If Wishes Were Taxes, Reformers Would Smile

Everything could come up roses for Rubio and Lee. At least one version of dynamic scoring—accounting for macroeconomic effects of a proposal—has produced some rather glowing estimates of senators Marco Rubio's and Mike Lee's tax plan. The Tax Foundation says the Rubio-Lee plan would increase tax revenues by about $94 billion-a-year versus a cost of $414 billion using a "static" score. It estimates the proposal would boost Gross Domestic Product by about 15 percent after 10 years.

Rosy estimates notwithstanding… MIT's Simon Johnson elaborates on the dangers of wishful thinking in the TaxVox dynamic scoring forum. "There is nothing wrong with competing vague visions for what could happen to the macroeconomy under alternative policies… [but] there are too many models with a very wide variety of assumptions and implications. We need to continue the careful, transparent, and detailed analysis of the kind done by the CBO – which has the proven ability to annoy people on both sides of the political aisle."

Does the tax system's complexity stifle the economy? New Jersey Governor (and presidential hopeful) Chris Christie seems to think so. He's not satisfied with the nation's rate of economic recovery, and suggested that lowering taxes to achieve a "flatter and fairer" system would raise economic growth to 3 or 4 percent. He noted, "You shouldn't need [an accountant] to fill out your taxes. That depresses economic growth." Christie might find useful the Joint Committee on Taxation's background paper on complexity in the tax system. The JCT prepared it in advance of tomorrow's Senate Finance Committee hearing.

New tax data to consider: A 2015 proposal and 2012 returns. President Obama's tax proposals would raise $1.2 trillion, according to the Joint Committee on Taxation's estimates. Specifically, changing the tax treatment of capital gains, reducing tax benefits for higher-income households, and new taxes on the financial industry would raise about $912 billion. On a related note: TPC's Lydia Austin and Bob Williams released a new Tax Fact on the composition of income reported in 2012. "For those with adjusted gross incomes exceeding $500,000, business and investment income — capital gains, interest, and dividends — account for most of AGI."

Building a better insurance mandate: Tie insurance to other government benefits. The problem with the Affordable Care Act's tax penalty for not purchasing health insurance, according to Urban Institute's Gene Steuerle, is not the idea of a mandate, but its design. Instead of a tax penalty: "Simply deny to taxpayers other government benefits if they do not obtain insurance for themselves and their families." These could include the personal exemption, the home mortgage interest deduction, a share of the student loan interest deduction, or the child credit. "This approach entails no new ‘tax' for not buying insurance; it simply adds to the conditions for receipt of other government benefits. Designed well, the denial of any tax benefit could easily be reflected in withholding, so there are fewer end-of-year surprises."

In Greece: The tourist who spied me? Greece could run out of money by month's end, and needs cash, post haste. It will present a slew of ideas to eurozone finance ministers, including one radical idea to catch tax evading businesses. The Greek government could hire tourists, housewives, and students to "to pose, after some basic training, as customers, on behalf of the tax authorities, while wired for sound and video." The goal: Intimidate tax dodgers and build a new tax-compliance culture. Opah!

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