It's hard to say no to children in need. The desire to help children is so fundamental that it can be hard for some people to reject poor public policy if it's enacted in the name of needy kids. This conflict between the desire to protect children and the desire to enact sound fiscal policy is at the center of the S-CHIP debate, a topic we have written about numerous times (here, here and here, among others). Unfortunately, many legislators and voters do not realize that these two goals need not be mutually exclusive; sound fiscal policy helps everyone—adults and children, rich and poor.
A new article from the Mises Institute titled "How Can You Oppose Health Care for Children?" analyzes the drawbacks of expanding S-CHIP with higher tobacco taxes, including some of the tax policy concerns we have written about. The article concludes:
Those favoring expanding SCHIP trumpet their compassion for children and attack opponents as inexcusably mean. But the Scrooge-versus-Tiny-Tim imagery is neither accurate nor complete. Instead, it crowds out rational consideration of an extremely questionable policy, especially when combined with urgent "we must act now" rhetoric. And if the strongest arguments supporters can make for it require both substantial misrepresentation and high pressure, they have a poor case.
FairTax Podcast with Bruce Bartlett
With the recent surge in the polls of Republican presidential candidate Mike Huckabee, the FairTax is a hot topic these days. The FairTax, which would replace the current income, payroll, estate and corporate income taxes with a national retail sales tax, has a large following of grassroots supporters, as well as many members of Congress (Senate and House). There are some academic economists who also favor it. On the other hand, it also has its critics and those who question the claims made by FairTax supporters.
The Tax Foundation recently conducted a podcast interview with one of the FairTax's biggest critics, Bruce Bartlett. Bartlett, once an adviser to President Reagan, has recently drawn the attention of many in policy circles following the release of his book Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy, which is critical of the economic policies of the Bush administration.
Last year, the Tax Foundation conducted a podcast with a FairTax supporter, Laurence Kotlikoff, who is a well-respected public finance economist from Boston University and the leading proponent of the FairTax in academic circles.
For more on the FairTax, both pro and con, here are some recommended articles, as well as a video link to an AEI event held earlier this year on the issue:
General information on the FairTax:
The FairTax Book by Neal Boortz and John Linder (Amazon page)
Legislation from Library of Congress (includes text of legislation, status, CRS Summary, cosponsors, etc.)
The FairTax (description from Fairtax.org)
National Retail Sales Tax (President's Tax Reform Panel chapter on a NRST)
Articles by Laurence Kotlikoff on the FairTax:
The Case for the FairTax (Kotlikoff op-ed in The Wall Street Journal)
Taxing Sales Under the FairTax: What Rate Works? (article in Tax Analysts discussing issues concerning the FairTax rate)
Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax
Articles by Brookings economist Bill Gale on the FairTax (mostly questioning the claims of FairTax supporters regarding required rate):
The National Retail Sales Tax: What Would the Rate Have To Be?
A Note on the Required Tax Rate in a National Retail Sales Tax: Preliminary Estimates for 2005-2014
Video of AEI panel discussion (including Kotlikoff and Gale) on what rate works under the FairTax
Thanks But No Thanks -- Americans Trust Their Own Arithmetic When Figuring Taxes
A new survey on tax attitudes by Bankrate.com finds that despite the complexity of filing an income tax return, most Americans don't want the government to fill it out for them.
Two-thirds of Americans would prefer to maintain control over their tax returns (65 percent) rather than let the government prepare their returns, if given that option.
And the IRS doesn't want that responsibility either. They'd rather take whatever money would be required to implement that plan (probably a huge amount) and spend it on their current auditing operations.
We've written before here and here about California's failed experiment with the so-called ReadyReturn. To test how Californians would react to a pre-filled-out tax return, the state mailed out 50,000 tax returns that were all filled out for people to just sign and return. 39,000 people threw them away and filled out their own returns.
That failure didn't stop John Edwards and Barack Obama from promising that if they're elected, they'll have the IRS fill out our tax returns.
The best way to reduce the staggering costs of tax compliance -- at the state or federal level -- is to simplify the income tax code to the point where taxpayers can easily and quickly calculate their own tax liabilities. That will require fundamental tax reform.
Governor Blagojevich: Close Corporate Loopholes, But My Private Trips Are Not Income
It turns out that Illinois Governor Rod Blagojevich, the man who vehemently argued earlier this year that corporations are avoiding paying their fair share in taxes to the State of Illinois, may be avoiding paying his fair share -- to the IRS. An AP article cites how Blagojevich has used large sums of state-funded travel since taking the governorship in 2003, some of which could be considered part of adjusted gross income according to federal tax law. Here's the story from The Rockford Register Star:
On Memorial Day, Gov. Rod Blagojevich huddled with legislative leaders in his Capitol office in what turned out to be another futile attempt to negotiate a state budget deal.
Then Blagojevich did what millions of people do after work: He went home. The difference is that the governor flew 150 miles to Chicago on a state plane, then used it to return to Springfield the next day.
That trip and dozens of other flights over the past five years could create tax headaches for Blagojevich and wind up costing Illinois taxpayers tens of thousands of dollars, according to an Associated Press analysis and interviews with tax experts.
The problem? The Internal Revenue Service might consider Blagojevich's flights to be personal trips and a taxable fringe benefit.
The AP analysis covers nearly 1,000 flights on state aircraft by Blagojevich, his family and guests. It found per-sonal travel that could be considered extra income to the governor of at least $225,000, based on the cost of hiring private planes in Illinois.
The additional income could mean a $60,000 tax bill for Blagojevich, according to the analysis. And unless he amends his past tax returns and pays the sum, the state could be penalized for not reporting the travel, according to tax law. The penalty could exceed $40,000, the AP review shows.
Blagojevich has an office in Chicago and may travel there for business without repercussion. Otherwise, the travel is taxable, said Marianna Dyson, an employment and fringe-benefits lawyer with Miller & Chevalier in Washington, D.C.
Meanwhile, one of Blagojevich's advisers was indicted on federal tax charges last week. Here's that story from the Chicago Tribune:
Christopher Kelly, a close adviser to Gov. Rod Blagojevich and chief fundraiser on his two campaigns for governor, was indicted today on federal tax fraud charges, accused of understating more than $1.3 million in personal and business income on tax returns for five years, federal authorities said.
The indictment charged that Kelly concealed his use of corporate funds to pay for personal expenses such as gambling debts to sports bookmakers.
The wealthy roofing contractor has been one of the governor's most trusted confidants and acted as Blagojevich's campaign chairman from 2004 until summer 2005.
Recall this Blagojevich quote from a press release back in March:
We’re going to keep working hard to make sure the public has access to the facts about how the current tax system is stacked against individuals and families – and how our Tax Fairness plan makes sure Illinois businesses stay competitive while requiring all entities that conduct business in our state to help support education and healthcare.
AMT Update: I'm Just a Bill on Capitol Hill
If there were a future's market on whether an AMT patch is going to be passed by this weekend (before Congress recesses for the year), the odds would most likely still be yes, but the stock would be falling. The latest from the Washington Examiner:
The congressional struggle over how to protect millions of middle-class people from getting soaked by the alternative minimum tax this year entered its final stage Tuesday as the Senate rejected a House demand that the $50 billion in tax relief be paid for.
The Senate voted 48-46 for the House-passed bill, well short of the 60 needed to advance the measure to shield 21 million from an average AMT bill of $2,000. The measure would have covered the cost of the lost revenue by closing a loophole on offshore tax havens.
With that vote, the House was scheduled to vote Wednesday on a Senate-passed measure that fixes the AMT for a year but provides no offsets to pay for it.
"Democrats are determined to protect middle-class taxpayers from the AMT before we adjourn for the year, and we are very disappointed that Republicans continue to block responsible relief," House Majority Leader Steny Hoyer, D-Md., said.
Republicans and the White House insist that, because the AMT was never meant to affect millions of people, there is no need to raise taxes to pay for legislation to keep it from growing.
Here is the roll call vote. Only Snowe (R-ME) crossed party lines in the vote, while the presidential candidates and Feinstein were absent.
CongressDaily PM (subscription only) had this to say earlier about whether or not the House will pass a patch with no offsets.
Pressure from House Blue Dog Democrats and a gambit by Speaker Pelosi today prompted Senate Majority Leader Reid to agree to a vote on an alternative minimum tax patch that is fully offset. Reid agreed to include the offsets after Pelosi threatened to delay sending the omnibus spending bill to the Senate. (See story above). The persistence of the Blue Dogs -- and more than 30 votes they wield on the floor to press their position -- appeared to have put House leaders in a pickle about how to pass the AMT patch and prevent 21 million taxpayers from seeing tax increases next year. Asked this morning whether the House will pass an AMT patch before leaving for the year, House Majority Leader Hoyer said "maybe."
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