If there are any ranches in Detroit, President Obama has just bet one on his yet-unborn plan to cap greenhouse gasses. Obama has effectively ordered GM and Chrysler to build more fuel-efficient cars in return for billions more in federal bailout money. But will enough people buy those cars with gas at $2-a-gallon to make this a successful strategy?   more »

On March 24, Representative Paul Ryan (R-WI), the ranking Republican on the House Budget Committee, said this about the President’s budget: “Not only are we mortgaging our children's future; we are mortgaging our current prosperity. The President is proposing a gusher of new debt, new taxes, and more spending.” We are, he concluded, “on a massive borrowing, taxing, and spending spree.” The only problem is that Ryan and other Republicans are perfectly happy to propose spending increases of their own, as long as they are masked as tax cuts. The House GOP leadership is proposing a package of massive new housing subsidies, including a $5,000 credit for those who refinance their homes and a $15,000 credit for buyers. I hate to break the news, but these tax credits are spending.    more »

President Obama announced yesterday that he has asked former Federal Reserve Chairman Paul Volcker to head a new tax reform panel that will make recommendations by December 4th. This is great news. The current tax system is a complicated mess and can’t produce the revenues we will need in the coming years. But there is no reason for Volcker to reinvent the wheel. His panel could start by looking at the work of a bipartisan tax reform panel established by President Bush in 2005. I may be biased, since I served as the staff’s chief economist, but I think we designed a pretty good blueprint.    more »

The other day, President Obama told the Business Roundtable that he’d like to lower the corporate tax rate “in exchange for closing a lot of the loopholes that make the tax system so complex.” And so inefficient, he might have added. It is a great idea, and something that many other developed countries have done in recent years. But Obama has two problems. The first is that he keeps extending targeted business incentives, such as the research credit. Elminating these tax breaks makes good sense. But Obama is not only not eliminating old loopholes, he’s even created a few new ones.    more »

Do not read the new CBO budget projections by the dark of night. Instead, pick a bright sunny day and keep a significant other or perhaps a pet by your side. A good stiff drink wouldn’t hurt. If Stephen King were a budget wonk, A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook would be his kind of book. The headline is CBO’s projection that the deficit will hit $1.8 trillion this year under President Obama’s policies. That’s a deficit of more than 13 percent of GDP—twice as large as any annual deficit since 1946. But that’s far from the scariest number in this report. Far more troubling to me is what will happen after the economy recovers and fiscal policy returns to what I suppose will be the New Normal.    more »

It’s a shock coming home from a trip to the Southern Hemisphere. Besides returning to the tail-end of winter after a brief summer respite, I’m finding as a tax policy wonk that the political climate in Washington, DC also takes some adjusting to. Here, the Congress is rushing to pass a tax bill to confiscate bonuses that have aroused public ire (See March 19 blog). Down under, they actually discuss serious tax reform. The most pressing issue is the taxation of income from corporate equity. The top Australian corporate tax rate is 30 percent (It’s 35 percent here, plus an average of a bit over 4 percent for state taxes.) And Australia has eliminated the double taxation of corporate dividends; when Australian shareholders receive a dividend from an Australian company, they receive a credit for the company tax paid. The result is that shareholders are taxed once at their individual rates of up to 46 percent.    more »

The AIG bonuses are an outrage. But the bigger scandal is that a grandstanding Congress wants to use the tax law to punish the companies that paid them and the employees that got them. If Congress wants to limit bonuses for employees of bailed-out companies, it should just do it. But using the Internal Revenue Code is a truly terrible idea. And dipping into the Code to win political points is worse. Long ago, people were rightly outraged when Richard Nixon tried to turn the IRS into a weapon to punish his enemies. This gotcha tax is another variation on the theme, and nearly as inexcusable. Imagine, for instance, if a GOP Congress retroactively barred people from deducting charitable gifts to Planned Parenthood. Or Democrats imposed a 50 percent surtax on companies that that do security work in Iraq.    more »

In the presidential campaign, Barack Obama promised he’d cut taxes for 95 percent of all Americans. And, so far at least, it looks like he’s coming close to meeting that goal. I think this sort of largess is a mistake given the nation’s long-run fiscal problems. But GOP claims that Obama is trying to raise taxes for many Americans are bogus. TPC has just completed a major analysis of the tax provisions of the President’s 2010 budget. We found that, compared to current law, 91 percent of taxpayers would get a tax cut under the Obama plan. That is, they’d pay less tax than they would if the Bush tax cuts expired as scheduled in 2010 and the Alternative Minimum Tax is allowed to bite millions more taxpayers.    more »

We need to get a grip, people. This is not The Great Depression—The Sequel. Make no mistake, the economy is very bad, as rough as it has been since the early 1980s. But, despite what many are saying and writing, the recession that began in the winter of 2008 is not the Great Depression. Not even close. Employment, price levels, Gross Domestic Product, the stock market. Pick a data series, any data series, and you’ll get the same result: awful, for sure, but hardly 1929. CEA chair Christy Romer, a highly respected scholar of the Depression before joining the Obama Administration, put the current unpleasantness in context the other day at Brookings.    more »

President Obama’s promise of transparency in government is a laudable goal after too many years of near-obsessive secrecy by the Executive Branch. Unfortunately, at least when it comes to his tax agenda, the president’s new budget falls far short of that vow. Too many tax proposals are written in Inside-the-Beltway code. For many provisions, there is no description at all in the 134-page budget. Most can be found only by deciphering the tables in the back. Some items worth hundreds of billions of dollars appear only as mere footnotes. Others are nothing more than numbers in revenue tables. There are no real proposals at all.    more »

A few more thoughts on the president’s plan to limit the value of itemized deductions to 28 percent. First, if you’re in a panic that it will kill philanthropy, home building, and life as we know it, relax. It won’t. In 1981 the maximum value of itemized deductions fell from 70 percent to 50 percent. Between 1986 and 1988, the top bracket fell almost in half, from 50 percent to 28 percent. Still, people kept donating to charity and buying homes. Taxes affect behavior, but they are only one factor among many. The president’s proposal would not be a disaster.    more »

There are already signs that a key tax element of President Obama’s budget--his proposal to limit to 28 percent the value of all tax deductions—may not survive on Capitol Hill. And if it is allowed to die, Congress may find itself staring squarely at another hard-to swallow tax hike—trimming the tax exclusion for employer-sponsored insurance. Key Republicans have strongly objected to the curb on deductions. Powerful Democrats, including Finance Committee chairman Max Baucus (D-Mt), are less than enthusiastic. Charities that fear they will lose contributions are gearing up for a big fight, even though TPC estimates that gifts would decline by only about 2 percent. And in the face of this criticism the Administration has signaled that it may not fight very hard to save the proposal. "We recognize there are other ways to do this," Treasury Secretary Tim Geithner told the Finance panel yesterday.    more »

President Obama’s budget would eliminate a small but meaningful program for low-income families – the Advanced Earned Income Tax Credit (AEITC). A far better idea would be to expand the program. This credit allows eligible families to receive a portion of their Earned Income Tax Credit (EITC) throughout the year through a reduction in tax withholding, so they don’t have to wait until they file their tax returns to get the extra cash. In 2009, the program could boost a family’s take-home pay by up to $35 a week.    more »

Critics charge that President Obama’s plan to limit the value of itemized deductions to 28 percent would hurt charities at the time they most need financial support. Their argument: Since the maximum value of the deduction for donations to charity would fall from 39.6 percent to just 28 percent , the affluent will give less. Republican Whip, Eric Cantor, asked, “Is there any better time to have charities in full throttle than when you have tough economic times?” How much would the proposal affect donations? A back-of-the envelope estimate suggests that the Obama plan would reduce annual giving by about two percent, or roughly $9 billion. Here’s how we got there.    more »

In our report card grading the tax provisions of the stimulus bill, our highest mark went to the Making Work Pay credit because employers could deliver it to workers quickly by reducing withholding. The IRS, we were told, could implement new withholding tables by July so households would have more money to spend throughout the second half of the year. President Obama wanted the credit to start even sooner and ordered the IRS to have new tables ready in time for employers to reduce workers’ withholding by April 1. The IRS must have anticipated the change—just four days after the president signed the stimulus bill into law, the IRS announced new withholding tables and posted them on their website a week later.    more »