Opinion

The Great Debate

from Reuters Money:

Deficit cutting need not be cruel

SPAIN-ECONOMY/Congress needn't be cruel to be kind in cutting the U.S. budget deficit while saving popular programs like Social Security and Medicare.

That's not to say that taxes don't need to rise, deductions pared and giveaways to corporations eliminated. That all needs to be considered, although the recent deficit commission report doesn't do the dirty work in an equitable manner. It places far too much emphasis on paring Social Security benefits, a system that works and won't be in deficit mode for several decades.

There's plenty of pain to go around in the deficit commission's proposal. The most compelling trade-off is based on the idea that lowering personal income-tax rates will achieve some long-term economic stimulus. That thinking hasn't worked in the past and won't work now.

The commission proposal has embraced the wrong incentives based on supply-side philosophy that has never put a dent in unemployment, which only got worse during the Bush tax-cut era.

At first blush, compressing tax rates to three brackets -- 12 percent, 22 percent and 28 percent -- has some immediate appeal. The dreaded alternative minimum tax is eliminated and 150 deductions are pared. To offset the lost revenue from the lower rates, the commission proposes cutting itemized deductions such as mortgage interest and taxing dividends and capital gains at ordinary rates.

Institutional failure week

-The opinions are the author’s own-

By the end of this week, the U.S. will face a government that is unable to act to aid the economy and a Federal Reserve that is unable to stop.

The stock market may well rise on this dysfunctional combination, only serving to prove that the economy and market are becoming fundamentally disconnected.

Tuesday’s election may well deliver a split Congress with the Republicans in control of the House of Representatives and the Democrats clinging to a narrow majority in the Senate. This means that there is no chance of further meaningful stimulus and that Democratic timidity will likely harden into an intransigence to match that of the Republicans.

Taxing spoils of the financial sector

If you want less of something, tax it.

That truism is often used as an argument against a tax on profits, or health benefits, or employment, but in the case of the rents extracted from the economy by the financial services industry here’s hoping it proves more of a promise than a threat.

The International Monetary Fund has put forward two new taxes on banks to pay the costs of future rescues, one of which is a fairly conventional “Financial Stability Contribution,” with an initial flat levy on all banks, to be refined later into something with more precise institutional and systemic risk adjustments.

More interestingly, the IMF is also proposing a “Financial Activities Tax,” (FAT) a tax on bank pay and profits which, if correctly designed, could serve as a tax on rents — the unwarranted spoils — of the financial sector.

from Ask...:

Should junk food be taxed?

Increasingly vocal calls for taxes on sugary drinks and junk food are fueling a behind- the-scenes battle that public health officials say is reminiscent of America's war on cigarettes.

Fueling the debate are revenue-hungry federal, state and local governments officials who are eying a potential $50 billion windfall from taxes on over 10 years.

Take a look at the New York City Department of Health's ad discouraging people from drinking sugary sodas, and let us know whether you think a junk food tax would be good public policy, or an intrusive step too far by the nanny state.

Europe frets over crisis exit strategy

Paul Taylor
– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Higher taxes? Lower public spending? Devaluation? Inflation? Investment in green growth?

European governments are pointing in very different directions as they debate an exit strategy from the global financial crisis. Despite European Union efforts to coordinate economic policy, there are clear signs that the main European economies will charge off in disarray towards separate exits.

A simpler way to pay taxes

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, dfr@hudson.org, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own.  –

It’s April 15, and you’ve finished the arduous task of filing your taxes. You’ve found your W-2 form from your employer, your pennies of interest income from your checking account. If you itemize, you’ve tracked down the acknowledgement of your charitable contributions to the church, the Sierra Club, and the local anti-poverty organization.

The system is so complex that it may have contributed to the tax delinquencies of four Cabinet-level Obama appointees (or their spouses) who had to pay up to win Senate confirmation. At least two other Obama choices withdrew because of their tax problems.

Higher taxes hit working wives

 Diana Furchtgott-Roth– Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor.  The views expressed are her own. —

Marriage is hard enough without the tax system making it even harder.

Look at Jeanne’s upcoming wedding to Rick.  Rick owns a plumbing firm and has taxable income of $160,000, and Jeanne’s taxable income as a teacher is $50,000.  Unmarried, he is in the 28 percent bracket and she is in the 25 percent bracket.  When they get married, they will be taxed at 33 percent — rising to 36 percent in 2011 if President Obama’s proposed tax hikes take effect.

By raising taxes on upper-income Americans, Congress would worsen our tax system’s marriage penalty on dual-income married couples, and Jeanne and Rick would pay even more tax married than single.

Will Obama raise fuel taxes?

John Kemp Great DebateJohn Kemp is a Reuters columnist. The views expressed are his own.

LONDON, Dec 8 (Reuters) – China’s decision on Friday to link domestic fuel prices to the international price of crude oil, but increase consumption taxes on gasoline and diesel sharply to spur more efficient use of energy in the medium term, raises the question whether the incoming Obama administration might be tempted to do the same.

China is taking advantage of a cyclical pull back in energy to push through a permanent structural increase in taxes and prices. The aim is to combine a short-term boost to the economy with longer-term and more consistent incentives for improving energy efficiency.

By consolidating a series of tolls and administrative charges into a single, easy to collect consumption tax, the government is simplifying the tax system, creating a new source of revenue, and ensuring the change will have no impact on the politically sensitive inflation rate.

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