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March 9, 2016 11:20 AM | Permalink |

Read this report in PDF.

For all of the candidates running for president one thing should be clear: years of tax cuts have put our country on a precarious fiscal trajectory. According to the Congressional Budget Office (CBO), the federal government faces an $8.6 trillion cumulative budget deficit over the next 10 years. The nation must raise more revenue to fund its priorities and prevent unsustainable deficits. Yet each of the remaining major Republican presidential candidates who have laid out tax plans propose to enact trillions in tax cuts over the next decade.

While the candidates have touted their planned tax cuts, they have provided little or no detail on how they would make up the lost revenue. Given the sheer size of our projected deficits, this means that the tax cut proposals would, if enacted, inevitably force draconian spending cuts and/or substantial tax increases. In other words, a tax cut paid for with borrowed money now inevitably will lead to big tax increases and/or huge program cuts later.

For this reason, a complete analysis of each candidate’s tax plan should include the impact of necessary future spending cuts and tax increases that the plans would require. This CTJ report not only provides a distributional analysis of how the candidates’ plans would affect taxpayers on average based on income quintile, it also provides a blanket distributional analysis of the economic impact on each quintile of tax increases and spending cuts. This analysis concludes that when the tax cuts and their likely offsets are accounted for, only the wealthiest Americans would receive a net benefit, while the vast majority of Americans would be much worse off.

Assessing the Impact of Spending Cuts and Tax Increases

Although no one can predict how the cost of the tax cuts proposed by each candidate would be paid for in the future, this analysis takes a middle ground approach by assuming that they would be paid for half by spending cuts and half by an across-the-board income tax increase. This is roughly what happened after the 1981 Reagan tax cuts: as it became clear that the tax cuts were unaffordable, Congress significantly cut domestic spending, including Social Security benefits, and increased taxes multiple times.  

To model the effect of the spending cuts on Americans at different income levels, we allocate the impacts on a per capita basis, with each American seeing the same dollar “cost” from spending cuts. This sensible assumption yields an analysis that shows the impact of spending cuts to be highly regressive, with low-income families bearing the biggest costs relative to their income.  But, as we have stated, no one can forecast how candidates’ tax cuts would be paid for in the future. The distributional effect would skew even more regressive if candidates’ proposed tax cuts were paid for primarily by reducing spending on programs that benefit low-income people. On the tax side, our analysis allocates tax increases according to the overall distribution of personal income. Notably, this mix of spending cuts and income tax increases is a more progressive approach than the “spending cuts only” approach the Republican candidates have advocated. One other caveat: in the unlikely scenario that these tax plans were paid for entirely through spending cuts—and no tax increases— the distributional impact would be devastating for middle- and low-income Americans.

Our analysis shows the impact of immediately implementing both the tax cuts and offsetting spending cuts and tax increases based on current economic conditions. This is, of course, an oversimplification: in reality, offsetting spending cuts and tax increases would likely occur years in the future, meaning that even bigger cuts would be required to offset the additional expense of servicing the interest on our growing national debt.

Analytic constraints aside, we are confident that our analysis offers a far more accurate measure of the true effects of the proposed GOP tax cuts than previous analyses, which show only the effects of the tax cuts (ignoring how they will be paid for). Taking into consideration the impact of spending programs in this way dramatically alters the apparent effect of a tax plan. For example, CTJ recently analyzed the impact of the tax increases that Bernie Sanders has proposed to pay for his universal health insurance plan, factoring in both the higher cash wages that would result from his plan for most workers and the fact that workers would still get the same or better health insurance compared to what they have now. CTJ’s analysis found that all but the very top income groups would come out ahead under Sanders’s proposals. In contrast, other groups’ analyses solely looked at the tax changes and didn’t consider the benefits of universal health insurance, and thus found that all income groups would be worse off under Sanders’ plan.

What follows are our estimates of the distributional breakdowns of Donald Trump’s, Ted Cruz’s and Marco Rubio’s tax proposals, when the impacts of future spending and tax changes are taken into account.

 

Donald Trump’s Tax Plan

Donald Trump’s tax plan would cut taxes by $12 trillion over the next decade by significantly reducing marginal tax rates and substantially increasing the standard deduction. Trump’s tax cut proposal reduces taxes for all income groups on average but is highly skewed to the rich, with the bottom 20 percent receiving an average tax cut of $250, the middle 20 percent an average tax cut of $2,571 and the top 1 percent an average tax cut of $227,225.

As the table below shows, when the impact of future spending cuts and tax increases is tallied, the picture looks very different. In this more complete analysis, only the top 5 percent of taxpayers would see a net benefit from implementing, and paying for, the Trump tax plan. For the lowest 20 percent, the average implicit cost of the tax cuts would be $2,790, leading to a net loss of $2,541. For the middle 20 percent, the average implicit cost of the tax cuts would be $4,647, leading to a net loss of $2,076. In contrast, the top 1 percent would see an average implicit cost of $65,485, much less than the $227,255 they would receive in tax cuts on average, leading to a net gain of $161,740.  

 

Ted Cruz’s Tax Plan

Ted Cruz’s tax plan would cut taxes by $13.9 trillion over the next decade by sharply reducing the personal income tax and replacing the corporate income tax, estate tax and payroll tax with a new 19 percent value-added tax. Cruz’s tax cut proposal is already highly skewed to benefit higher income people, with the bottom 20 percent seeing an average tax increase of $3,161 dollars and the middle 20 percent, an average tax increase of $1,943. The top one percent, however, would get an average tax cut of $435,854.

As the table below shows, when the impact of future spending cuts and tax increases is accounted for, only the top 20 percent of taxpayers would receive any net benefit. For the lowest 20 percent, the average implicit cost of the tax cuts would be $3,073 leading to a net loss of $6,234. For the middle 20 percent, the average implicit cost of the tax cuts would be $5,108, leading to a net loss of $7,051. In contrast, the top one percent would see an average implicit cost of $72,147, much less than the $435,854 they would receive in tax cuts on average, leading to a net gain of $363,707.

Note: We have adjusted our estimated cost of Cruz’s tax cuts downward somewhat from our previous estimate, based on new information that his advertised 16% value-added tax (a.k.a. national sales tax) would actually impose a tax rate of 18.56%.

Marco Rubio’s Tax Plan

Marco Rubio’s tax plan would cut taxes by $9 trillion over the next decade by, among other things, lowering marginal tax rates, eliminating the capital gains tax and enacting a new partially refundable child tax credit. Rubio’s tax cut proposal is highly skewed toward the rich, with the bottom 20 percent receiving an average tax cut of only $778 dollars and the middle 20 percent receiving an average tax cut of $1,435. The top one percent, however, would get an average tax cut of $223,763.

As the table below shows, when the impact of future spending cuts and tax increases is factored, only the top 5 percent of taxpayers would see any net benefit. For the lowest 20 percent, the average cost of the tax cuts would be $2,340, leading to a net loss of $1,563. For the middle 20 percent, the average cost of the tax cuts would be $3,897, leading to a net loss of $2,462. In contrast, the top 1 percent would see an average implicit cost of $54,920, much less than the $223,763 they would receive in tax cuts on average, leading to a net gain of $168,843.

Note: We have adjusted our estimated size of Rubio’s tax cuts downward somewhat from our previous estimate, based on new information that his advertised “refundable” standard credit would not be nearly as refundable as he has publicly claimed, and that the new credit would replace not only the standard deduction but also taxpayer personal exemptions (but not dependents’ exemptions).

Conclusion: There’s No Free Lunch

When policymakers or candidates propose changing our tax system, it’s important to understand how the proposed changes would affect people at different income levels. But when these plans would result in unsustainable budget deficits on top of the fiscal shortfalls our nation already faces, it’s equally vital to understand how Americans would be affected by the mix of spending cuts and other tax increases that would be required to pay for these tax proposals. As this report shows, when those inevitable spending cuts and tax increases are taken into account, the vast majority of Americans will end up as big losers.

 

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March 9, 2016 11:04 AM | Permalink |

For Immediate Release: Wednesday, March 9, 2016
Contact: Jenice R. Robinson, 202.299.1066 X29, Jenice@ctj.org

New Analysis: Paying for GOP Tax Plans Would Wipe Out Income Gains for Most Americans

(Washington, D.C.) When the tax and spending implications of GOP tax plans are considered, the vast majority of Americans would be worse off, according to a new report from Citizens for Tax Justice that sheds more light on the true impact of GOP tax plans.

The new distributional analysis takes a different approach to examining presidential tax plans by looking at the spending implications of the candidates’ deficit-financed tax proposals. 

“The GOP candidates continue to propagate one of the most pernicious myths of our time — that tax cuts come without a cost,” said CTJ director Bob McIntyre. “In truth, we would eventually have to pay for these national debt-ballooning tax cuts with tax increases, drastic cuts in federal spending or a combination of both.”

The new reports intends to broaden the discourse around tax policy proposals by providing an analysis of how various income groups would be affected by a combination of tax increases and spending cuts. The results of the analysis are sobering but not surprising. Under Donald Trump and Marco Rubio’s plans, the bottom 95 percent of taxpayers sustain a net loss, and under Ted Cruz’s plan, the bottom 80 percent would lose. And this is under the rosiest of scenarios.

CTJ analysts point out that the results would be far more severe for middle- and low-income families if the candidates’ proposed tax cuts were paid for solely by cutting public services such as child care, housing, health care, food assistance, Social Security and other programs that boost income security.

“We cannot continue to have a half-baked conversation about tax policy and tax cuts,” McIntyre said. “The truth is that the nation is not in a financial position to promise across-the-board tax cuts and certainly not top-heavy tax cuts that benefit the wealthy at the expense of everyone else.”

To read the report, go to: http://ctj.org/ctjreports/2016/03/the_net_effect_paying_for_gop_tax_plans_would_wipe_out_income_gains_for_most_americans.php#.VuBUWNDYHOA

 

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March 4, 2016 09:00 AM | Permalink |

They May Be Avoiding up to $695 Billion in U.S. Taxes

Read this report in PDF (Includes Company by Company Appendixies)

It’s been well documented that major U.S. multinational corporations are stockpiling profits offshore to avoid U.S. taxes. Congressional hearings over the past few years have raised awareness of tax avoidance strategies of major technology corporations such as Apple and Microsoft, but, as this report shows, a diverse array of companies are using offshore tax havens, including the pharmaceutical giant Amgen, apparel manufacturers Levi Strauss and Nike, the supermarket chain Safeway, the financial firm American Express, banking giants Bank of America and Wells Fargo, and even more obscure companies such as Advanced Micro Devices and Symantec.

All told, American Fortune 500 corporations are avoiding up to $695 billion in U.S. federal income taxes by holding $2.4 trillion of “permanently reinvested” profits offshore. In their latest annual financial reports, 27 of these corporations reveal that they have paid an income tax rate of 10 percent or less in countries where these profits are officially held, indicating that most of these monies are likely in offshore tax havens.

How We Know When Multinationals’ Offshore Cash Is in Tax Havens

Offshore profits that an American corporation “repatriates” (officially brings back to the United States) are subject to the U.S. tax rate of 35 percent minus a tax credit equal to whatever taxes the company paid to foreign governments. Thus, when an American corporation reports it would pay a U.S. tax rate of 25 percent or more on its offshore profits, that indicates it has paid foreign governments a tax rate of 10 percent or less.

Twenty-seven American corporations have acknowledged paying less than a 10 percent foreign tax rate on the $561 billion they collectively hold offshore. The table on the following page shows the disclosures made by these 27 corporations in their most recent annual financial reports.

It is almost always the case that profits reported by American corporations to the IRS as earned in tax havens were actually earned in the United States or another country with a tax system similar to ours.  Most economically developed countries (places where there are real business opportunities for American corporations) have a corporate income tax rate of at least 20 percent, and typically tax rates are higher.

Countries that have no corporate income tax or a very low corporate tax —such as Bermuda, the Cayman Islands, and the Bahamas — provide very little in the way of real business opportunities for American corporations like Qualcomm, Safeway, and Microsoft. But large corporations use accounting gimmicks (most of which are allowed under current law) to make profits appear to be earned in tax haven countries. In fact, a 2014 CTJ examination of corporate financial filings found U.S. corporations collectively report earning profits in Bermuda and the Cayman Islands that are 16 times the gross domestic products of each of those countries, which is clearly impossible. 

Hundreds of Other Fortune 500 Corporations Don’t Disclose Tax Rates They’d Pay if They Repatriated Their Profits

At the end of 2015, 303 Fortune 500 companies collectively held $2.4 trillion offshore. (A full list of these 303 corporations is published as an appendix to this paper.)

The 27 companies that report the U.S. tax rate they would pay if they repatriated their profits are not alone in shifting their profits to low-tax havens but they are alone in disclosing the practice.  The vast majority of profit-shifting companies — 248 out of 303 —decline to disclose the U.S. tax rate they would pay if these offshore profits were repatriated. (55 corporations, including the 27 companies shown on this page, disclose this information. A full list of the 55 companies is published as an appendix to this paper.) The non-disclosing companies collectively held $1.74 trillion in unrepatriated offshore profits at the end of 2015.

Accounting standards require publicly held companies to disclose the U.S. tax they would pay upon repatriation of their offshore profits, but these standards also provide a gaping loophole allowing companies to avoid disclosing this information by asserting that calculating this tax liability is “not practicable.”  Almost all of the 248 non-disclosing companies use this loophole to avoid disclosing their likely tax rates upon repatriation even though these companies almost certainly have the capacity to estimate these liabilities.

Hundreds of Billions in Tax Revenue at Stake

It’s impossible to know precisely how much income tax the 248 non-disclosing companies would owe if they repatriated their profits. But if these companies paid the same 28.6 percent average tax rate as the 55 disclosing companies, the resulting, collective one-time tax would total $499 billion. Added to the $196 billion tax bill estimated by the 55 companies who did disclose, this means that taxing all “permanently reinvested” foreign income of the 303 companies at the current federal tax rate could result in $695 billion in added corporate tax revenue.

20 of the Biggest “Non-Disclosing” Companies Hold $1 Trillion Offshore

While hundreds of companies refuse to reveal the tax they likely owe on their offshore cash, just a handful of these companies account for the lion’s share of the permanently reinvested foreign profits in the Fortune 500. The nearby table shows the 20 non-disclosing companies with the biggest offshore stash at the end of the most recent fiscal year. These 20 companies held $1 trillion in unrepatriated offshore income — more than half of the total income held by the 248 “non-disclosing” companies. Most of these companies also disclose, elsewhere in their financial reports, owning subsidiaries in known tax havens. For example:

■ General Electric disclosed holding $104 billion offshore at the end of 2015. GE has subsidiaries in the Bahamas, Bermuda, Ireland and Singapore, but won’t disclose how much of its offshore cash is in these low-tax destinations.

■ Pfizer has subsidiaries in the Cayman Islands, Ireland, the Isle of Jersey, Luxembourg and Singapore, but it does not disclose how much of its offshore profits are stashed in these tax havens.

■ The Coca-Cola Corporation has three Cayman Islands subsidiaries, but the company’s limited financial disclosure doesn’t specify how much of its $31.9 billion in offshore profits are being “earned” there.

■ Merck has 11 subsidiaries in Bermuda alone. It’s unclear how much of its $59 billion in offshore profits are being stored (for tax purposes) in this tiny island.

Congress Should Act

While corporations’ offshore holdings have grown gradually over the past decade, there are two reasons it is vital that Congress act promptly to deal with this problem. First, a large number of the biggest corporations appear to be increasing their offshore cash significantly. Seventy-nine of the companies surveyed in this report increased their declared offshore cash by at least $500 million each in the last year alone. Twelve particularly aggressive companies each increased their permanently reinvested foreign earnings by more than $5 billion in the past year. These include Apple, Microsoft, Pfizer, Gilead Sciences, Danaher, Google, Chevron, Medtronic, IBM, Oracle, Cisco Systems and Sealed Air.

A second reason for concern is that companies are aggressively seeking to permanently shelter their offshore cash from U.S. taxation by engaging in corporate inversions, through which companies acquire smaller foreign companies and reincorporate in foreign countries, thus avoiding most or all U.S. tax on their profits.

What Should Be Done?

Many large multinationals that fail to disclose whether their offshore profits are officially in tax havens are the same companies that have lobbied heavily for tax breaks on their offshore cash. These companies propose the government either enact a temporary “tax holiday” for repatriation, which would allow companies to officially bring offshore profits back to the U.S. and pay a very low tax rate on the repatriated income, or give them a permanent exemption for offshore income in the form of a “territorial” tax system. Either of these proposals would increase the incentive for multinationals to shift their U.S. profits, on paper, into tax havens.

A far more sensible solution would be to simply end “deferral,” that is, repealing the rule that indefinitely exempts offshore profits from U.S. income tax until these profits are repatriated. Ending deferral would mean that all profits of U.S. corporations, whether they are generated in the U.S. or abroad, would be taxed by the United States in the year they are earned. Of course, American corporations would continue to receive a “foreign tax credit” against any taxes they pay to foreign governments, to ensure profits are not double-taxed. 

Conclusion

The limited disclosures made by a handful of Fortune 500 corporations show that corporations are brazenly using tax havens to avoid taxes on significant profits. But the scope of this tax avoidance is likely much larger, since the vast majority of Fortune 500 companies with offshore cash refuse to disclose how much tax they would pay on repatriating their offshore profits.

Lawmakers should resist calls for tax changes, such as repatriation holidays or a territorial tax system that would reward U.S. companies for shifting their profits to tax havens.  If the Securities and Exchange Commission required more complete disclosure about multinationals’ offshore profits, it would become obvious that Congress should end deferral, thereby eliminating the incentive for multinationals to shift their profits offshore once and for all. 

For the full list of unrepatriated profits and taxes owed, click to read the pdf.

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February 11, 2016 03:25 PM | Permalink |

Read Report as a PDF.

Earlier this week, President Barack Obama released details of his proposed federal budget for the fiscal year ending in 2017. While many cynical observers and some members of Congress immediately derided the budget blueprint as an irrelevant exercise in political theatre, the President’s plan actually includes a number of sensible ideas that could help point the way to meaningful federal tax reform in years to come. Here’s a quick overview of the best—and the rest—of the tax policy ideas in the Obama 2017 budget plan.

The President’s proposed budget includes $3.2 trillion in tax increases over the next ten years, most of which would fall primarily on the wealthiest individual taxpayers and on corporations. Obama proposes to use about $400 billion of those tax hikes to pay for targeted tax cuts, primarily for middle- and low-income families, and would use the rest to pay for needed public investments and to reduce the deficit.

Where the Money Comes From

President Obama’s budget would raise about $3.2 trillion in new tax revenues over the next ten years from a diverse set of sources, primarily affecting wealthier taxpayers and large corporations, but also including an “oil fee” and a cigarette tax hike that would have an impact on middle- and low-income families.

Roughly 15 percent of the new revenues in Obama’s proposal would come from a variety of proposals designed to pare back tax benefits accruing to wealthy investors. Most notably, the President would increase the top tax rate on capital gains to 28 percent, revitalize the estate tax by increasing the top rate, end the “stepped up basis” tax break that allows many wealthy investors to avoid any tax on their capital gains, and repeal the “carried interest” loophole that allows hedge fund managers to characterize income as capital gains.

Another fifth of the revenue-raisers would come from a single provision, known as the “28 percent limitation,” that would limit the value of itemized deductions and other tax breaks to 28 cents for each dollar deducted. This would affect only taxpayers currently paying federal tax rates above 28 percent. (In 2016, this means couples making more than $250,000.) This reform is similar to proposals the president has included in previous budgets.

The budget includes two revenue-raising proposals that would affect corporations: a one-time “transition tax” on U.S.-based corporations holding profits offshore for tax purposes, and a low-rate tax on the liabilities of the very largest financial companies.  

The president’s budget also includes two tax changes that would fall primarily on low- and middle-income families: a $10.25 per barrel “oil fee” and an increase in the federal tobacco tax. This would represent about one sixth of the tax hikes included in the Obama budget blueprint.

Where the Money Goes

The president’s budget would set aside about ten percent of the revenues from his proposed tax increases to cut taxes. Forty percent of these tax cuts would be targeted to businesses, with the remainder designed to benefit middle- and low-income working families.

The president would also fill one of the most glaring gaps in the structure of the EITC: its low benefits for childless workers. The budget would double the maximum benefit of this wage subsidy for low-income single workers.

Tax Reform Ideas in the President’s Budget: The Best…

The president’s budget includes a healthy dose of new, and old, tax reform proposals. Some, like the sensible proposal to cap the benefits of itemized deductions at 28 percent, have featured prominently in previous budget proposals under President Obama’s watch. Others, notably the proposal to impose a $10.25-per-barrel fee on oil consumption, are new ideas that would take welcome steps toward a more sustainable tax system. And short-term politics aside, many of these proposals would represent a sensible starting point for tax reform blueprints in years to come.

• Closing Medicare tax loophole for pass-throughs: The “net investment income tax” enacted as part of President Obama’s health care reforms added a healthy dose of  fairness—and revenue—to the tax system, imposing a 3.8 percent tax on families earning over $250,000. But the tax didn’t apply to income from pass-through entities like S corporations. To allay sensible fears that some well-heeled taxpayers are gaming the system by transforming their business into pass-through form, Obama would include pass-through income in the net investment income tax. Ending this single tax dodge is forecast to raise an astonishing $271 billion over ten years.
• Boosting wages for low-income working families: the Earned Income Tax Credit provides a vital wage subsidy for workers with children living near or below the poverty line, but generally shortchanges workers without children. The budget blueprint would reduce this inequity, doubling the maximum credit for workers without children.
• Ending “stepped up basis” for capital gains: The federal income tax has long had a loophole wealthy investors could drive a truck through: the complete forgiveness of federal income tax liability on the value of stocks and other capital assets passed on from decedents to their heirs. The president’s plan would end this tax break for heirs inheriting more than $200,000 for a married couple ($100,000 for singles). While the tax policy community has long agreed that the so-called “stepped up basis” is absurd, few elected officials have actively sought to repeal it—until now.
• Taxing wealth more like work: Current law imposes a top tax rate on capital gains that, at 23.8 percent, is well below the 39.6 percent top tax rate on wages. By hiking the top capital gains rate to 28 percent for the very best-off Americans, President Obama’s plan would at least slightly reduce the tax preference for wealth over work. Notably, even if the president’s plan were enacted, the top rate on investment income would remain fully 11.6 percent below the top rate on wages.
• Simplifying and expanding education tax credits: The President proposes to simplify and restructure the hodgepodge of education tax breaks currently allowed, expanding the middle-income American Opportunity Tax Credit and making more of this credit refundable to benefit low-income working families that don’t owe federal income taxes. Obama would also protect the future value of these credits by indexing it for inflation.
• Expanding the child care credit: Recognizing that dependent care expenses can be unaffordable for working parents, the president proposes to substantially increase an existing tax credit against child care expenses. Obama would increase the income level at which the credit begins to phase down from $15,000 to $120,000, making more middle-income families eligible for the maximum credit. Obama would also more than double the potential tax credit for families with children under the age of five.

…And the Rest

While the president’s outline of individual tax reforms would clearly be a win for tax fairness, some provisions would needlessly complicate the tax code. On the corporate side, President Obama’s proposals are more clearly geared toward raising revenues than in previous years, but still include a wasteful giveaway to the biggest offshore tax avoiders in the form of a low-rate “transition tax” on offshore cash.

• Low-rate “transition tax” on multinational corporations’ offshore cash. Faced with the prospect of large multinationals such as Apple and Microsoft avoiding U.S. tax by stashing their profits in offshore tax havens, Obama proposes a one-time, 14 percent “transition tax” on these profits, after which they will never be subject to additional U.S. tax. Apparently driven by the philosophy that something is better than nothing, Obama’s plan would, in fact, give $82 billion in tax cuts to just ten of the biggest tax avoiders. A better plan would require these companies to pay the 35 percent tax they have adeptly avoided to date.
• $10.25 per barrel “Oil Fee”. The nation’s transportation infrastructure is chronically underfunded for one simple reason: its main funding source, the federal gas tax, hasn’t been increased since 1993 and has lost much of its value since then. As in previous years, President Obama is not proposing to increase the gas tax—but this year he’s proposing a second-best alternative. Obama would levy a fee of $10.25 for each barrel of oil consumed in the United States, which amounts to an indirect tax hike not only on gasoline and diesel but a variety of other consumer items, including heating oil and plastic products. As the President’s budget proposal notes, this proposal could have a helpful effect in discouraging consumption of fossil-fuel related products, but also would impose a meaningful tax hike on low- and middle-income families.
   
• Reinventing the wheel: We already have a federal income tax credit designed to offset child care expenses for two-earner couples, and, as previously noted, the President sensibly wants to expand it. So his proposal to create a new “second earner” credit that doesn’t even require such couples to incur child care expenses is unnecessary and wasteful. 

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February 8, 2016 02:55 PM | Permalink | Read Report as a PDF.

Read Report as a PDF.

A new analysis by Citizens for Tax Justice of presidential candidate Bernie Sanders’ recently released “Medicare for All” tax plan finds that Sanders’ health-related taxes would raise an estimated $13 trillion over 10 years. The analysis also finds that the plan would raise average after-tax incomes for all but the top income groups.

The reason that Sanders’ plan increases average after-tax incomes for all but the highest-income groups, even as it substantially increases tax revenues, is that the plan would replace employer-provided healthcare with universal health insurance for all Americans. Thus, workers would get comprehensive health insurance in addition to higher wages. (This is far different from proposals to simply make some or all of currently tax-exempt employer-provided insurance subject to income and payroll taxes, which would be a very bad deal for workers.)

Wages would go up, under the assumption that employers will maintain the total amount per worker that they now pay in cash wages, health benefits, and employer payroll taxes. Thus, ITEP’s estimate of the net increase in cash wages reflects both decreased employer costs from eliminating employer-related health insurance and increased employer costs from higher employer payroll taxes (both from Sanders’ proposed new 6.2 percent employer tax and changes in existing payroll taxes due to wage increases). As a result, on average just over half of the employer savings from eliminating health insurance costs would be reflected in higher wages.

As the table on page one illustrates, people in the bottom 20 percent income group would see their pre-tax income go up by an average of $1,932. Their personal taxes (income and payroll) would go up by an average of only $450, meaning that they would see an average increase in after-tax income of $1,482. Similarly, the middle 20 percent of Americans would see their after-tax income increase by an average of $3,240.

In addition to his new 6.2 percent employer payroll tax, Sanders’ health-related tax proposals include several highly progressive tax changes. Most notably, it would end the preferential low tax rates on capital gains and dividends, on incomes over $250,000 and apply higher marginal income tax rates on top earners. Because of these progressive tax increases, ITEP’s analysis found that the top one percent would see their average after-tax income go down by $159,980 under Sanders’ plan.

CTJ’s full analysis can be found here (PDF): The Tax (and Wage) Implications of Bernie Sanders’“Medicare for All” Health Plan. 

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February 8, 2016 02:43 PM | Permalink |

A new analysis by Citizens for Tax Justice of presidential candidate Bernie Sanders’ recently released “Medicare for All” tax plan finds that Sanders’ health-related taxes would raise an estimated $13 trillion over 10 years. The analysis also finds that the plan would raise average after-tax incomes for all but the top income groups.

Read the Full Report.

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February 8, 2016 12:12 PM | Permalink |

For Immediate Release: Monday, February 8, 2016
Contact: Jenice R. Robinson, 202.299.1066 X29, Jenice@ctj.org

(Washington, D.C.) A new analysis of Sen. Bernie Sanders’ tax plan finds that it would increase federal revenue by $13 trillion over a decade, while increasing after-tax income for all groups except the very highest earners.

The top 1 percent would see an average reduction in after-tax income of $159,000, while almost all other income groups would see an increase in after-tax income. 

How does a plan that raises $13 billion actually result in an increase in income for most wage-earners? Under Sanders’ plan, the United States would move to a single-payer, government-provided health plan. Economists generally agree that employers would adjust most workers’ wages upwards because they no longer would incur the cost of employer-provided healthcare. 

The analysis looks only at what would happen to wages, taxes, and federal revenues if the Sanders plan were implemented. It does not project the cost or benefit of federal spending on universal health care.

For a summary of the analysis, go to: http://ctj.org/ctjreports/2016/02/bernie_sanders_health_care_tax_plan_would_raise_13_trillion_yet_increase_after-tax_incomes_for_all_i.php

 

 

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January 12, 2016 06:03 PM | Permalink |

For Immediate Release: Tuesday, January 12, 2015
Contact: Jenice R. Robinson, 202.299.1066 X29, Jenice@ctj.org

Following is a statement by Bob McIntyre, director of Citizens for Tax Justice, on Hillary Clinton’s new plan to increase taxes on wealthy individuals.

“For decades, the wealthy have used their clout to create a tax system riddled with special carve outs and loopholes, allowing them to pay relatively low tax rates. Clinton’s call to enact the Buffett Rule and a “Fair Share Surcharge” on income over $5 million would help level the playing field between wealthy investors, who benefit from a special low rate on their investment income, and everyday Americans.

“Clinton’s proposal to restore the estate tax to its 2009 parameters and to crack down on loopholes would help restore the estate tax’s role in countering wealth inequality, although doing so would still only mean the wealthiest 4 out of 1,000 estates would owe a penny in taxes. The plan to raise revenue from the wealthy is in stark contrast to GOP candidates, who have proposed rigging the tax system even more for the wealthy.

“Given the nation’s critical need for more revenue to fund basic services, our presidential candidates as well as the nation’s policymakers should be talking about how to restore fairness to the tax system and raise revenue.” 

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January 6, 2016 10:13 AM | Permalink |

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A Citizens for Tax Justice (CTJ) analysis of presidential candidate Ben Carson’s recently released flat tax plan finds that it would cost an estimated $9.6 trillion over 10 years. The candidate’s proposal would have to be paired with $9.6 trillion in spending cuts to avoid massive annual budget deficits, meaning it would require an implausible 75 percent cut to all discretionary spending over the same time period. Carson’s plan would provide the wealthiest one percent of taxpayers with trillions in additional tax cuts, while increasing taxes on families in the bottom half of the income distribution.

Under Carson’s plan, the bottom 20 percent of taxpayers would receive an average annual tax increase of $792 and the second 20 percent would get an average annual tax increase of $447, while the top one percent would receive an average annual tax cut of $348,434. The main reason Carson’s plan would increase taxes on low-income families is that it would eliminate all tax credits, including the highly effective Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).  

Two-thirds of Carson’s $9.6 trillion in proposed tax cuts, i.e., $6.3 trillion, would go to the top one percent of taxpayers. This highly skewed result reflects the plan’s extremely regressive features, including an enormous cut in top tax rates on personal and corporate income, the elimination of taxes on capital gains, interest and dividends, elimination of the estate and gift tax and immediate tax write offs for all corporate capital spending.

Carson’s 14.9 Percent “Flat Rate” is in fact 30.2 Percent for Most Americans

Because Carson’s plan preserves the Social Security and Medicare payroll taxes, the marginal tax rate on the wages of most Americans under Carson’s plan would be 30.2 percent (the sum of Carson’s 14.9 percent rate plus the 15.3 percent payroll tax rate*). The details of Carson’s plan diverge significantly from his campaign rhetoric, which promised to replace the entire tax system with a flat income tax rate of between 10 and 15 percent. As Carson put it during a televised debate “you make $10 billion, you pay a billion. You make $10, you pay one.” A rough estimate from CTJ found that a 10 percent tax rate would cut total federal revenue in half and a 15 percent rate would cut revenue by a third. Given this fiscal reality, it is not surprising to see that Carson ultimately decided to keep Social Security and Medicare payroll taxes, which will provide about $13 trillion in revenue over the upcoming decade. But Carson’s description of his new tax plan implies, misleadingly, that the payroll tax would no longer exist going forward under his plan.

Proposed Policy Changes in the Carson Plan

 • Creates a single income tax rate of 14.9 percent, with an exemption for the first $36,375 for a family of four, and varying amounts for other family sizes.

• Requires some unspecified (and thus was not modeled in our analysis) minimum tax payment from low-income families that would otherwise owe no income tax.

• Eliminates all other deductions, exemptions and credits in the personal and corporate income tax.

• Lowers the corporate tax rate to 14.9 percent and allows full expensing of capital investments.

• Eliminates the taxation of capital gains, dividends and interest income.

• Eliminates the estate tax.

• Eliminates the alternative minimum tax.

 

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* The Social Security and Medicare payroll taxes are 15.3%, half paid by workers and half ostensibly paid by employers. Self-employed people pay the full 15.3% rate, since they have no employer. Economists generally agree  that the nominally employer-side of the tax is actually passed through to workers (in the form of reduced pay).

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December 17, 2015 01:48 PM | Permalink |

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Late Tuesday, congressional leaders announced the details of a $680 billion tax cut deal that will be up for a vote in the House and Senate over the next couple days. While there are some worthwhile provisions in the package, they come at too high a price to justify supporting the overall package.

The bulk of the tax cut package includes extending or making permanent many of the temporary tax provisions known as the tax extenders. The legislation also includes making expansions to the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) permanent, making the American Opportunity Tax Credit (AOTC) permanent, and delaying (or, in one case, eliminating for one year) three Obamacare-related taxes.

Here are the three reasons why lawmakers should reject this tax deal:

1. The deal will revive or make permanent ineffective tax breaks for business.

2. The deal will increase the deficit by $680 billion over the next ten years.

3. The tradeoff between the good and the bad provisions is not equitable and, due to deficit-financing, could ultimately threaten the well-being of low- and middle-income Americans by forcing draconian cuts to critical programs.

1. The deal will revive or make permanent ineffective tax breaks for business.

Most of the extenders are ineffective and do not serve the public interest. Of the more than 130 provisions, just six of the business provisions constitute nearly half of the total cost of the package. The cost of just two corporate provisions, the research credit and active financing exception (AFE), is $191 billion or 28 percent of the cost of the overall package.

As CTJ has noted time and again, the research credit should be substantially reformed or allowed to stay expired, not made permanent as is proposed in the tax deal. While the idea of encouraging research sounds good, in reality the research credit is a particularly poor way of pursuing this goal because it often subsidizes “research” of no public value or research that would have been done anyway.

Another particularly egregious provision is the extension of “bonus depreciation” for three years, allegedly to be followed by a phase-out of this loophole over three years. Bonus depreciation was originally adopted as a temporary stimulus measure early in the George W. Bush administration. It has been reenacted in almost every year since, despite the fact that the non-partisan Congressional Research Service called it “a relatively ineffective tool for stimulating the economy.” With a 10-year cost of $246 billion, bonus depreciation is by far the most costly provision in the tax extenders. It has also been a key reason why many large, profitable corporations have paid little or nothing in income taxes for the past decade and a half. By extending this provision only for a few years, the break masks the long-term cost of its likely permanent extension. The fact that it will allegedly be phased out after three years may seem like a positive sign, but it should not be taken too seriously. After all, this means that bonus-depreciation advocates have another three years to make sure that this phase-out never happens.

Two of the other worst provisions of the tax deal are those that will make permanent the AFE and extend for five years the Controlled Foreign Corporation (CFC) Look-Thru Rule, at a combined cost of $86 billion over the next 10 years. Rather than working to counter the historic levels of offshore corporate tax avoidance, the extenders bill will enshrine into law two loopholes that have become central to enabling this bad behavior. If lawmakers are really concerned about combating offshore tax avoidance, a good place to start would be to allow these two provisions to remain expired.

While not as large, most of the other 50 tax extender provisions that will be extended or made permanent in the tax deal are also of dubious efficacy, as outlined in a recent CTJ report “Evaluating the Tax Extenders.”

2. The deal will increase the deficit by $680 billion over the next ten years.

There is no way to get around the cold hard fact that the tax deal will add $680 billion to the nation’s budget deficit over the next 10 years. In fact, this package will erase all of the revenue “raised” by the expiration of the Bush tax cuts for the wealthy as part of the Fiscal Cliff Package at the start of 2013.

The need for more revenue is absolutely critical. Even without making essential new public investments, the U.S. federal government already faces a $7 trillion budget hole over the next 10 years. It is ridiculous that Congress is now proposing to substantially expand this hole.

While some argue that we should consider the current slate of temporary tax provisions to be part of the budget baseline already, even anti-tax conservative lawmakers have admitted time and again that making the federal budget sustainable requires paying for these provisions.

For example, both the current Republican Speaker of the House Paul Ryan and the former Republican Chairman of the Ways and Means Committee Dave Camp have advocated for a revenue baseline that would fully pay for the cost of the tax extenders and other temporary tax provisions. In other words, the principle of paying for these temporary tax provisions has neither been lost nor should it be given up. 

3. The tradeoff between enacting good and bad provisions is neither equitable nor worth the cost.

One argument for supporting the overall tax deal is that the benefit of securing a permanent place in the tax code for the expansions in the EITC and CTC is worth the cost of passing the numerous and undesirable provisions in the package. While it might be worth some kind of tradeoff to secure the EITC and CTC expansions, the price being asked for in this deal is unacceptably high.

For every dollar spent in the deal on expanding the working families’ tax credits, five more dollars are being spent on other tax cuts. The cost of the top six business provisions alone is more than 2.5 times the size of what is being spent on the EITC and CTC expansions in the package. Both the EITC and CTC are highly effective tax credits that should be made permanent on their own and should not require the passage of foolish and unfair tax breaks many times their size.

It is also important to note that if this package is enacted, the resulting higher budget deficits will, in the long run, threaten low-income programs including the welcome expansions of the EITC and CTC. In other words, the extenders package’s deficit spending is not free, and it could come back to bite low-income programs in the future.

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