Arithmetic tells us we must either decrease the growth of Social Security spending or increase taxes as a share of gross domestic product.
But we should do it with an eye on fairness, growth and efficiency. We’re all in this together, so higher-income families must give up something to deal both with Social Security shortfalls and those in the budget more generally. A modest increase in the wage base for Social Security has some justification since that base has eroded in recent years. But if extended too far, it exacerbates the squeeze on other government programs. Continue reading
Extending the charitable deduction deadline is a move with precedent: the government has used it to encourage giving following a natural disaster. President Barak Obama signed a provision allowing charitable donations toward the Haiti earthquake made from January 11 to March 1, 2010, to be deducted on 2009 tax returns. President George W. Bush signed a similar law allowing donations for tsunami relief made through January 31, 2005, to be deducted in 2004.
These provisions aim to increase giving at a time when need is critical. In reality, such temporary laws have limited effect because many do not know about these one-off incentives.
Consider instead the marketing possibilities of more permanent incentives to allow charitable deductions made by April 15, aka tax day, to be applied to the previous year’s tax returns. Continue reading
I would like to offer two simple plans, one for Republicans and one for Democrats, to avoid a blunt, across-the-board sequester with no realistic assessment of priorities. Each plan gives both parties something they want without abandoning their core principles. Each also strengthens the party making the proposal by putting the other one on the spot if it fails to move toward a moderate compromise. Continue reading
U-stream has now posted at 2-part video of my testimony yesterday before the Ways and Means Committee on “Tax Reform and Charities.” In addition to my own testimony, the first panel heard presentations from Kevin Murphy, President of the Council on Foundations; David Wills, President of the National Christian Foundation; Brian Gallagher, President & CEO of United Way Worldwide; Roger Colinvaux, Professor of Catholic University DC Law School; Eugene Tempel, Dean of the Indiana University School of Philanthropy; and Jan Masaoka, CEO of California Association of Nonprofits. Continue reading
When the design of safety net programs is considered alongside that of our tax code, it is easy to see that our tax and transfer systems need to focus less on increasing consumption and more on promoting opportunity, work, saving, and education.
The government doesn’t affect work incentives just through direct taxes. Implicit taxes—that is, penalties for earning additional income—are everywhere, whether in TANF or SNAP, Medicaid or the new health exchange subsidy, PEP or Pease (reductions in tax allowances for personal exemptions and itemized deductions), Pell grants or student loans, child tax credits or earned income tax credits, unemployment compensation or workers compensation, or dozens of other programs. These implicit taxes combine with explicit taxes to create inefficient and often inequitable, certainly strange and anomalous, incentives for many households. Continue reading
The debate over the charitable deduction mistakenly pits those who acknowledge that the government needs to get its budget in order against those who recognize the extraordinary value of the charitable sector. The tax subsidy for charitable contributions should be treated like any other government program, examined regularly, and reformed to make it more effective. In fact, the charitable deduction can be designed to strengthen the charitable sector and increase charitable giving while costing the government the same or even less than it does now. Continue reading
Q: Why are itemized deductions getting so much more attention in budget negotiations than other tax breaks?
A: Itemized deductions show up on tax returns, so they are among the most visible of all tax subsidies or adjustments. Other tax breaks tend to be harder for politicians and the public to understand. Continue reading
Despite the ideological hype over revenue increases for the upper-income taxpayers and restricting itemized tax deductions, almost all the considered changes will tackle only a portion of the deficit. As the graph below indicates, the Congressional Budget Office projects a fiscal year 2015 deficit under current policy of $883 billion, not far from the $1 trillion–plus deficits in the Great Recession and its early aftermath. By comparison, the Tax Policy Center calculates that revenue gained from repealing ALL itemized deductions would be only $183 billion. Continue reading