TaxVox: Individual Taxes

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The voices of Tax Policy Center's researchers and staff

Individual Taxes

Hire More IRS Agents

January 6, 2009 –
Yes, you heard that right. The time is perfect in this abysmal economic environment to beef up the IRS. IRS audit resources have never fully recovered—in relation to the workload the IRS faces—from the IRS-bashing of the late 1990s. That’s too bad because IRS internal studies show each dollar spent on an additional examiner brings in on average 4 to 5 dollars of additional revenue. Fortifying enforcement would seem to be a “no-brainer” when we have a tax gap of at least $400 billion. (The last estimate, for tax year 2001, was a gap of $350 billion.)
Individual Taxes

McConnell Proposes Stimulus for Tax Preparers

January 6, 2009 –
Senator Mitch McConnell proposed over the weekend to cut the 25-percent tax bracket to 15 percent as part of the economic recovery package. This might make sense politically, but it’s a pretty dubious economic stimulus. On the positive side, the proposal wouldn’t cost much compared with the hundreds of billions bandied about by the president-elect. Total cost: $18 billion in 2009. But it’s so cheap because it would throw 5 million taxpayers onto the AMT, boosting AMT revenues by almost 80 percent. (More middle-class taxpayers fall prey to the shadow tax system because the lower tax rate pushes regular tax liability below the AMT threshold.)
Federal Budget and Economy

Obama's $300 Billion Tax Cut: Lots of Buck, Not Much Bang

January 5, 2009 –
The soon-to-be Obama Administration floated quite a trial balloon over the weekend: $300 billion in tax cuts for workers and business over the next couple of years. When you get past the eye-popping number, perhaps the most striking element is how conventional most of the ideas are. For individuals, they’d include some version of Obama’s Making Work Pay Credit, a refundable tax credit (aka cash payment) for everyone making roughly $200,000 or less. Obama aides did not say how this money would be distributed, although they hinted they’d try something other than the rebates that the Bush White House turned to three times over the past eight years. One idea: reduced withholding, which would release the funds more slowly than a lump-sum payment would.
Individual Taxes

TaxVox’s Lump of Coal Award: The Ten Worst Ideas of 2008

January 2, 2009 –
It was quite a year. Taxpayers are now shareholders in most major U.S. banks, a massive insurance conglomerate, and three failing car companies. After years of debating whether the government was implicitly or explicitly guaranteeing Fannie Mae and Freddie Mac debt, Washington settled the argument by buying the mortgage giants. I know George Bush liked to talk about an ownership society, but I never imagined this is what he had in mind.
Individual Taxes

Breaking News: Higher Energy Prices Will Cut Demand

December 30, 2008 –
Nice to see Tom Friedman on the energy tax bandwagon. As he wrote in his Dec. 27 New York Times column, “I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal—i.e., a tax—and there are no effective ones.” Friedman needs to give his cranium a holiday break. Policymakers have been searching for this magic bullet for years, without success. They’ve tried government-mandated (CAFE) auto mileage standards, tax credits for the use of everything from hybrid cars to low-E windows, massive government subsidies for production of alternative fuels and sincere pep-talks from sweater-clad Presidents. Nothing has worked. Take a look at this chart from the Energy Information Agency:
Individual Taxes

Holiday Cheer?

December 26, 2008 –
For a little holiday cheer—or maybe not—here are revised lyrics for “My Favorite Things” that I wrote for the Urban Institute holiday party.
Federal Budget and Economy

Great Expectations

December 23, 2008 –
I’ve been reading up on the Great Depression (never say those of us at TPC don’t know how to have fun) and am struck by one overriding thought: Even with the benefit of 80 years of hindsight, economists still can’t agree on either what went wrong or how the economy got back on track. There is an important lesson here. Famously impatient, Americans not only expect government to fix today’s economic crisis, they demand it. Barack Obama, I suspect, will have about a year to turn things around before the public turns on him. Yet, if we still don’t know what happened in 1929, how can we expect policymakers to truly understand—and correctly address—events happening in real time today?
Individual Taxes

Michigan of the East

December 22, 2008 –
“Poor little Rhode Island, smallest of the 48” goes the old song, whose lyrics give away its age. The Ocean state is suffering from a 9.3 percent unemployment rate, almost as high as its 9.7 percent peak in 1982. That’s second only to Michigan and has much the same causes, according to a Washington Post article.
Individual Taxes

Did the Capital Gains Tax Break on Home Sales Help Inflate the Housing Bubble?

December 22, 2008 –
No. The New York Times suddenly discovered a study by Fed economist, Hui Shan, which they think reveals a new cause for the housing bubble. Shan's study found that a 1997 tax change allowing capital-gains-tax-free sales of homes (up to $500,000 of gains for couples and $250,000 for singles) increased housing sales. The Times concluded that this change might have contributed to the housing bubble by increasing the demand for owner-occupied housing. They tell the story of an investor who repeatedly bought homes, lived in them for the required two years, and then sold them at a tax-free profit, and inferred from this anecdote that this was a significant part of the bubble.
Federal Budget and Economy

$13 Billion Down the Drain

December 19, 2008 –
George Bush just spent $13.4 billion of your money to kick the automaker mess into the Obama Administration. Funny how easily so many billions slip through our fingers these days. Seemingly unable to decide whether to let Chrysler and GM reorganize in bankruptcy or engineer a full-blown government bailout of the deeply troubled automakers, President Bush tried to split the difference. He is offering a $17.4 billion loan--$13.4 billion upfront and another $4 billion in February. The deal is filled with demands for cosmetic concessions such as limits on executive comp and corporate jets—none of which are financially meaningful in any way. The White House calls this a loan, but don’t count on a dime ever being repaid.