Around April 15, newspapers publish a ton of tax stories. Here are a few that I thought were worth highlighting.
Eric Yoder in the Washington Post writes about a bill heading to the House that would “make those with a ’seriously delinquent tax debt’ ineligible to remain, or to become, federal employees.”
The tax delinquency issue has been a long-time priority of Rep. Jason Chaffetz (R-Utah), who this year became chairman of the House Oversight and Government Reform Committee. Last month, he released IRS data showing that about 4 percent of federal employees, including postal employees, collectively owed more than $1.1 billion in what the agency called “unresolved” federal taxes in 2014 — a slightly lower percentage, but a slightly higher amount, than in 2013. . . .
However, the percentage of federal workers who pay their taxes as they should is “much higher than the 91 percent compliance rate for the general public for 2013, the latest statistic available for the general public,” the committee’s ranking Democrat, Rep. Elijah Cummings (Md.) said when the panel voted on the bill.
Robert Samuelson asks why April 15 always comes and goes without serious objections from taxpayers:
A recent Gallup Poll found that only 1 percent of Americans rated taxes the nation’s top problem. In a Pew poll, respondents ranked “reforming” the tax system 16th out of 24 problems. Indeed, Gallup reports that roughly half of Americans think their income-tax burden is about right.
Of course, the other half of Americans think their burden is too high. But that’s down from about 70 percent in some earlier years. What explains the mood shift?
He offers four possibilities including historically low income tax burden, the rich shoulder most of the income tax burden, most people don’t see the taxes they pay, and the IRS is welfare agency.
Over at the Volokh Conspiracy, Jonathan Adler notes that, as we wait for the Supreme Court’s decision in King v. Burwell — a case where the plaintiffs argue “an IRS regulation unlawfully extends tax credit eligibility beyond what is expressly authorized under Section 1401 of the Patient Protection and Affordable Care Act” — it’s important to keep in mind that the IRS has rewritten other sections of the PPACA by administrative fiat, as well:
It appears that this sort of administrative rewrite of the PPACA may be more the rule than the exception, as there are at least two other instances of the IRS rewriting the PPACA’s tax credit eligibility requirements. . . .
In a series of posts at “Notice & Comment,” the blog of the Yale Journal on Regulation, Professor Andy Grewal documents two additional cases in which the IRS has rewritten the PPACA’s tax credit eligibility requirements so as to expand eligibility beyond what Congress authorized. Combined with other instances of the IRS and HHS disregarding the PPACA’s plain text, it appears the federal government has little regard for what the PPACA actually says.
The New York Times has a debate over which tax deductions should be eliminated. I argue that state and local tax deductions, along with the federal exemptions on interest received from lending money to state and local governments through municipal bonds, should be cut, as they encourage bad behavior and policy by state and local governments.
It wasn’t my first choice, but AEI’s Joe Antos was already covering the exemption for employer-provided health care:
The exclusion is regressive. According to a Joint Committee on Taxation analysis for 2007, the average savings for tax filers with incomes less than $30,000 was about $1,650 compared to about $4,580 for those with incomes over $200,000.
It distorts how workers are paid. Many workers do not realize that their employer’s contribution to the health insurance premium comes at the cost of lower cash wages. This has contributed to a shift from (taxable) cash wages to (nontaxable) health benefits. Between 1999 and 2014, the average employer contribution for family coverage nearly tripled while wage rates increased by only about half.
The exclusion fuels the growing cost of health care. There is no upper limit on the amount that may be excluded from income. That encourages workers to buy generous insurance that offers lower cost-sharing but higher tax-free premiums. Such coverage makes consumers less price-sensitive and promotes the use of medical services that may provide little value. According to the Institutes of Medicine, 30 cents of every dollar spent on health care in this country is wasted, in part because of the financial incentives of the exclusion.
Unfortunately, on the issue of tax deductions, one angle is often ignored. While all tax exemptions are distortive, they aren’t all equally bad, as I point out:
Of course, while all tax exemptions help crowd out other possible tax reforms, they aren’t equally bad. Tax provisions that merely allow people to avoid being double-taxed — such as those for retirement saving or the tax treatment of capital gains and dividends — mitigate biases embedded in the tax code. They don’t compare to the state and local government deductions — or even health care exclusions — which are mere handouts to special interests. Unfortunately, outfits like the Joint Committee on Taxation or the Congressional Budget office fail to make the distinction, compromising the potential for productive tax reform.
We must make sure that the revenue raised by getting rid of tax deductions is used to lower marginal tax rates, not to finance bigger government.
Farhed Manjoo asks whether we should let the IRS prepare our taxes:
For more than a decade, Mr. Bankman and a small group of tax experts have called on the government to create a tax preparation method that they say would vastly reduce the time and cost of tax-filing for most people. Intuit has been a primary obstacle to the effort. . . .
The reform plan would work like this: Today, employers, banks, brokerage firms and pretty much every other financial organization in the country send the federal government detailed records about our economic activity every year. These organizations also send you, the taxpayer, a similar set of documents, which are forms with names like W2 and 1098. After you file your taxes, the government matches its two sets of documents to make sure you have filed correctly.
To Mr. Bankman, this double documentation doesn’t make much sense. If the government is already collecting financial data from employers and banks, why can’t the I.R.S. use that information to precalculate our tax returns for us? At the very least, why can’t tax software just connect to the government’s database to download all the information that the government has collected, saving us all that record-keeping and data entry?
“Imagine if your vehicle registration fee was done the same way,” Mr. Bankman asked in a recent interview. “Imagine if the state said, ‘Go to your car, find your VIN number and then look at this table that has different tax rates to find out how much you owe.’ If they did, people would probably need to hire an expert for that too.”
It doesn’t sound like a good idea. Here is a better one: We should engage in income tax reform to lower tax rates, reduce double taxation of income that is saved and invested, and cut out loopholes that tilt the playing field in favor of politically connected interest groups.
Finally, Cato Institute’s Dan Mitchell explains what is preventing us from enacting better tax policy:
1. Politicians who prefer the status quo make appeals to envy by making class-warfare arguments about imposing higher tax rates on those who contribute more to economic output.
2. Politicians have created a revenue-estimating system based on the preposterous notion that even big changes in tax policy have no impact on economic performance, thus creating a procedural barrier to reform.
3. Politicians enormously benefit from the current corrupt and complex systemsince they can auction off tax loopholes for campaign cash and use the tax code to reward friends and punish enemies.
He adds a fourth point:
The crowd in Washington has set up a system for determining tax loopholes and that system assumes that there should be this kind of double taxation!
I’m not joking. You see this approach from the Joint Committee on Taxation. You see it from the Government Accountability Office. You see it from the Congressional Budget Office. Heck, you even see Republicans mistakenly use this benchmark.
Happy Tax Day!