U.S. Budget and Economy

Did the Assault Weapons Ban Work? As noted in this article , the Sandy Hook Elementary School shooting in Newtown, Connecticut has brought calls to reinstate an assault weapons ban like the one that expired in 2004. Following is an excerpt of a round table discussion of the shooting on the December 16th edition of This Week With George Stephanopoulos : WILL: In 1996, a man went into a gym class in Scotland, killed 16 5- and 6-year-olds and the teacher. A few years ago in Norway, a young -- deranged young man killed, what, 69 people on an island, mostly teenagers. Connecticut has among the toughest gun laws in this country. Didn't help. Scotland and Norway have very tough gun laws. Didn't help. So... STEPHANOPOULOS: Didn't stop, but it does lessen the occasion of violence, doesn't it? WILL: Yeah, why don't... EDWARDS: And, George, since Columbine, there have been 181 of these school shootings. WILL: We did -- remember, we did -- we did have a ban -- we did hav...

I concluded a prior post with the following statement: As I mentioned, I am yet to find a single economic study that purports to show evidence that any income tax cut has ever paid for itself. If anyone who reads this should know of one, please leave a comment with a link to that study. Thanks. I did receive a couple of replies to that request but neither of them focused on income tax cuts in the United States. One focused on capital gains tax cuts and the other focused on countries with relatively weak tax authorities where tax cuts might increase compliance (like Russia). In any case, I replied to both. I also have not found an economic study that shows an income tax cut paying for itself from any other source. However, I am continuing to search for such a study and have posted links to any related information that I've found at this link . I believe that only one of those links is to a study that purports to show a tax cut that paid for itself. It is a paper published b...

My prior post is posted and being discussed at Logarchism.com . One of the questions that came up was the following: I have a question to which you might not know the answer, since it is a matter of a phrase used by someone you quote. Feldstein says, The key question raised by the Romney plan’s critics is whether this revenue loss can be offset by broadening the tax base of high-income individuals. I don’t understand what is meant by the phrase “broadening the tax base of high-income individuals.” Do you have any idea what he meant by that? My reply was as follows: That's a very good question and points to one of the problems that I have with the Romney tax plan. Romney is very explicit about what goodies his plan offers. On this web site , he lists the 20 percent cut in all marginal rates, elimination of AMT and estate tax, and other items. All that he says there about broadening the tax base is "America’s individual tax code applies relatively high marginal tax rat...

On August 1st, the Tax Policy Center released a study of the Romney tax plan titled "On The Distributional Effects Of Base-Broadening Income Tax Reform" . Following is its conclusion: In this paper we examine the tradeoffs between rates, tax expenditures, and the progressivity of the tax schedules that are inherent in revenue-neutral tax returns. We show that plans that advance steeply lower marginal tax rate structures would require deep cuts in tax expenditures to offset the revenue losses arising from low rates. Because many of the largest tax expenditures benefit middle- and lower-income households, deep reductions tax expenditures can alter the distribution of the tax burden. To illustrate these tradeoffs, we examine as an example a set of tax rate reductions specified in Governor Romney’s tax plan. We show that given the proposed tax rates and proscription against reducing tax expenditures aimed at saving and investment, cutting tax expenditures will result in a net t...

Distribution of Family Net Worth and its Change in the Economic Crisis On June, 11th, the New York Times published a story on the just-released Survey of Consumer Finances (SCF) titled "Family Net Worth Drops to Level of Early ’90s, Fed Says" . The SCF is a cross-sectional survey of U.S. families which has been done every three years since 1989 and includes information on families’ balance sheets, pensions, income, and demographic characteristics. The New York Times story begins: The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday. A hypothetical family richer than half the nation’s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss. The tables at this link are taken from the SC...

I recently listened to an interesting Planet Money podcast titled Obama, Ryan And Two Dead Economists . You can listen to the podcast at this link . The two "Dead Economists" are John Maynard Keynes and Friedrich Hayek . The podcast includes an interview with Nicholas Wapshott, author of Keynes Hayek: The Clash That Defined Modern Economics . The difference between the two is briefly summarized in the book description which states the following: John Maynard Keynes, the mercurial Cambridge economist, believed that government had a duty to spend when others would not. He met his opposite in a little-known Austrian economics professor, Friedrich Hayek, who considered attempts to intervene both pointless and potentially dangerous. One interesting topic explored by the podcast is how some of Hayek's ideas are contrary to what Paul Ryan and other Republicans are pushing for. A Planet Money blog about the podcast states the following: In our conversation, Wapshott cit...

On August 5th, the Wall Street Journal ran an editorial titled "Arthur Laffer: The Real 'Stimulus' Record" . The author, Arthur Laffer , is an American economist best known for the Laffer Curve . The editorial begins as follows: Policy makers in Washington and other capitals around the world are debating whether to implement another round of stimulus spending to combat high unemployment and sputtering growth rates. But before they leap, they should take a good hard look at how that worked the first time around. It worked miserably, as indicated by the table nearby, which shows increases in government spending from 2007 to 2009 and subsequent changes in GDP growth rates. Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus. Regarding this nearby table, monetary economist David Glasner says the following in a critique of the L...

Marketplace , a public radio program, has been covering Wealth and Poverty issues on its programs for several months. On July 26th, a segment titled "Arthur Laffer on income inequality, raising taxes" was broadcast. The audio can be downloaded from this link . Following is an excerpt from the transcript : Horwich: Many economists will say the data is extremely inconclusive in practice as to how marginal tax changes actually affect personal and business activity. What makes you so sure? Laffer: Because basically, these economists you talk about never worked in the real world. They're just looking at the econometrics and the data there. If you ever go and look at what's being recommended from the CPA firms, from financial planners. If you actually look at how they go through, do their tax returns -- believe me, they are more focused on their taxes than you and I are on their taxes. Horwich: But am I right that I just heard you criticize economists for actual...

On March 1st, the Senate Budget Committee held a hearing on tax reform to encourage growth, reduce the deficit, and promote fairness. Three expert witnesses testified. They were Dr. Leonard E. Burman, a professor at Maxwell School of Syracuse University, Dr. Diane Lim Rogers, the chief economist of the Concord Coalition, and Dr. Daniel J. Mitchell, a senior fellow at the Cato Institute. A video of the full hearing can be seen at this link . Senator Ron Johnson begins questioning the panel of witnesses at about minute 97 of the video (this portion of the hearing is also posted on Senator Johnson's website and on YouTube ). He began by having the following chart held up: According to Table 1.3 in the Historical Tables and Table S-1 of the Summary Tables from the most recent U.S. Budget, the 10-year outlays for these three periods are 15.936, 27.879 and 46.959 trillion dollars, respectively. Hence, the chart is technically correct. One of the panelists, Dr. Mitchell, posted thi...

On February 19th, the following conversation took place between interviewer Jake Tapper and Robert Gibbs on ABC's "This Week": TAPPER: The president got something of a political victory this week when the House and Senate came to an agreement on the payroll tax extension, but it's not paid for, the $100 billion, so that payroll tax money will not be paid into the Social Security Trust Fund. One member of the president's own party called this bill "a devil's deal" and went on the say this. (BEGIN VIDEO CLIP) HARKIN: I'm dismayed that Democrats, including a Democratic president and a Democratic vice president, have proposed this and are willing to sign off on a deal that could begin the unraveling of Social Security. (END VIDEO CLIP) TAPPER: That's quite an ad against the president's re-election campaign from Democratic Senator Tom Harkin. Is this the unraveling of Social Security? GIBBS: No, I strongly disagree with that characterization. ...

My prior post looked at the calculations behind Warren Buffett's claim that he paid a lower tax rate than any of the other people in his office. Specifically, Buffett claims that he paid about 17% of his taxable income in tax and his office staff paid percentages somewhere in the 30s. A number of articles disputed this claim, stating that, due to the double taxation of capital gains, Buffett actually paid a much higher rate. For example, a Wall Street Journal editorial titled "The Buffett Ruse" states the following: This is because wealthy tax filers make most of their income from investments. Such income is taxed once at the corporate rate of 35% and again when it is passed through to the individual as a capital gain or dividend at 15%, for a highest marginal tax rate of about 44.75%. This rate of 44.75 equals the top corporate tax rate of 35% plus 15% (the capital gains rate) of the remaining 65 percent. However, the 35% figure is the top statutory corporate tax r...

The January 23rd issue of Time Magazine features Warren Buffett on its cover and contains a story titled "Warren Buffett Is on a Radical Track" . Following is an excerpt: Buffett paid a tax rate of only 11% on adjusted gross income of $62,855,038 in 2010. (After deductions, most of which were for charitable contributions, he paid a still low 17% rate on his $39,814,784 of taxable income; his office staff, meanwhile, paid percentages somewhere in the 30s.) Buffett discussed this in an op-ed that he wrote titled "Stop Coddling the Super-Rich" that was published in the New York Times on August 14, 2011. He discusses the exact method by which he calculated these tax rates in a letter sent to Republican Representative Tim Huelskamp . In it, he states: I would guess that if you would take line 60 from your 1040, plus payroll taxes paid by you and on your behalf, as a percentage of line 43 - taxable income - your number would be in the 30s just like all of the people i...