

On Feb. 5th R&R heard a presentation by Rebecca Saletan and Nick Lyndon on “The Invest in our New York Act”. It is a package of 6 bills for the State of NY. Together they are proposed to raise more than $50 billion/year in sorely needed revenue:

TAXING HIGH INCOMES

Progressive Income Tax S2622: Creates a tax system where New Yorkers pay a higher rate if they earn significantly more money.RAISES $12-18 BILLION

Right now, individuals with incomes between $21,400 and $1,077,550 are all taxed at roughly the same rate of 6.5%. Higher earners should pay a higher rate. This bill would raise the tax rates on the top 5% of income-earners ($300,000 and above).

Sponsored by Senator Robert Jackson and Assemblymember Demond Meeks

2. Capital Gains Tax A3152:

Taxes income from investments like stocks same as wages.RAISES $7 BILLION

Rich people make much of their income from investments like stocks, not from their jobs. The federal government taxes investment income at a much lower rate than wages. New York can fix this by adding a tax to investment income that’s equal to the tax break the rich are getting from the federal government.

Sponsored by Senator Gustavo Rivera and Assemblymember Ron Kim

TAXING WEALTH

3. Heirs’ Tax S3462 :

A progressive tax on large sums of inherited wealth.RAISES $8 BILLION

Many rich people also make their money from inheriting enormous sums. They can make up to $5 million in a year through inheritance and pay no tax on it. Inheritances of less than $250,000, family homes up to $2 million, money from pensions or retirement funds, and family farms will not be affected.

Sponsored by Senator Jabari Brisport and Assemblymember Michaelle Solages

4. Billionaires’ Tax:

An additional tax on billionaires, and constitutional amendment to allow a wealth tax. RAISES $23 BILLION IN THE FIRST YEAR, $1.3 BILLION PER YEAR THEREAFTER

New York already has a wealth tax: it’s called a property tax. Homeowners pay it every year. But if you own a massive stock portfolio, it is not taxed. This tax would treat billionaires’ gains in wealth as income, and these increases would be taxed at income tax rates. Additionally, a constitutional amendment would allow the state to tax large sums of intangible wealth—i.e., stocks, bonds and company ownership— in the future.

Sponsored by Senator Jessica Ramos and Assemblymember Carmen De La Rosa

TAXING CORPORATIONS AND THE FINANCIAL SECTOR:

5. Wall Street Tax : A small tax on Wall St. financial transactions.RAISES $12-29 BILLION

Unlike other major financial centers like London and Hong Kong, New York doesn’t place any tax on financial transactions. The financial industry is the state’s largest industry: it makes up 30% of our economy. This bill places small taxes on trades of stocks, bonds and derivatives; a similar tax on stocks existed in NY until 1981.

Sponsored by Senator Julia Salazar and Assemblymember Yuh-line Niou

6. Corporate Tax S2833: A bill to repeal the Trump tax cuts, by restoring taxes on the profit a corporation makes each year. RAISES $9 BILLION

In 2017, Trump’s tax cuts reduced the federal corporate profit tax rate from 35% to 21%, and cut taxes on real estate businesses by 20%. New York can end these tax breaks in our state so that businesses pay the same tax as they did three years ago.

Sponsored by Senator Brad Hoylman and Assemblymember Anna Kelles

There is a detailed discussion with over 50 slides which is well worth reading (and beyond this summary):

https://docs.google.com/presentation/d/1MX3-gtlQzBi0nRxNmfTKcziy7YjfB4Y6jnT5Gj-8jVo/edit?usp=sharing

Zeldin Supports GOP Shenanigans

David Posnett — Mon, 16 Jul 2018 16:56:01 +0000

Published as Letter to Editor, The East Hampton Star

Fiscal Chicanery

July 10, 2018

Dear David,

If you are under any illusions about congressional Republicans’ intentions to undermine the financial security of American families, just take a look at their new budget plan. Barely six months after passing a huge tax cut for corporations and the wealthy that swelled federal deficits by almost $1.5 trillion over the next 10 years, the Republican-controlled House Budget Committee issued a plan on June 17 that bemoans the “irresponsible imbalance” of the federal budget.

With stunning hypocrisy, the document states, “The federal government is spending more than it takes in. This increasing disparity is largely due to mandatory . . . spending, which includes safety-net programs like Medicare and Social Security. . . .” The plan then proposes to cut Medicare spending by $537 billion through partial privatization.

This is fiscal chicanery, pure and simple, and Lee Zeldin is fully on board with it. In November, let him know you are not on board with it. Vote for Perry Gershon, Democrat, and you will be voting for a representative who will work for real tax reform that helps middle class families and small-business owners, rather than tax reform that further lines the pockets of the 1 percent and large corporations.

Sincerely,

CAROL DEISTLER

Trump Wants to Charge Retailers to Accept SNAP Benefits (Food Stamps)

David Posnett — Thu, 22 Jun 2017 17:37:44 +0000

When is the GOP’s cruel assault on the most vulnerable going to end?

From Modern Farmer

By Andrew Amelinckx on June 9, 2017

You’ve probably heard about the White House’s proposed overhaul of the Supplemental Nutrition Assistance Program (SNAP) program, formerly known as food stamps—the program would see deep cuts if President Donald Trump’s budget goes forward. But you may not be familiar with another proposal that could also affect the 43 million Americans who rely on SNAP, as well as the grocers who accept these benefits from their customers.

Trump wants to charge grocery stores and other retailers a fee for accepting SNAP benefits to the tune of more than $2 billion over 10 years, with businesses from corner stores to Walmart bearing the cost. Currently, retailers don’t pay a fee to get authorized to accept SNAP benefits, but they are required to register with the Department of Agriculture, the agency responsible for overseeing the program.

As outlined in the White House’s Major Savings and Reforms—which makes up the budget plan and also A New Foundation for American Greatness—the fees would be on a sliding scale, and would be charged when a retailer first signs up to participate and again when they renew their application every five years. Small businesses, like convenience stores, would pay somewhere in the range of $250 while large supermarket chains would have to shell out as much as $20,000. It’s unclear what type of fee farmers markets and CSAs—many of which now accept SNAP benefits–would be responsible for under the proposal.

According to The Office of Management and Budget (OMB), which is responsible for producing the president’s budget plan, the current system “fails to recognize the Federal costs of application processing and oversight of retailers, and the significant portion of a retailer’s revenue that SNAP can represent.”

Also: Check out what Food & Wine has to say: http://www.foodandwine.com/news/trump-charges-stores-for-accepting-food-stamps

Trump’s Budget Could Create Chaos in the States

David Posnett — Fri, 16 Jun 2017 14:19:29 +0000

President Trump’s proposed 2018 budget would result in deep cuts to federal payments to states. Federal funds currently account for nearly a third of state expenditures, so if enacted, Trump’s budget would kick huge decisions to statehouses: raise taxes, reduce benefits, or eliminate services.

Start with state government’s largest expenditure, Medicaid (nearly 30 percent). The Trump budget, combined with proposals in the House-passed American Health Care Act (AHCA), could cut the federal contribution to Medicaid more than $1 trillion over the next decade.

The AHCA would gradually eliminate the Affordable Care Act’s Medicaid expansion and change the federal match rate to a per-capita cap, which would grow at a slower rate than current Medicaid spending. In total, the Congressional Budget Office (CBO) estimates the AHCA changes would reduce federal Medicaid spending $834 billion over 10 years. The president’s budget includes another $600 billion in cuts, which appear to be in addition to the AHCA’s cuts. However, in line with the rest of this “black box” budget, even the White House doesn’t know for sure (or won’t say). But if they are combined, they would cut federal Medicaid funding nearly in half by 2026.

In its typical understated way, the CBO describes what comes next. Its March score of the AHCA (which looked a lot like the new CBO score), said, “How individual states would ultimately respond [to Medicaid cuts] is highly uncertain.”

That’s because Trump and the House Republicans are offering states a trade-off that would fundamentally change the way the half-century old program works. Under the current funding mechanism, the federal government pays a percentage of program costs no matter how fast they grow. The Trump-House GOP replacement would cap federal contributions based on each state’s number of enrollees (per-capita cap), or offer funds in a block grant. States would get far more control over how they run the program—but with far less money to do so.

So would states raise taxes to fill the funding gap or drop people from health care? Connecticut and New Jersey established task forces to prepare responses to Medicaid cuts. But Texas Gov. Gregg Abbot cheered Obamacare’s “spiraling to a hasty death.” Regardless, even states that want to maintain current coverage levels would need billions in new dollars every year. That’s a huge lift for states and why CBO estimated 14 million would lose Medicaid if AHCA became law.

Then there’s the rest of Trump’s budget. Along with some budget tricks, the administration finds balance by reducing non-defense discretionary spending 2 percent each year—totaling $1.4 trillion over 10 years.

Specifically, it proposes double-digit percentage cuts to the departments of Agriculture, Commerce, Education, Health and Human Services, Housing and Urban Development, and Transportation, all of which send money to states. Some examples of program cuts over the 10-year period:

$200 billion cut from the SNAP (i.e., food stamps); currently completely federally funded, the budget also proposes requiring states to chip in a quarter of funds.
$100 billion cut from the Highway Trust Fund, which sends money to states for highway and mass transit projects.
$20 billion from Temporary Assistance for Needy Families, a joint federal-state funded program that provides welfare cash.

The National Association of State Budget Officers has a good roundup of the numerous other state administered programs cut or eliminated in the budget, including EPA grants, community development block grants, rental assistance programs, low income home energy assistance programs, and more. And what about the administration’s new social program, paid parental leave? The budget forces states to raise their unemployment taxes to pay for it.

Would states raise taxes to keep these programs? Does the equation change if the state and local tax deduction is repealed?

There are a lot of unknowns, but we know the administration and Congress are both interested in cutting federal payments to states, and that states don’t have enough money to replace those funds. As with health care, the federal budget cuts would probably reduce services and beneficiaries. But because they’re state programs, what each state does is highly uncertain.

Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.

What the Federal Government is Telling States: Statements from the President’s 2018 Budget Proposal

David Posnett — Fri, 16 Jun 2017 14:15:26 +0000

By John Hicks posted 14 days ago

The President’s fiscal year 2018 budget request to Congress includes many elements that shift more responsibility to state and local governments or modify some longstanding fiscal federalism practices through funding eliminations or major reductions.

Below are statements pulled directly from the Administration’s budget documents produced by the Office of Management and Budget and the individual Departments, and written testimony on the budget from Administration officials.

New State Financial Requirements

SNAP – First-time State Funding Match
Shift to States – $191 billion from 2020-2023

The Budget also proposes to re-balance the Federal/State partnership in SNAP benefits to low-income households by gradually establishing a State match for benefit costs, phasing in from a national average of 10 percent in 2020 to 25 percent, on average, by 2023. To help States manage their costs, new flexibility regarding benefit levels would be provided. This proposal allows States to determine their level of SNAP benefits…and gives States options that can mitigate the effects of the funding shift…By giving States a financial stake in the cost of providing these benefits, rather than relying entirely on Federal funds, it would increase State incentives to create economic paths to self-sufficiency.

FEMA – State Homeland Security Grant and Urban Area Security Initiative – First-time State Funding Match
Shift to States – $267 million

The Budget proposes a 25 percent non-Federal cost match for grant dollars with State and local partners. General Kelly, May 24, 2017 written testimony to Congressional committee: By using a cost-sharing approach, Federal dollars are spent on activities that our non-Federal partners themselves would invest in, providing clear results in priority areas.

Parental Leave – Funded by State Unemployment Insurance (UI) Taxes

The Budget also includes a proposal to provide six weeks of paid parental leave, which is paid for with a package of mandatory savings proposals to improve Unemployment Insurance (UI) program integrity and solvency. Using the UI system as a base, the proposal will allow States to establish paid parental leave programs in a way that is most appropriate for their workforce and economy. States would be required to provide six weeks of parental leave and the proposal gives States broad latitude to design and finance the program. The proposal is fully offset by a package of sensible reforms to the UI system—including reforms to reduce improper payments, help unemployed workers find jobs more quickly, and encourage States to maintain reserves in their Unemployment Trust Fund accounts.

Better Done At The State And Local Level

Labor – Workforce Investment and Opportunity Act (WIOA) Adult Employment and Training, Youth Activities and Dislocated Workers and Employment Service
Reduced – $1.3 billion or 39%

The Budget would decrease funding for WIOA Title I and III formula programs by $1.3 billion, shifting more responsibility for funding these programs and training American workers to States, localities, and employers and giving them more freedom to design their programs. The Budget also provides States and localities with new flexibility and discretion to serve workers based on the specific training needs of their workforce.

Education – 21^st Century Community Learning Centers
Eliminated – $1.16 billion

The provision of before- and after-school academic enrichment opportunities may be better supported with other Federal, State, local or private funds, including the $15 billion Title I Grants to Local Educational Agencies program.

Education – Student Support and Academic Enrichment Grants
Eliminated – $277 million

Also, the activities authorized under this program generally can be supported with funds from other Federal, State, local or private sources, including the $15 billion Title I Grants to Local Educational Agencies program.

Transportation – Transit Capital Investment Program (New Starts)-Future Grants
Eliminated – $928 million

Future investments in new transit projects would be funded by the localities that use and benefit from these localized projects. Several major metropolitan regions have recently passed multi-billion revenue measures to fund transit projects, and the Administration believes that is the most appropriate way to fund transit expansion and maintenance efforts. These regions realize waiting for Federal grant funding is not the most efficient way to meet their local transportation needs.

HUD – Community Development Block Grant (CDBG)
Eliminated – $2.9 billion

The Budget recognizes that State and local governments are better positioned to address local community and economic development needs.

Regional Commissions
Eliminated – $156 million

The Appalachian Regional Commission (ARC), the Delta Regional Authority (DRA), the Denali Commission and the Northern Border Regional Commission (NBRC) are independent agencies that award Federal grants for regional development. The proposed elimination of the regional commissions reflects the need to reduce unnecessary Federal spending and streamline the Federal Government’s role, while encouraging States and localities to partner with the private sector to develop local-tailored solutions to local problems.

EPA – Geographic Programs
Eliminated – $427 million

These programs perform local ecosystem protection and restoration activities, which are best handled by local and State entities. The EPA will encourage (the six Chesapeake Bay states and Washington D.C., five Gulf of Mexico states, New York and Vermont, Long Island Sound states and local entities, state, tribal, and local entities, the state of California and local entities, the eight Great Lakes states and tribal and local entities) to continue to make progress from within core water programs in (restoring the Bay, restoring the Gulf of Mexico, restoring Lake Champlain, restoring the Sound, restoring the Puget Sound, restoring the San Francisco Bay, protecting and restoring sensitive aquatic ecosystems in South Florida, restoring the Great Lakes).

HUD – Choice Neighborhoods
Eliminated – $125 million

State and local governments may be better positioned to fund locally-driven strategies for neighborhood revitalization. Moreover, local government’s commitment to policy changes and interagency coordination are critical to achieving the educational and public safety goals associated with the program, and to achieve the necessary scale to impact entire neighborhoods.

HUD – Home Investment Partnerships Program
Eliminated – $948 million

The Administration devolves affordable housing activities to State and local governments who are better positioned to comprehensively address the array of unique market challenges, local policies, and impediments that lead to housing affordability problems.

HUD – Housing Trust Fund and Capital Magnet Fund
Eliminated – $194 million

The Budget would devolve some affordable housing activities to State and local governments who are better positioned to comprehensively address the array of unique market challenges, local policies, and impediments that lead to housing affordability problems.

Legal Services Corporation
Eliminated – $351 million

The proposal also puts more control in the hands of State and local governments which better understand the needs of their communities.

You’re Doing Too Much

EPA – Categorical Grants
Reduced – $482 million

Many States have been delegated authority to implement and enforce Federal environmental laws including the Clean Air Act, Clean Water Act, and Safe Drinking Water Act. The Budget proposes to eliminate or substantially reduce Federal investment in State environmental activities that go beyond EPA’s statutory requirements. States may be able to adjust to reduced funding levels by reducing or eliminating additional activities not required under Federal law, prioritizing programs, and seeking other funding sources including fees. Grants proposed for elimination include Beaches Protection, Lead, Multipurpose Grants, Nonpoint Source, Pollution Prevention, Radon and Underground Storage Tanks. Grants proposed for reductions include Hazardous Waste Financial Assistance, Pollution Control, Public Water System Supervision, and State and Local Air Quality Management.

You’re Not Doing Enough

HUD – Rental Assistance Programs
Reduced – $1.9 billion

The Budget also recognizes the need for greater contribution from State and local governments and the private sector to help address affordable housing needs among low-income households.

You’re Already Doing It

DHS – Transportation Security Administration Law Enforcement Grants
Eliminated – $45 millionThe amount of financial support offered by this program has waned in recent years, declining below 50 percent of total State and local law enforcement costs in fiscal year 2016 and continuing to decline. As such, State and local jurisdictions are supporting more of the cost of providing law enforcement presence at airports. Discontinuing this program should not place an undue burden on State and local jurisdictions, since they already pay the majority of law enforcement costs.

You Have Other Funds You Can Use

EPA – Water Quality Research and Support Grants
Eliminated – $26.8 million

States have the ability to develop technical assistance plans for their water systems using Public Water System Supervision funds and set-asides from the Drinking Water State Revolving Fund (DWSRF).

HHS – Social Services Block Grant (SSBG)
Eliminated – $1.4 billion

SSBG is a permanently authorized program, which funds a wide variety of services. There are 29 broad service categories within SSBG (including “other”). However, better targeted State and Federal programs currently fund most of these services. SSBG lacks strong performance metrics and the means to hold States accountable for spending SSBG funds effectively.

You’re Not Doing It Right

HHS – Temporary Assistance for Needy Families (TANF) Reduction and TANF Contingency Fund
Reduced TANF by 10% – $1.2 billion
Eliminated Contingency Fund – $567 million

While the proposal would reduce the amount available to States for cash assistance and other benefits that promote self-sufficiency, the proposal also recognizes that TANF’s flexible spending rules have resulted in States using a large portion of TANF funds for benefits and services that do not directly serve the core intent of the program – to help low-income families meet their basic needs and move them toward self-sufficiency.

While the intent of the Contingency Fund has been to assist States experiencing increased demand for cash assistance during economic downturns, States may use contingency funds for any TANF purpose, many of which have no direct relationship to helping families meet needs in hard economic times. Some States have used contingency funds to simply replace existing block grant funds, without spending more to address increased need.

Labor – Unemployment Insurance Solvency Standard

Despite several years of recovery since the recession, State Unemployment Insurance (UI) programs are still not adequately financed. Fewer than half the States have sufficient reserves to weather a single year of recession, the common measure of trust fund solvency. The Budget proposes to add a minimum solvency standard to address the challenge States face in maintaining sufficient reserves in their Unemployment Trust Fund accounts to weather future recessions. This proposal would impose credit reductions on States that fail to meet the solvency standard for two consecutive years.

It’s Yours Anyhow

FEMA – Continuing Training Grants, National Domestic Preparedness Consortium, Countering Violent Extremism/Complex Coordinated Terrorist Attack Grants, and Emergency Food and Shelter Program
Eliminated – $279 million

These programs are eliminated because they are duplicative of other Federal programs and are primarily State and local responsibilities.

Justice – State Criminal Alien Assistance Program
Eliminated – $210 million

This program represents a general revenue transfer to States that neither focuses resources on immigration enforcement nor fully reimburses their detention costs.

You No Longer Need It

HHS – Low Income Home Energy Assistance Program (LI-HEAP)
Eliminated – $3.38 billion

Perhaps more notably, the Budget recognizes the program is no longer a necessity as States have adopted their own policies to protect constituents against energy concerns.

EPA – Leaking Underground Storage Tanks (LUST) Cooperative Agreements
Reduced – $16.1 million

Reduction reflects success of LUST cooperative agreement funding over the past decade to a position where states can now undertake a more primary responsibility.

Education – Impact Aid Payments to Local Education Agencies (LEAs) for Federal Property
Eliminated – $67 million

The Administration believes that the majority of LEAs receiving assistance under this program have now had sufficient time to adjust to the removal of the property from their tax rolls.

Sources

The Brownback Tax Cut Experiment Ends in Kansas

David Posnett — Fri, 09 Jun 2017 14:09:15 +0000

Howard Gleckman

June 7, 2017

Just as President Trump is ramping up his push for a major tax cut that he believes will pay for itself through faster economic growth, the Kansas template for that approach has crashed and burned. After four years of below-average growth, deepening budget deficits, and steep spending reductions, the GOP-dominated Kansas legislature has repealed many of the tax cuts at the heart of Governor Sam Brownback fiscal agenda.

It is a lesson unlikely to be missed by congressional Republicans—or Democrats.

Brownback vetoed the legislature’s first attempt to reverse his tax cuts, but two-thirds majorities in both the House and Senate overrode his veto. The measure would boost state taxes by $1.2 billion over two years, in part by raising the top income tax rate from 4.6 percent to 5.7 percent and by once again taxing sole proprietorships, partnerships, and other pass-through businesses. Pressured by Brownback, the legislature had made pass-throughs tax free.

In a worrisome echo of that plan, the Trump Administration says it will propose cutting the federal individual income tax rate on pass-throughs to 15 percent , far below the top current rate on wages of 39.6 percent or Trump’s preferred rate of 35 percent.

Since Kansas enacted tax and spending cuts in 2012 and 2013, Brownback and his allies have argued that this fiscal potion would generate an explosion of economic growth. It didn’t. Overall growth and job creation in Kansas underperformed both the national economy and neighboring states. From January, 2014 (after both tax cuts passed) to April, 2017, Kansas gained only 28,000 net new non-farm jobs. By contrast, Nebraska, an economically similar state with a much smaller labor force, saw a net increase of 35,000 jobs.

While overall employment barely increased and economic activity was lower than other states, Kansas saw a significant increase in the number of individuals with business income. The likely reason: That zero tax rate on pass-throughs.

The tax cuts did produce one explosion, however. The state’s budget deficit was expected to hit $280 million this year, despite major spending reductions. Kansas falls well below national averages in a wide range of public services from K-12 education to housing to police and fire protection, according to an analysis by the Urban Institute’s State and Local Finance Initiative. Under order from the state Supreme Court, the legislature has voted to increase funding for public schools by $293 million over the next two years.

The more troubling lesson for Republicans in Congress: While Brownback was reelected in 2014, his popularity has since plummeted and his approval rating now hovers at around 25 percent, second lowest among all sitting governors. And while the GOP enjoyed tremendous national electoral success in 2016, the party lost seats in the Kansas legislature. At least in one deep red state, the Trump formula of big tax and spending cuts is no longer the path to political success.

In 2012, Brownback called his tax plan a “real live experiment.” It appears to have failed.

Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.

A Crazy Man for President

David Posnett — Wed, 07 Jun 2017 19:54:57 +0000

OK, it took all of four months, but I think it’s been pretty well established by now: we’ve elected a crazy man for President. Not that for most of us there were any doubts on that score on November 9^th or on Inauguration Day. But for those of us who held out some slim hope that what we saw during the campaign was all an act, a reality show designed to get the widest possible viewership, a sales pitch aimed at selling the product to a mass market, and that behind the curtain there lurked a shrewd, savvy wizard who might surprise and delight us – sorry, not going to happen! Or alternatively that the Presidency itself, the solemn responsibilities of the office, might transform the campaign caterpillar into a beautiful butterfly – again, sorry, not going to happen!

If anybody still doubts that we’ve elected a crazy man for President I beg them to ponder the following three items, selected at random from countless more that could be cited:

Item: President Trump withdraws the United States from the Paris Agreement, making it 194 parties remaining in the agreement and 1 choosing to leave. No point in attempting to refute the Trumpian claim that the Paris Agreement is a “bad deal” for the United States. Anybody anywhere can renege on a painstakingly negotiated deal, claiming to really really deserve more for less. Simple. Trump’s underlying attitude here reminds me of the Mel Brooks joke about the world’s first national anthem, dating from prehistoric times: “May they all go to hell, except Cave Seven!”

Item: President Trump submits a budget cutting $1 billion from cancer research. Cancer research! I get the cuts to PBS and the National Endowment for the Arts. That’s been on the Republican hit list for decades. I even get the cuts to the National Environmental Satellite, Data and Information Service, which operates satellites tracking hurricanes and gathering climate data. Wouldn’t want to gather more empirical evidence of global warming; let’s poke out our eyes. But cancer research? Cancer research? Really?

Item: After a terrorist attack in London, the mayor of London tries to reassure rattled citizens that the appearance of lots of police on the streets toting automatic weapons does not mean that a new attack is underway or imminent. President Trump twists his words to make a racially-fueled, politically motivated attack on the mayor. Not that different from hurling abuse at firemen attempting to put out the flames. But this is the President of the United States hurling the abuse.

So how did we get here? How did we get a crazy man for President? I’m afraid a complete answer to this question would require far more insight, knowledge, and wisdom than I possess. Maybe in twenty or fifty or a hundred years historians will understand the forces that led us to this pass. But I think a few widespread beliefs, every one of them fallacious, can be identified as contributing to this mess.

You may get a crazy man for President if you believe that the best qualification for the office is being a rich businessman. No, not all rich businessmen are crazy. But some are. And the skill set of a businessman is no closer to what the presidency demands than the skill set of, say, a janitor (consider: a janitor keeps things clean and running, knows something about repairs, sometimes needs to manage a crisis, etc.)

Related to this: you may get a crazy man for President if you think the country should be run like a business. Which I guess means that the most successful countries are those which show a profit? Anyhow, I think we already tried this one back in the day with Bob McNamara and a “metric” for everything, including “body counts”. It ended in tears. Not enough space to deconstruct the deep confusion of values this kind of thinking represents.

You may get a crazy man for President if you believe that saying out loud whatever pops into your brain is the same thing as “honesty”.

You may get a crazy man for President if you think having a sane President is not as important as hanging on to a stolen seat in the Supreme Court. (Note to “strict constructionists”: maybe my copy of the Constitution is missing a page or something because I can’t find anything in it about the popular election of Supreme Court Justices)

You may get a crazy man for President if you think they’re all bums so what difference does it make. If this is what you believe, then given the choice between a crazy man and a sane women, you may go with the crazy man because he seems to be more fun, or simply throw up your hands altogether and let everybody else decide.

You may get a crazy man for President if you believe that the job of the President is not to do what is best for the entire country but to give those you despise a poke in the eye with a sharp stick.

You may get a crazy man for President if you believe that things are so bad now they can’t get any worse. Actually, they can.

You may get a crazy man for President if you think that all reporters are biased and all news is slanted one way or the other. Shocking fact: there is such a thing as journalistic standards and there are actually reporters and news outlets that take them very seriously. And there are also those that don’t. And that matters.

You may get a crazy man for President if you notice the clear evidence of his insanity during the campaign but decide to ignore it and vote for him anyway because his party is your party, and besides it’ll probably be OK, he’ll surround himself with sane adults and somehow be kept under control.

It’s frustrating and seemingly pointless to try to reason with a crazy man. Rational argumentation seems so much wasted breath. At the risk of sounding vindictive (I wish no physical harm to the man) it seems to me the best advice is: “Don’t get mad, get even”. Which means winning elections. It’s the only way of reducing and hopefully eliminating the power of this crazy man and his enablers to do immense and lasting harm.

A Tale of Two Tax Triggers

David Posnett — Mon, 29 May 2017 17:27:13 +0000

Tax Policy Center — May 17,2017

Richard C. Auxier

Oklahoma is running a nearly $1 billion budget deficit. The District of Columbia (DC) is enjoying a surplus. Yet both might kill scheduled tax cuts. And, for different reasons, both show tax cut schedules are only as good as their schedulers.

According to the Center on Budget and Policy Priorities, nine states plus DC have used “triggers” since 2002 to spread tax cuts over several years—eight are ongoing. A trigger is like a phased-in tax cut except the reduction only occurs if and when the state reaches some fiscal benchmark, such as future revenue growth.

Triggers can help states provide fiscally responsible tax relief—if designed well. They can also make it easy for lawmakers to pass large tax cuts that imperil future budgets—if executed poorly.

Oklahoma is a model of poor design and execution. Its glaring flaw: tying the tax cuts to estimated revenuerather than actual revenue. As my then-colleague Norton Francis wrote in a prescient January 2015 post, “It’s clear that lawmakers wanted the tax cut regardless of the budget implications.”

Oklahoma passed a two-step tax cut in April 2014. It scheduled a reduction in the state’s top income tax rate from 5.25 percent to 5 percent in January 2016 if the December 2014 revenue estimate for fiscal year (FY) 2016 was higher than the February 2013 estimate for FY 2014. Not only was it convoluted and impossible for voters to understand, but it was designed to effectively guarantee the rate cut under a misleading banner of fiscal responsibility.

By December 2014, oil prices and production were collapsing and the state’s economy was struggling. Oklahoma was already estimating a $300 million budget hole for fiscal 2016. But remember the trigger was not tied to the actual budget conditions, and the FY 2016 revenue estimate was still slightly higher than the FY 2014 estimate. Thus, even though the state could not afford $100 million in tax cuts, the trigger was pulled.

With a slowing economy and falling revenue, the state has faced deficits approaching $1 billion every year since 2015. The budget cuts enacted in response were so severe that 20 percent of Oklahoma school districts moved to a four-day week. Still, the legislature would not even consider bills to stop the triggers in 2015 or 2016.

But Oklahoma’s fiscal hole is now so deep that lawmakers have killed the second trigger before it could go off. If they had not changed the law, the income tax rate would have been cut to 4.85 percent in 2018 if next year’s total estimated revenue growth was greater than the estimated cost of the tax cut. Lawmakers didn’t want to risk it.

DC’s story is very different. In 2014, the District passed major tax reform. (Disclosure: I worked for the tax revision commission that developed the reforms.) The reform package was a deal, with tax changes that benefited low-income residents (EITC expansion), middle-income residents (higher standard deduction), high-income residents (increasing the estate tax threshold), and businesses (lowering the corporate income tax rate). However, the DC Council didn’t adopt all of the commission’s suggested revenue raisers, so some of the cuts were tied to triggers in future years. But unlike Oklahoma, DC’s triggers were based on actualbudgets—specifically, they went into effect when realized revenue was greater than budgeted revenue. The triggered cuts were set to begin in January 2016, and take effect over three to five years. However, DC’s revenue was so strong that all remaining cuts were pulled in February.

That windfall triggered a debate. Two DC councilmembers want to delay cuts in corporate and estate taxes, and progressive groups are lobbying to spend the excess revenue on affordable housing, transit, and to protect against possible federal budget cuts. However, business groups argue the business cuts were part of the original deal and the cuts are needed to sustain recent economic success. Further, the council chair stated, “any effort to repeal them is, in effect, raising taxes.”

You can think DC should go ahead with its tax cuts (and I do) and still appreciate the debate. In stark contrast to Oklahoma, DC set a responsible schedule for its cuts and checked the math as its fiscal situation changed. That’s what lawmakers are supposed to do, especially at a time of weak state revenue growth and unpredictable federal policies. It’s called a trigger for a reason; you can take your finger off it.

“Assume A Can Opener” — Trump’s Can Opener Budget

David Posnett — Mon, 29 May 2017 17:22:01 +0000

The Tax Policy Center

By Howard Gleckman

You know the old joke: An economist and a seaman are stranded on a desert island with only canned food to eat. But they have no way to open the containers. “What do we do,” asks the sailor. “Assume a can opener,” replies the economist.

That, in a nutshell, describes President Trump’s 2018 budget request. On its face, it claims to accomplish five major goals: It would significantly cut taxes, boost spending on the military and border control, slash spending for regulation and safety net programs for the poor, protect most of Medicare and Social Security, and balance the budget in 10 years.

But it all only hangs together thanks to that hypothetical kitchen device, a big dose of supply side economics, and a black box the size of an aircraft hanger. The President’s budget will balance in a decade only if the economy grows far faster than nearly all economists think it can. And that implausibly rapid growth, the White House argues, will happen largely thanks to huge tax cuts that it never describes in more than a few bullet points. The result: The government will collect $2.7 trillion more over the next decade than under current law. Combined with $3.5 trillion in spending cuts, the budget will be balanced.

The fiscal plan projects that economic growth will ramp up rapidly from 2.3 percent this year to a sustained 3.0 percent rate by 2021. That’s vastly higher than the Congressional Budget Office forecast, which projects 1.6 percent growth for the next few years, rising to an average of 1.9 percent from 2021 to 2027. The Federal Reserve projects roughly 1.8 percent growth over the period.

The administration, though, is banking on powerful supply-side effects of what the President says will be historic tax cuts: As soon as fiscal year 2021, the budget asserts, his fiscal policy will generate more tax revenue than current law. By 2027, the Trump tax plan will produce revenue equal to 18.4 percent of the economy, the same as CBO’s current law projection. But because the economy will be so much bigger, Trump’s fiscal plan will generate $600 billion in additional revenue.

There are two problems with this rosy scenario, to borrow an old phrase. The first is that it very likely overstates the effect of any tax cuts on economic growth. The second is that it vastly overstates the positive effects of a Trump-like tax cut on growth. Indeed, if the President’s proposal looks anything like what he offered during the campaign, its medium-term effects on the economy would be modest at best, and its long-term effects would be negative.

To take the first problem first, while tax policy can affect the economy on the margins, the biggest drivers are labor force growth and productivity. Trump can’t do much to boost the number of US workers short of, say, raising the age of Social Security eligibility or opening the borders to immigrants (neither idea is in his budget). And productivity growth is largely a result of new technology and businesses processes, which are notoriously hard to predict and mostly immune from tax policy.

Without an explosion of workers or new tech, it is hard to see how Trump could get the economy growing at a sustainable rate of 3 percent even with the best of policy choices. But Trump’s tax policy, at least as he has described it so far, falls far short of ideal.

The budget promises that the president’s unspecified tax cuts would increase revenues by $2.7 trillion over 10 years. But last October, the Tax Policy Center, in partnership with the Wharton School at the University of Pennsylvania, estimated that Trump’s last campaign plan would reduce federal revenue by $6.2 trillion over the same period.

Are these the same proposals? It is impossible to know since most specifics are either undecided or hidden in that black box. Trump’s one-page outline in April described some changes to his campaign plan, but it is roughly the same proposal and its revenue effects are likely to be similar.

The budget document itself includes a revenue estimate for exactly one significant tax policy change—a proposal to make it harder for some immigrants to claim the Earned Income Tax Credit and the Child Tax Credit. Beyond that, it merely restates that one-page summary but without specific revenue estimates.

The lack of detail? Another can opener, according to Budget Director Mick Mulvaney. He told reporters yesterday, “We do assume in this budget that that plan is deficit-neutral, just because it was, in all honesty, the most efficient way to look at it.”

But wait, you may be saying, isn’t Trump offsetting his tax plan with spending cuts? The problem is the president can’t use the same spending reductions to pay for new military and border security initiatives, finance big tax cuts, and balance the budget. At least he can’t without the help of that handy can-opener.