The last time I saw the family dentist while I was in college, he asked me what I was studying. When I told him I was studying tax accounting, he got a strange, smug look on his face and asked, “what are you going to do when there is a flat tax?” It’s been almost 30 years since I saw that dentist, and so far I’ve dodged the flat tax bullet. There has been one big tax reform since I started public accounting, and next to getting fired by good old Price Waterhouse, The Tax Reform of 1986 has been the best thing that happened to my career. The 1986 Tax Reform Act’s 25th anniversary is tomorrow. With talk of radical tax reform in the air, from Herman Cain’s 9-9-9 plan to Rick Perry’s embrace of an old-fashioned flat tax, young tax nerds may lose sleep worrying that this time tax careers really will be legislated out of existence. Go back to bed. For young tax nerds, radical change can be a huge career boost. The 1986 tax reforms were enacted during my third year out of school. The local office of my national firm was going to put on a big client seminar, and I was put in charge of organizing the presentation. In the pre-Internet days, we got one paperback copy of the legislation, which I tore apart at the bindings so the presenters could have their part of the law. I proofread the slides, sent them to the photographer, and then manually arranged the presentation in the slide carousel (there was no PowerPoint, kids). The seminar came off well (I did passive losses), which helped keep me (and the evil manager who didn’t like me) from getting me fired again. But in the following weeks the real benefit began to dawn on me — thanks to tax reform, I suddenly knew more about most of the tax law than everybody in the office who outranked me — including the evil manager. It got me promoted quickly, and it gave me much-needed credibility a few years later when a bunch of us went over the wall to start a new firm. If there is radical tax reform, it will trash a lot of accumulated tax trivia knowledge that experienced tax nerds trade on. But it will also create huge opportunities for young, smart nerds who are willing to learn the new rules. It will be a great leveller in the profession, and a huge advantage to the young and strong. But it will probably make it almost impossible for me to sell my collection of 1986 Tax Act books for a good price on e-Bay.
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George W. Bush Would Prefer if the Bush Tax Cuts Were Called Something Other Than the Bush Tax Cuts
- Caleb Newquist
- December 14, 2010
As far as the policy is concerned, W is obviously cool with it but if the name could get tweaked (hint being: drop the “Bush”) maybe getting it through Congress wouldn’t such a BFD.
[via BI]
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Should Groceries Be Taxed?
- Caleb Newquist
- August 12, 2010
An interesting idea from the Tax Foundation’s Blog today that comes by way of Nebraska State Senator Rich Pahls. TF reports that Senator Pahls plans on introducing legislation that would broaden the sales tax base that would, theoretically, lower income or property taxes. TF takes it slightly further than Senator Pahls and suggests that groceries should be included in this broadened base.
There are few states that already tax groceries: “Alabama, Arkansas (3%), Hawaii, Idaho, Illinois (1%), Kansas, Mississippi, Missouri (1.225%), Oklahoma, South Dakota, Tennessee (5.5%), Utah (1.75%), Virginia (1.5% + 1% local option tax), and West Virginia (5%),” and TF argues that more states could benefit from this policy:
Broadening the sales tax base and lowering the rate is a good idea and a move in the direction of sound tax policy. Services should be taxed. Groceries should be taxed. All end-user consumption should be taxed. There is no reason that entire sectors of the economy and swaths of consumption should go untaxed while others are singled out for taxation. Broadening the tax base allows the government to raise the same amount of revenue with a lower tax rate, which reduces distortions in the economy. Taxing all consumption at the same low rate keeps lawmakers from picking winners and losers in the market and ensures you will be taxed equally no matter what you choose to purchase.
Unless you’re one of those people that doesn’t want pay taxes period, this is a sensible solution for states looking to close their budget gaps (even just a little bit). BUT! As you might imagine, taxing groceries is a hot political spud that, for some, is simply not an option:
[T]his type of reform is seen as radical and a political non-starter. One reason is that people have concerns that changes such as applying the sales tax to groceries might unfairly or disproportionately impact the poor. Even Sen. Pahls seems reluctant to embrace this “emotional” reform.
First, remember that broadening the tax base allows us to lower the rate, so that everyone, poor and rich alike, will be paying a lower tax rate on their non-grocery purchases, offsetting some of the increased tax paid on groceries. Still, lower income people spend a disproportionate amount of their income on necessities like food, and they may very well come out behind even after accounting for the lower rate. Then I would recommend implementing or expanding food assistance programs (which provide free food, not just tax-free food) targeted at those who truly need it.
The bottom line is that most of us can afford to pay sales tax on our grocery purchases. Exempting groceries for everyone is a very costly and indirect way of providing assistance to the poor.
Forget for a second that most state politicians can’t entertain actual solutions to budget problems and taxing groceries is sound policy. Think about it. If a states settles on a 5% grocery tax and you purchase $100 worth, that’s an extra $5. That isn’t going to put anyone on the street and if it does, we recommend sticking to the produce section where food is considerably cheaper.
And from a more practical standpoint, it certainly makes more sense than taxing shoe shines and jugglers.
Broadening the Sales Tax Base in Nebraska is the Right Idea [Tax Foundation]
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Chris Van Hollen Isn’t Buying the “Tax Cuts Create Jobs” Story
- Caleb Newquist
- November 24, 2010
In case you needed another sign that we are heading full speed towards a stalemate on tax policy, the Representative from Maryland would like to be recognized for calling BS on the popular Republican rhetoric:
“It’s clear that the tax cuts for the folks at the very top have not created any jobs. After all, we’ve had them in place now for more than eight years, and we know what the jobs situation is,” Van Hollen said during an interview Monday on MSNBC.
“The notion that you’ve got to continue them in order to somehow boost the economy, when those are in place right now and we have a lot of people unemployed, is a clear indication that they are not a big job creator.”
Eric Cantor’s rebuttal will sound similar to this:
“Taxes shouldn’t be going up on anybody right now.”
[…]
“This election … was really the American people saying they are tired of the lack of results in Washington,” he said. “They want to see more jobs for more Americans. They want to see us … cut government spending, rein in the size of government so we can get this economy growing again. That was the prescription, that was the mandate that came from the people.”
So there’s no middle ground to be found here, guys? No chance you can put down the ideological rhetoric for the sake of, ya know, screwing the American people?
Van Hollen: Tax cuts for wealthy ‘not a big job creator’ [The Hill]