Drowning Uncle Sam

Wanting to drown Uncle Sam (denying revenue to the Federal government so it’s small enough to drown in a bathtub, in the words of Grover Norquist) is as naive as Karl Marx’s formulation of the same idea:  the withering of the state.  The extremes meet.

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Revenue neutrality doesn’t mean static receipts

We need a term to describe changes in tax laws that leave the government bringing in the same amount of revenue (as in earlier periods) given changes in the economy.  Revenue neutrality means something else:  changes in tax laws will result in the government bringing in the same amount of revenue if economic circumstances DON’T change.  Budget neutrality and deficit neutrality mean pretty much the same thing as revenue neutrality.

A government may need a certain amount of revenue to do what it does, that is, it may need static receipts — even when the economy grows or shrinks.  In a shrinking economy, tighter tax rules or higher rates are needed to produce static receipts.  (Now that may be oversimple:  government may need higher receipts in bad times for unemployment benefits and the like.  But I’m disregarding that need for now.)

So what’s the term for tax law changes that produce static receipts in a changing economy?  Funding neutrality?  Receipts neutrality?  Steady revenues?

Greek Revenuers Cutting Off Noses To Spite Faces

Struggling to balance its budget, Greece is reducing spending by cutting tax collection efforts:

“As a result of the austerity measures putting some tax officers on reduced pay, we have 5,500 fewer tax office jobs,” said tax officers’ union head Charalambos Nikolakopoulos.

http://www.cnbc.com/id/45814079

Reduced pay is not the same as fewer jobs, but still. . .  “Greek tax officials walked off the job Thursday at the start of a 48-hour strike to protest salary cuts and other austerity measures, as the government struggles to meet revenue targets demanded by the crisis-struck country’s international creditors.”  How do they think they’ll get paid?

I’m for higher taxes, but I understand the need for spending cuts.  Public employee unions can overplay their hands.

“Repatriation Tax Holiday”: Choosing Words Strategically

“Tax Repatriation Holiday”:  Choosing Words Strategically

[A more legible .pdf  version of this posting is downloadable at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1963951.]

“The real goal . . . is to determine what ‘story’ a client wishes to tell about his product and then find a word that evokes it—and spurs the impulse to buy.”[1]

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Tax policy turns on terms.  Witness the deliberate and effective popularization of the term “Death Tax.”[2]

Now, the “product” being offered in H.R. 1834[3] is a temporary, targeted 85-percent dividends received deduction:  an ultra-low tax rate on foreign earnings that U.S. multinationals have trapped in offshore subsidiaries, most often in tax havens.[4]  Its common name is “Repatriation Holiday.”[5]

Continue reading “Repatriation Tax Holiday”: Choosing Words Strategically

Tax Law’s Look-through Rules Can Address Citizens United

Whatever merit there is to granting corporations the Constitutional right of free speech, as the Citizens United case does, there is no merit to granting that right to foreign corporations.  Or to U.S. subsidiaries of foreign corporations.  Or to U.S. corporations owned by foreigners or — for goodness’ sake — by foreign governments.

Fixing this anomaly would take a Constitutional amendment at this point.  The Supreme Court is unlikely to reverse its 5-4 decision:  the Justices most likely to leave are dissenters.

I’m not saying States and the Federal Government should be obligated to restrict speech of foreign-influenced entities.   But governments should be able to say those corporations can’t contribute to campaigns or spend money to influence American elections.

Tax law provides plenty of precedent for denying or granting rights to corporations based on ownership. For instance, a controlled foreign corporation is one in which U.S. shareholders own more than 50 percent, by vote or value.  Code section 957(a). Continue reading Tax Law’s Look-through Rules Can Address Citizens United

Gruesome tax

The Raleigh paper published the letter below (they like short ones).   I titled it “Terrifying Tax Tactics,” but that may have been too much to print in one column.
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Not-so-scary tax

North Carolina’s inheritance tax applies only to folks who meet their Maker while worth over $5 million. Just in time for Halloween, the tax-exempt Civitas Institute said it’s a gruesome tax that turns Revenue Department officials into grave robbers (Oct. 30 Under the Dome).   That kind of rhetoric aims to frighten us and stop us from thinking. Boo!

Continue reading Gruesome tax

Tax riots in China

The WSJ reports:

” . . . the disturbance followed aggressive collection of new charges for the use of machines used to make children’s wear, the town’s mainstay product. The tax was targeted at small, independent workshops that often aren’t licensed and are manned mostly by migrant laborers who earn money per piece produced.

“They said workshop managers were being charged between 300 yuan (about $48) and 600 yuan for each machine used, in what Chinese discussing the matter online called the ‘sewing-machine tax.’ It amounts to about twice as much as was collected in the past.”

http://online.wsj.com/article/SB10001424052970204505304577003503223216724.html?KEYWORDS=china+tax

It’s a lot easier for taxers to count sewing machines once than either (1) to measure production by counting each and every item that leaves the facility or (2) to measure piecework, maybe daily, payments to workers.   Was the sewing machine tax in lieu of a tax on production?  Maybe so, since the operators were reportedly unlicensed.  In any event, it was too effective.  And it targeted a narrow group that could identify its members.