Retirement, Driving, Greenhouse Gases and Tax Burdens

On the Hill today…  IRS Commissioner appears before the House Ways and Means Subcommittee on Oversight to review the 2014 tax filing season and other issues facing the IRS, including a little political theater.

“Early withdrawal” is the new “rainy day.” With the economy still sluggish and joblessness high, Americans were willing to pay tax penalties to  tap their retirement accounts early. In 2011, the IRS collected 37 percent more in penalties than in 2003, as  Americans withdrew about $57 billion in retirement savings before retirement. The median size of a 401(k) was $65,300 for people older than 55. A retirement crisis may come sooner than expected.

Sunny California considers a miles-driven, not gasoline, tax. Democratic California Senator Mark DeSaulnier just introduced a bill to test a voluntary vehicle miles traveled (VMT) tax. State gasoline tax revenues are falling thanks to growing ownership of fuel efficient cars. The program might look like an Oregon effort: late last year its voluntary VMT replaced a 30 cents per gallon state gasoline tax with a 1.5 cents per vehicle mile traveled levy.

Given greenhouse gases, how about cutting to the chase—with a carbon tax? The White House released a huge report on climate change and reveals that its effects are already being felt throughout the US. The report neglects a rather obvious, if politically difficult, solution shared by TPC’s Howard Gleckman: “If you want people to do less of something, raise the price. In this case, if you want people to use less carbon-emitting fuel, tax it—a lot.”

Happy days are here again, for at least some in Missouri. The state legislature overrode Democratic Governor Jay Nixon’s veto of the state’s first income tax cut in over 100 years. Incremental cuts to the top income tax rate will begin in 2017, and will only take place if revenues continue to grow by at least $150 million over their high mark from the previous three years. About 2.5 million individuals and families will enjoy the tax cuts, with most of the enjoyment going to the wealthy.

Not so happy together in the European Union. Germany, France, Spain, Italy, Belgium, Austria, Portugal, Greece, Estonia, Slovakia and perhaps Slovenia would like a financial transaction tax on equities and derivatives starting in 2016. Their goal: Curb derivatives and encourage financial firms to bear a larger share of the tax burden. Those derivatives, by the way, take the biggest share of blame for the 2008 global financial crisis. Britain, home to Europe’s largest financial center, derides the effort as a populist measure that will harm banks’ competitiveness. Sweden and the Netherlands aren’t fans, either.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.