Paul Krugman | Biden, Yellen and the War on Leprechauns – The New York Times

Opinion Columnist

Credit…Illustration by The New York Times; photograph by Thinkstock, via Getty Images

“In the summer of 2016, Ireland’s Central Statistical Office reported something astonishing: The small nation’s gross domestic product had risen 26 percent in the previous year (a number that would later be revised upward). It would have been an amazing achievement if the growth had actually happened.

But it hadn’t, as government officials acknowledged from the beginning. It was, instead, an illusion created by corporate tax games. At the time, I dubbed it “leprechaun economics,” a coinage that has stuck; luckily, the Irish have a sense of humor about themselves.

What really happened? Ireland is a tax haven, with a very low tax rate on corporate profits. This gives multinational corporations an incentive to create Irish subsidiaries, then use creative accounting to ensure that a large share of their reported global profits accrue to those subsidiaries.

In 2015 a few big companies appear to have gotten even more aggressive about their profit-shifting, which led to a surge in the value of production they reported doing in Ireland — a surge that didn’t correspond to anything real.

To understand the big corporate tax reform proposed by the Biden administration, what you need to know is that it’s all about the leprechauns.

One way to think about the huge corporate tax cut Republicans rammed through in 2017 is that its underlying premise was that the leprechauns were real. That is, the tax cut’s architects insisted that corporations had been moving operations abroad to avoid U.S. taxes, and that slashing those taxes would bring millions of jobs back home.

It didn’t happen. In fact, the tax cut had no visible effect on business investment, probably because it was addressing a fake problem. U.S. corporations hadn’t been moving jobs overseas to avoid taxes; they had just been avoiding taxes.

The true impact — or actually lack of impact — of profit taxes on business decisions becomes obvious if you look at where corporations report big overseas earnings.

If they were truly responding to taxes by making large foreign investments that eliminated American jobs, we’d expect to see a lot of their profits coming from major production centers like Germany or China. Instead, more than half of the profits U.S. corporations report from overseas investments come from tiny tax havens, including places like Bermuda and the Cayman Islands where they have no real business at all.

By the way, this isn’t just an American problem. The International Monetary Fund estimates that about 40 percent of the world’s foreign direct investment — basically corporate cross-border investment, as opposed to “portfolio” purchases of stocks and bonds — is “phantom” investment, accounting fictions set up to avoid taxes. That’s why on paper Luxembourg, with just 600,000 people, hosts more foreign investment than the United States does.

So the real problem with U.S. corporate tax policy isn’t loss of jobs, it’s loss of revenue — and the Trump tax cut made that problem worse.

For the most part the Biden administration’s Made in America Tax Plan is an effort to reclaim the revenue lost both as a result of profit-shifting and as a result of the Trump tax cut, in order to help pay for large-scale public investment.”   . . .

Paul Krugman | Bidenomics Is as American as Apple Pie – The New York Times

“. . . The Biden administration infrastructure fact sheet alludes to part of that history, declaring that the plan “will invest in America in a way we have not invested since we built the interstate highways and won the space race.” Indeed, one way to think about the Biden program is that it’s an attempt to bring back the Dwight stuff — that is, in fiscal terms it would represent a partial return to the Eisenhower era, when we had much higher government investment as a share of gross domestic product than we do now, and also much higher tax rates on both high-income individuals and corporations.

The era of big government investment and high taxes on the rich coincided, not incidentally, with the U.S. economy’s greatest generation — the postwar decades of rapidly rising living standards.

But the story of public investment and progressive taxation in America goes back much further than the ’50s.

We’ve relied on government infrastructure investment to jump-start economic growth ever since the construction of the Erie Canal between 1818 and 1825. Unlike the privately owned canals that had proliferated in 18th-century Britain, the Erie Canal was built by the government of New York State, at a cost of $7 million. This may not sound like a lot, but the economy was vastly smaller then, and prices much lower too. As a share of state G.D.P., the canal was probably the equivalent of a $1 trillion national project today.

And a big public role in infrastructure continued down the generations. Land grants were used to promote railway construction and higher education. Teddy Roosevelt built the Panama Canal. F.D.R. brought electricity to rural areas. Eisenhower built the highway network.

So when Republicans denounce the American Jobs Plan as an “out-of-control socialist spending spree,” remember, large-scale public investment is the American way.

We can say much the same thing about Biden’s tax proposals.

Actually, given extremely low borrowing costs it’s not obvious that we would even need a tax hike if infrastructure spending were the end of the story. But we will need more revenue to pay for the whole Biden program, which everyone expects will eventually include another round of spending targeted on families. So it makes sense to tie tax hikes to the jobs plan; polling suggests that paying for public investment with taxes on corporations and the rich increases support for an infrastructure plan, and that something along the lines of the Biden proposals will command very high public approval.

Republicans will no doubt denounce the idea of taxing the rich as un-American class warfare. In reality, however, such taxation is another long tradition in this country. As Thomas Piketty, the inequality scholar, likes to put it, America basically invented progressive taxation.” . . .

What’s the Recovery Rebate Credit? | Kiplinger

“There’s a new tax credit showing up on the Form 1040 this year: The Recovery Rebate Credit. If you didn’t get a stimulus check – or you only got a partial check – then you certainly want to make sure you check out the credit before you file your 2020 tax return.

The recovery rebate tax credit and stimulus checks are joined at the hip. Both the first ($1,200) and second ($600) stimulus checks were simply advance payments of the credit. So, if the combined total of your two stimulus checks (i.e., advance payments) is less than the recovery rebate credit amount, you may be able to get the difference back on your 2020 tax return in the form of a larger tax refund or a lower tax bill. If your stimulus checks exceeded the amount of the credit, you don’t have to repay the difference. Either way, you win!”

Source: What’s the Recovery Rebate Credit? | Kiplinger

Opinion | How to Collect $1.4 Trillion in Unpaid Taxes – The New York Times

The editorial board is a group of opinion journalists whose views are informed by expertise, research, debate and certain longstanding values. It is separate from the newsroom.

“When the federal government started withholding income taxes from workers’ paychecks during World War II, the innovation was presented as a matter of fairness, a way to ensure that everyone paid. Irving Berlin wrote a song for the Treasury Department: “You see those bombers in the sky? Rockefeller helped to build them. So did I.”

The withholding system remains the cornerstone of income taxation, effectively preventing Americans from lying about wage income. Employers submit an annual W-2 report on the wages paid to each worker, making it hard to fudge the numbers.

But the burden of taxation is increasingly warped because the government has no comparable system for verifying income from businesses. The result is that most wage earners pay their fair share while many business owners engage in blatant fraud at public expense.

In a remarkable 2019 analysis, the Internal Revenue Service estimated that Americans report on their taxes less than half of all income that is not subject to some form of third-party verification like a W-2. Billions of dollars in business profits, rent and royalties are hidden from the government each year. By contrast, more than 95 percent of wage income is reported.

Unreported income is the single largest reason that unpaid federal income taxes may amount to more than $600 billion this year, and more than $7.5 trillion over the next decade. It is a truly staggering sum — more than half of the projected federal deficit over the same period.

The government has a basic obligation to enforce the law and to crack down on this epidemic of tax fraud. The failure to do so means that the burden of paying for public services falls more heavily on wage earners than on business owners, exacerbating economic inequality. The reality of widespread cheating also undermines the legitimacy of a tax system that still relies to a considerable extent on Americans’ good-faith participation.

Proposals to close this “tax gap” often focus on reversing the long-term decline in funding for the I.R.S., allowing the agency to hire more workers and to audit more wealthy taxpayers. But Charles Rossotti, who led the I.R.S. from 1997 to 2002, makes a compelling argument that such an approach is inadequate. Mr. Rossotti says that Congress needs to change the rules, by creating a third-party verification system for business income, too.

The core of Mr. Rossotti’s clever proposal is to obtain that information from banks. Under his plan, the government would require banks to produce an annual account statement totaling inflows and outflows, like the 1099 tax forms that investment firms must provide to their clients.

Individuals would then have the opportunity to reconcile what Mr. Rossotti dubs their “1099New” forms with their reported income on their individual tax returns. One might, for example, assert that a particular deposit was a tax-exempt gift.”

David Lindsay:  I haven’t started my taxes yet, but there is still time. I will resist the temptation to cheat. But I’m no flying angel. Didn’t I just pay my plumber in cash. Cheating a little on taxes is a national pass time, which is about to slowly disappear because of technology. In China, the PRC, the government is getting rid of cash, because electronic payments are easily monitored. They are handing out cell phones to beggars, so that they can receive donations that are electronic.

Opinion | The I.R.S. Is Outgunned – By Natasha Sarin – The New York Times

By 

Dr. Sarin is an assistant professor at Penn Law and the Wharton School of Business.

Credit…Al Drago for The New York Times

“The president of the United States paid less in federal taxes than all but the poorest Americans the year he was elected. This is in large part because he lost more money than nearly anybody else in this country for years, a troubling fact given his promise to “run America like his business.”

But the responsibility for his meager $750 tax bill does not lie with President Trump alone, nor with his tax advisers. Instead, the newest revelations put a very famous face on a problem that has long existed: The wealthy aren’t paying what they owe, and our tax system allows it.

This is not a new problem, but it is one that has gotten worse in the last decade, the result of a partisan attack on the I.R.S. that has deprived it of the resources it needs to police evasion aggressively. In the last decade, the I.R.S.’s budget has fallen (in real terms) by nearly 15 percent. Its enforcement budget has fallen 25 percent over this period, and its work force has been slashed by 20 percent.

These grim numbers do not even take into account the growth in the economy and the increasing complexity of tax returns. In fact, as a share of gross tax collections, the I.R.S. budget is down nearly 50 percent from its peak in 1993.

As my work with the former Treasury Secretary Lawrence Summers shows, the result of this underinvestment is that the I.R.S. today cannot administer tax laws effectively. Based on current trends, in the next decade the I.R.S. will fail to collect an estimated $7.5 trillion in owed tax. That “tax gap” corresponds to nearly 3 percent of G.D.P. annually.

The beneficiaries of a gutted I.R.S. are the elite. Even if all taxpayers were equally likely to evade their liabilities, the benefits to the top 1 percent from underpaying would still be significant: 1 percent of this $7.5 trillion, or $75 billion. But the top 1 percent share of the tax gap is at least 30 times this amount, more than $2 trillion in the coming decade.

To understand this magnitude, consider this: If the I.R.S. were able to collect the unpaid taxes that the top 1 percent owe — absent any increases in top tax rates or new system of wealth taxation — enough revenue would be generated to wipe out student debt for most people in this country.

Why are the wealthy skirting the tax laws most aggressively? It’s a feature of our tax collection system. Compliance rates for ordinary wage and salary workers are 99 percent because their taxes are automatically withheld. In contrast, richer Americans are more likely to have items like capital gains, rental income and proprietorship income — and the I.R.S. estimates that up to 55 percent of the income from such sources can be unreported, and thus untaxed.”

Opinion | The Tax Cut for the Rich That Democrats Love – By Richard V. Reeves and Christopher Pulliam – The New York Times

By Richard V. Reeves and 

Mr. Reeves is a senior fellow at the Brookings Institution, where Mr. Pulliam is a research analyst.

Credit…Alex Edelman/Getty Images

“Joe Biden tells us he is intent on winning in November “for the workers who keep this country going, not just the privileged few at the top.”

The election is a referendum not only on the moral failings of President Trump, Democrats argue, but on the economic fissures of the new economy. It is a fight, Mr. Biden says, on behalf of “the young people who have known only an America of rising inequity and shrinking opportunity.”

Why on earth, then, are Democrats fighting — and fighting hard — for a $137 billion tax cut for the richest Americans? Mr. BidenNancy Pelosi and Charles Schumer don’t agree on everything, but on this specific issue they speak with one voice: the $10,000 cap on deductions for state and local tax (better known as the SALT deduction) must go.

The House of Representatives has already passed legislation removing the cap, allowing the amount of the deduction to rise. If the Senate turns blue in November, Democrats have promised to return to the issue. “I want to tell you this,” Senator Schumer said in July, “If I become majority leader, one of the first things I will do is we will eliminate” the SALT cap “forever.” It “will be dead, gone and buried.”

Opinion | The Inheritance Tax Is Far Too Low – By Lily Batchelder – The New York Times

By 

Ms. Batchelder is a professor at New York University School of Law.

Credit…Michael Houtz

“A massive transfer of wealth is underway and will accelerate in the coming years. Baby boomers and the generation that preceded them currently own $84 trillion, or 81 percent of all U.S. household wealth — wealth that will before long be inherited by their children and other beneficiaries.

This extraordinary transfer of resources will further cement the economic inequality that plagues the United States because this wealth is tightly concentrated in the hands of a few. And it will be passed on as taxes on such transfers are at historic lows.

Among high-income countries, the United States has one of the lowest levels of intergenerational economic mobility, meaning a child’s economic future is heavily influenced by his or her parents’ income. We have the second-highest level of income inequality after taxes and government transfers, and the highest level of wealth inequality. These disparities are sharply skewed by race. Median black household wealth is only 9 percent that of white households, a racial wealth gap that is even larger than in 1968New research suggests the pandemic will further increase wealth inequality, as the affluent save more and the poor earn less.

Effectively addressing these systemic inequalities will require many things. But increasing the taxation of inheritances is one vital component.”

Opinion | What Will the Coronavirus Do to Our Deficit? – By Paul Krugman – The New York Times

By 

Opinion Columnist

Credit…Bishara Mustafa/EyeEm, via Getty Images

“Almost a decade has passed since I published a column, “Myths of Austerity,” warning that deficit alarmism would delay recovery from the Great Recession — which it did. Unfortunately, that kind of alarmism seems to be making a comeback.

You can see that comeback in the gradually increasing number of news analyses emphasizing how much debt we’ll run up dealing with the Covid-19 crisis. You can also see it in the rhetoric of politicians like Mitch McConnell, the Senate majority leader, who is blocking aid to beleaguered state and local governments because, he says, it would cost too much.

So this seems like a good time to emphasize two key facts. One is economic: While we will run very big budget deficits over the next couple of years, they will do little if any harm. The other is that whatever they may say, very few prominent figures in politics or the media are genuine deficit hawks, who are actually worried about the consequences of rising government debt. What we mainly have, instead, are deficit peacocks and deficit vultures.

The term “deficit peacocks” was coined by the Center for American Progress for people who preen and posture about fighting deficits without offering realistic policy proposals. I’d broaden the term to include what I used to call Very Serious People — those who inveigh against the evils of debt not because they’ve done a careful analysis but because they imagine that it makes them sound earnest and tough-minded.

Who Pays For This? · by Morgan Housel – Collaborative Fund

 by Morgan Housel

“The federal government will run a $3.8 trillion deficit this year and $2.1 trillion next year.

Those estimates, from a budget-focused think tank, don’t include what’s almost certain to be another multi-trillion-dollar stimulus package or two, or three, in the near future.

We’re all just guessing, but when this is all over – however you want to define that – it would not surprise me if the direct federal cost of Covid-19 is something north of $10 trillion.

I’ve heard many people ask recently, “How are we going to pay for that?”

With debt, of course. Enormous, hard-to-fathom, piles of debt.

But the question is really asking, “How will we get out from underneath that debt?”

How do we pay it off?

Three things are important here:

  1. We won’t ever pay it off.
  2. That’s fine.
  3. We’re lucky to have a fascinating history of how this works.”

Source: Who Pays For This? · Collaborative Fund

Opinion | The Warren Way Is the Wrong Way – By Steven Rattner – The New York Times

By 

Mr. Rattner served as counselor to the Treasury secretary in the Obama administration.

Credit…Jordan Gale for The New York Times

“Senator Elizabeth Warren has unveiled her vision for how to pay for “Medicare for all” — a daunting mountain of new taxes and fees.

Thanks for providing us, Ms. Warren, with yet more evidence that a Warren presidency is a terrifying prospect, one brought closer by your surge in the polls.

Left to her own devices, she would extend the reach and weight of the federal government far further into the economy than anything even President Franklin Roosevelt imagined, effectively abandoning the limited-government model that has mostly served us well.

Ms. Warren may call herself a capitalist, but her panoply of minutely detailed plans suggests otherwise. She would turn America’s uniquely successful public-private relationship into a dirigiste, European-style system. If you want to live in France (economically), Elizabeth Warren should be your candidate.”

David Lindsay: I love Steve Rattner’s writing, but this is the weakest thing I’ve ever read by him. I don’t oppose Elizabeth Warren because she is wrong, she isn’t. I oppose her because I don’t think she would beat Trump in the electoral college, which is the only game in town for me.

Here are the two most liked comments in the NYT.  Rattner’s piece isn’t rubbish, but it is off, and both comments have merits:

Kay
Honolulu
Times Pick

This piece is rubbish and I say this as somebody with a PhD and an advanced understanding of economics. Our current economic system has built into its very design the perpetuation and worsening of inequality (read Piketty, Stiglitz, Saez, please) and the complete destruction of the climate system. Marginal efforts to address either will achieve just that—marginal effects. Warren’s plans can and will be tweaked but she’s got the basic right—fix equity and climate change through the redesign of capitalism, or face waaaaaay higher costs in the very near future, not to mention an unlivable planet.

27 Replies2191 Recommended

Sherry commented November 4

Sherry
Washington
Times Pick

What’s more disruptive, foreclosing on millions of Americans during the housing crash, or protecting them from Wall Street predators? What’s more disruptive, suing patients for unaffordable medical bills, and charging privately-insured patients ten times the cost of care, or covering all Americans with Medicare? Is it really “free enterprise” when the hospital contract is, essentially, “your money or your life”? What’s more radical, leaving corporations with more than $1 billion in charge of our government, or asking them to act responsibly? I am so sick and tired of hearing moderate Democrats charge Warren with being a radical who wants disruptive change when we are enduring radical and disruptive change and she it just trying to fix it.

11 Replies1637 Recommended:
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DL: Rattner’s piece isn’t rubbish, but it is off.