Counterparties: Happy Tax Day! You’re not done paying

April 17, 2012

It’s Tax Day. You’ve just signed, sealed and mailed your least favorite civic duty. Now get ready to pay more.

If Congress doesn’t act, David Leonhardt notes, on Jan. 1, 2013 we get “taxmageddon”: The average tax bill for a family making roughly $50,000 will jump by about $1,750, and nasty spending cuts kick in. The CBO’s analysis says total individual income tax revenue is set to nearly double by 2017. This is the “fiscal cliff” we’ve been hearing smart people warn about for months.

Yesterday, Congress shot down the “Buffett Rule,” which would have raised rates on America’s highest earners, the demographic that can best afford a tax hike. And to stave off Pentagon cuts, House Republicans are proposing some steep cuts to food stamps. So, we’ve got tax hikes for the wealthy being shot down, tax hikes for everyone else set to kick in during 2013 – and cuts to a safety net that more than 1 in 7 Americans rely on.

But whether we’re cutting services or paying higher taxes, we’re going to pay in some fashion. Ezra Klein spells out the dilemma:

In the coming years, the alternative to higher taxes is savage cuts to the Pentagon, and to food stamps, and to Medicaid, and to Medicare. Indeed, the reality is that even with higher taxes, all those programs are going to come in for cuts. Without taxes, the required cuts to government services will be far beyond anything either party has dared to specifically propose.

Before we start severely cutting social programs, should Americans even worry about their tax levels? Americans rarely cite taxes as the reason they’re not doing well financially, and when they do, it spikes in tax-filing season. Overall, fewer than half of Americans think their tax bill is too high (though 68 percent of Americans think the tax code favors the wealthy). Total government tax receipts, as Jonathan Cohn notes, are lower as a percentage of GDP in America than in any other country in the OECD other than Australia.

Even better than raising taxes would be fixing the way taxes actually work. Mitt Romney’s reported suggestion that he’d consider eliminating tax deductions for some mortgages was a good place to start (it’s too bad he backtracked). Tax expenditures like those, Betsey Stevenson and Justin Wolfers smartly point out, cost taxpayers $1.3 trillion per year. This is just spending by another name.

And on to today’s links:

Visible Hands
“We’re all in the same boat and the captain is a government bureaucrat” – WSJ

Tax Arcana
Obama called “politically astute” for not taking advantage of perfectly legal tax codes – Fortune
Meet the lauded income-inequality scholars who want to raise top tax rates up to 90% – NYT
The tax code is “America’s biggest spender” – Bloomberg
The world’s top incomes database – Piketty and Saez
Three good first steps to reversing the falling tax rates for the wealthy – Off The Charts
Why the VAT in the U.S. is like MacArthur in the Pacific – NYT
Florida’s rent-a-cow tax break – The Atlantic
Trying (and failing) to add up the numbers in Romney’s budget – Econbrowser
The 6 principles of fair taxes – Jared Bernstein

John Paulson is short your euro zone – Bloomberg

EU Mess
“Full crisis mode”: Spain may take control over at least one of its regional governments – Guardian
World Bank chief: “The survival of the eurozone now depends on Italy and Spain” – World Bank
China’s view of the European crisis – Chicago Review

1 Jamie Dimon is equal to 67 average JPMorgan I-bankers – Bloomberg
Citigroup shareholders decide not to pay Vikram Pandit $15 million – Dealbook

Reuters Opinion
The rise of lovely and lousy jobs – Chrystia Freeland
Let’s stop talking about a “double-dip recession” – James Ledbetter
The immigration-averse U.S. – Felix
Can the euro omelette be unscrambled? – Hugo Dixon
The lobbying group behind “Stand Your Ground” laws – Joanne Doroshow
Stop conflating microfinance and entrepreneurship – Elmira Bayrasli

Crisis Retro
What five years of crisis history tells us – FT Alphaville

The SEC has no hope of monitoring high-frequency trading, ex-agency lawyers say – HuffPo

Fed officials leave for the private sector, surprising exactly no one – HuffPo



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