Posts Tagged ‘Taxes’

Flat ain’t simple

Long time no blog, eh? There’s been a lot of politicking going on lately, what with the presidential campaigns and debates and all, and lots of talk about tax plans. A favorite talking point about a tax plan is the argument that a flat tax will make taxes simpler. A flat tax is many things, first and foremost a great way to give the wealthiest in this country huge tax breaks, but making taxes simpler ain’t it. To illustrate, I’ll use the much-loved 1040 form. The first form is a quick and dirty attempt to show all the ways in which your income and taxes are adjusted through various schedules, deductions, credits, and so forth. These forms and adjustments are what make taxes so complicated and time-consuming. As you can see, it’s a lot!

TaxAdjustments

A flat tax, on the other hand, would make one change: it would alter the number you put on one line, namely the tax you owe (and if your income is really high, then that number is going to go way, way down):

FlatTax

I’m all for tax simplification. If you are honestly for it, though, that means you have to be willing to give up deductions and adjustments like the mortgage interest deduction, student loan deduction, and a lot of other popular things. Switching to a flat tax doesn’t make anybody’s taxes simpler, it just makes a lot of people’s taxes lower. A lot of particularly wealthy campaign donor’s taxes, to be precise.

  • Current Mood: Cold

Tax Brackets

I’m with Atrios here (warning: profanity). The easiest part of computing your taxes is the calculation of tax from Adjusted Gross Income (AGI) facilitated by the tax tables. You could have one bracket, ten brackets, a hundred brackets, or an elliptic curve; the lookup tables make that computation simple, and the fact that most people use computers to e-file means that it takes a fraction of a second to compute even the most complex of tax brackets. Even my most favorite calculation in all of government, Minnesota’s transportation sparsity formula, is a cinch to calculate in no time:

image

No, the complexity of the tax code comes from all the random deductions and credits that exist. Those are the million questions that are asked of your when you use a computer program to fill out your taxes; those are questions 8 through 61 on your friendly 1040 form; those are the countless other forms you need to fill out to calculate your true AGI. That’s the real time-sink, and if you eliminate all those adjustments, deductions, and credits, you will save real time and make the tax code much simpler.

So why don’t we get rid of all that extra stuff? Well, for one thing, most of those deductions are credits are very popular: the 401(k) exclusion, the mortgage interest deduction, student loan interest deduction, capital gains exclusion on the sale of homes, charitable contribution deduction, local tax deduction…lots of people (including me) take advantage of them. Plus, you have an asymmetry of incentives here: if a tax loophole that I can’t take advantage of ultimately costs the vast majority of American’s only $1 but enriches a select few to the tune of $1,000 a year, who is going to be more vocal in terms of deciding that deduction’s fate?

Of all the reasons to reduce the number of tax brackets in our tax code, simplification is not a legitimate one.

2013 Tax Incidence

Hey, it’s time for my now-annual blog post on tax incidence! Graphs below…

Read the rest of this entry »

Land Value Taxes

I’m not an Econ major, but I’ve always wondered why we don’t tax land values by themselves instead of taxing land values plus the values of buildings on them. Specifically, I wonder why we have so many surface parking lots in downtown Minneapolis. For example, according to Hennepin County, the surface lot just north of the downtown library, between 3rd Street and Washington Ave, and Nicollet and Hennepin Avenues, pays about $30,000 in property taxes per year on its 1.7 acres, or about $18,000 per acre. Move one block east, between Nicollet and Marquette, and that building pays almost $2 million in property taxes on 2.45 acres, or almost $800,000 per acre. Even the surface lot east of the library pays $379,000 in taxes on 2.52 acres, or about $150,000 per acre, because there are no buildings on the lot.

This is ridiculous. Is a surface lot the best use of that land? By charging more taxes for building on the lot, the tax code certainly discourages development. That’s why Altoona in Pennsylvania has moved to property taxes based entirely on the land value instead of land plus building value. There is debate on how well it is working, but I’m happy to see that others have thought about this issue as well.

It would be nice to have Minneapolis move towards this property tax model. I’d like to see more development downtown instead of setting aside so much room for storing vehicles.

Tax Incidence Reviewed

I have nothing better to do on a Saturday morning than go over finances. In doing so, I realized that I had miscalculated the tax incidence graphs I had previously created. The biggest change is for payroll taxes in college: instead of looking at my W2s I just assumed I was paying full Social Security and Medicare taxes on my student jobs. In fact, I was not. This reduced my tax burden in the late 90s. The 2012 blog post has been updated with the most accurate figures.

2012 Tax Incidence

So I’ve done our 2012 taxes, and as such, I can update my last blog post on tax incidence. Graphs below…

Read the rest of this entry »

That’s a tax plan!

The Center for American Progress (CAP) came out with a tax plan. And it’s a pretty darn good one! It’s actually fairly close to a plan I’d support. It raises the top bracket to Clinton-era levels, it caps deductions, it increases the capital gains tax and the tax on dividends, it gets rid of the AMT, and it taxes cigarettes, alcohol, and newly-legalized internet gambling (something I would dearly like to be able to do). This is exactly the kind of tax reform that Obama should support.

So what’s wrong with it? David Frum actually has a very good insight into what the tax battle is on the Republican side today: it’s about the merely rich versus the super-rich. The merely rich would have higher taxes under the CAP plan, ‘tis true, but the super rich would have much higher taxes. The super-rich seem willing to toss those below them beneath the wheels of the bus to save their own skins, which is not altogether surprising.

I have little faith that this tax plan will be implemented, but this would be a great starting point for Democrats in Congress.

Historical Tax Incidence

Note: These graphs have been corrected in the 2012 Tax Incidence post.

I like analysis, and I like tax policy. Put the two together, as I’ve done before, and it’s a pretty sweet time. But I have a lot of numbers at my disposal, much more than the past couple of years. So because I had little better to do, I decided to calculate my tax incidence for the time I’ve been working, which is a very long time indeed. All the details after the jump.

Read the rest of this entry »

I’m the 53%

It’s piling on at this point to comment on Mitt Romney’s utter disdain for almost half of the U.S. population. If you really want the good stuff, check out Ezra Klein, Josh Marshall, David Frum, Kevin Drum, and Atrios (actually, you should be reading them ever day). But if there’s one thing that I am, it’s analytical, and I couldn’t help but do some investigation into my own situation to see which side I fall into (Spoiler alert: it’s in the title).

Read the rest of this entry »

Squaring the Circle

Surprise, surprise: the Romney tax plan to cut taxes for the richest Americans can only be paid for if you raise taxes on the other 95% of people. Predictably, Romney is saying that the study is “biased”, because it doesn’t count for the massive economic boom that would result. So who is right? Let me suggest to you a journey through the facts as they are largely agreed to on both sides, and when that journey is complete, there really is no conclusion other than Romney’s numbers don’t add up.

Read the rest of this entry »

« Older Entries