StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Revenue Raisers That Aren't Tax Increases

05 Jul 2011
Posted by Pete Davis

If we could just come up with $400 billion of revenue increases that Grover Nordquist wouldn't classify as a tax increase, a debt limit deal could be cut within days. This is hardly the first time that Washington has raised revenue while avoiding calling it a tax "increase."

1. Index with the chain-weighted CPI-U instead of the CPI-U - $208 billion FY12-FY21 - Following the Boskin Commission Report on CPI overstatement in December 4, 1996, the Bureau of Labor Statistics made several changes to the CPI based upon its recommendations and published a new chain weighted CPI-U that has come in lower than the CPI-U by 0.38% per year on average. Northwestern University Professor Robert Gordon recounts the history well here and explains why he believes the CPI-U remains overstated by at least 1.0%. Last March, the Congressional Budget Office estimated that switching to the chained CPI-U would raise FY12-FY21 income tax revenues by $72 billion, would lower Social Security benefits by $112 billion (p.58), and would lower Federal Civilian, Military, and Veterans pensions by $24 billion (p.56), for a total of $208 billion over the next 10 years.
 
2. Collect taxes already owed - $2.9 trillion FY12-FY21 - The IRS estimated that in 2001, $345 billion was owed but not paid to the federal government, of which the IRS collected $55 billion through enforcement actions. That leaves plenty of existing taxes to be collected. However, since the bulk of it is in cash payments to small businesses, the only way to collect is to force those small businesses or those paying it to report it. Many deficit reduction measures of the past 30 years have included various enforcement measures with mixed results. Increased IRS information reporting and enforcement actions against small business will be very unpopular.
 
3. Dividend Repatriation Holiday - +25 billion FY11-FY13, -$53 billion FY14-20 - This Joint Committee on Taxation letter to Rep. Lloyd Doggett (D-TX) on April 15, 2011 estimated a $25.5 billion revenue increase over three years as U.S. multinationals rush to repatriate dividends at a 5.25% tax rate, 85% less than the present law 35% rate. The problem is that the federal government was also estimated to lose $53.2 billion over the next seven years as corporations increased dividend payouts and relocated overseas. This is an extreme example of short-run gain and long-run loss, but that's exactly what we did in 2004-2005, when we first adopted this for one year. President Obama is opposed because studies showed that repatriation did not create promised jobs - firms cut jobs - and most of the benefit went to dividend recipients and to stock buybacks. However, if he wants to make a lot of U.S. high tech multinationals very happy to improve his reelection chances, his stand could change.
 
4. Capital Gains Tax Cut - ? - Years ago, when I was still a revenue estimator at the Joint Committee on Taxation, a House Ways and Means Staff Director told me with a smile, "Pete, tell me again I can raise revenue by cutting the capital gains tax and by raising it!" Thinking he was serious, I launched into an explanation of how realizations would jump in response to a cut, although after a few years, it would lose revenue, and an increase would do the opposite. Like the dividend repatriation holiday, a capital gains cut can raise revenue in the first few years, but lose more over the long run. This is a highly controversial topic because there's such a difference between the short run response and the long run response. Here's what CBO said about such revenue estimates in 2002. Last March, CBO estimated raising the top rate on capital gains from 20% to 22% would raise $48.5 billion FY 12-FY21 (p.142 here), but the current House will never accept that.
 
5. Convert Traditional IRAs to Roth IRAs - ? - Somebody help me here. I know we've used this two or three times in the past to raise revenue by currently taxing transfers from a traditional IRA, where the taxpayer deducted some or all of his contributions up to a limit, to a Roth IRA, where the proceeds can be withdrawn tax-free because the contributions were made with after-tax contributions. I haven't seen an estimate of how much this is, but if you think future tax rates are going up a lot, it would make sense to switch. Just found this CBPP analysis.

Who made Grover Norquist

Who made Grover Norquist king? Doth we need a new aristocracy?


Et tu, Pete?

I started to write a comment, but got kind of carried away. My reply is on my Forbes blog, http://blogs.forbes.com/leonardburman/2011/07/06/stupid-tax-tricks-and-t....


Revenue Raisers

Len:  

I didn't endorse them.  I just listed them as past revenue raisers that weren't billed as tax increases.   I still prefer good policies over bad policies, but I've learned from hard experience, it takes both to finalize a deal.  Without a debt limit increase, we'll have far worse problems.

As always, your analysis was of the highest quality.

Pete 


Thanks for the clarification

You're still way more comfortable with realpolitik than I am. I keep hoping for a semblance of rationality.


Cap Gains/Roth

I'm not so sure we'd see any type of bump in capital gains ( at least from the equity market ) because so many people have carry forward losses from 2008-1st quarter 2009.

I know a lot of people sitting on a lot of losses unrealized and if they end up taking on profits they just wash it out with losses they have on the books and they will be able to do this for a long time

As far as Roth conversions from the govt point of view it's just shortsighted and quite frankly stupid. For the same reason why it makes sense for some people to convert it ( long term the benefit of tax free growth and withdrawals outweighs having to pay tax in the short term if you dont need the money in the near future). But this is something more than a lazy idea by the govt by basically selling out long term revenue for short term gain.

Not much different than some states bonding out tobacco settlement money and instead of taking in the revenue stream over a long period of time they start selling bonds against the settlement because they need the money up front to hide their budget debacles.


Cap Gains/Roth

Mike makes a good point that there are lots of loss carryforwards out there and not as many gains with the decline of the housing market and financial markets.  I'm not a big fan of Roth IRA conversions either, but if that's a piece of getting a deal, I would hold my nose and take it.


Glad Norquist was Elected

I for one am glad that we elected Grover Norquist President, Senate President pro tem, and Speaker of the House. Good to have a man of solid repute, committed to being public accountable, running the country's tax policy.


useful stuff, in a parallel universe

Republicans don't care about the deficit, or the size of government (see, e.g., NCLB, Raich, Medicare Part D, Patriot Act, occupation of Iraq, etc.).

They care about using the government to reward their friends and punish everyone else. These proposals don't subsidize campaign donors, nor target unions or minorities, so the Republican Party will never embrace them.

Some of these ideas might work well, as policies, but the Republican Party doesn't care about policy.


If we could just come up with a herd of unicorns...

If we could just come up with $400 billion of revenue increases that Grover Nordquist wouldn't classify as a tax increase

Seriously, Pete, haven't you been paying attention? Grover and the rest of the GOP don't draw a distinction between revenue and taxes. It is an identity to them:
Government revenue = tax = evil

You keep seeking those reasonable Republicans of yesteryear. They don't make it out of the GOP primaries any longer.

With all the austerity talk coming from the White House at a time when official unemployment is stalled near 9%, it may be time to put reasonable Democrats on the endangered list, too - along with the US economy.


Herd of Unicorns

 I still know some reasonable Republicans, but they aren't leading the charge now, that's for sure.

Half the House Blue Dog Democrats were defeated in the 2010 election, so your point about the demise of reasonable Democrats is a good one.  The middle has been taken out of Congress in both parties in both houses.  That's what makes reaching a compromise so difficult.


Bad ideas

2-5 are all short-term solutions to a long-term problem. And as you mentioned, some of them make the already terrible long-term problem even worse.


" Collect taxes already owed

" Collect taxes already owed - $2.9 trillion FY12-FY21 - The IRS estimated that in 2001, $345 billion was owed but not paid to the federal government, of which the IRS collected $55 billion through enforcement actions. That leaves plenty of existing taxes to be collected. However, the bulk of it is in cash payments to small businesses..."

That's a great idea, Pete--the biggest moneymaker here by an Order of Magnitude-- but, gosh, isn't it exactly what your buddies got rid of when the Must-Issue-a-1099-for-all-dealings-over-$600 rule went away?

It's almost as if no one who was paying attention would believe then when they say they want to cut the deficit.


And, if I believe what my

And, if I believe what my TeeVee tells me, all I gotta do is call these tough lawyers who will fight the IRS and prevent them from taking my money! The gall of that IRS! Trying to collect taxes! Humbug!

Seriously, those commercials make me furious. Pay your damn taxes. I pay mine. If you're in dire straights, sure, work out a deal. But the way those commercials are done it's like the IRS is evil for daring to ask people to pay what they owe. It's astonishing.


Pay your taxes

What a concept -- real Americans pay their taxes.  Don't you love the free market, particularly when it drives you crazy or into making a huge pile of bad mortgage loans? 


Collect taxes already owed

I forgot to mention the 1099s over $600 repeal.  Thanks for reminding everyone.  

When you ask some people to comply with the law, they don't like it, and get it changed.  That's how we ended up with our Swiss cheese Tax Code.




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