Fiscal Policy Program: Latest Articles

Economic Diversification

adminn — Mon, 31 Dec 2007 10:23:00 -0500

Harry Markowitz’s 1952 essay Portfolio Theory broke new ground in developing ways to diversify financial portfolios. By the time he won the Nobel Prize nearly four decades later, countless financial innovations to help spread risk had been introduced, making the risks associated with investing more acceptable -- particularly to the American middle class. Sure the markets are taking a hit now, but those with diversified portfolios are certain to weather this downturn better than those without.

U.S. economic public policy would benefit from a similarly innovative approach to managing risk. The economy is facing growing pains that go deeper than just… more

How to Hit the Trifecta

Articles — Wed, 25 Jul 2007 09:40:00 -0400

Rising insecurity in the oil producing regions of the world along with rising carbon levels in the atmosphere are pushing Congress to update our nation’s energy policies. But far from providing a bold solution to our converging environmental, energy and security dilemmas, the bill that has come out of the Senate to gradually increase fuel efficiency standards relies on timid half-measures. Congress should instead consider a more effective and long-overdue step towards energy independence and environmental protection -- implementing a broad-based energy tax.

Clearly, U.S. energy policies need reforming. Oil-producing nations hold too much sway over our pocketbooks and our… more

The $800 Billion Tax Loophole

Articles — Fri, 19 Jan 2007 01:44:00 -0500

Democrats are in a bind when it comes to their domestic economic agenda. They have promised a number of new and costly initiatives such as fixing the Alternative Minimum Tax, providing middle-class tax relief, and increasing spending on homeland security and education. But they have also made a commitment to fiscal responsibility. So how can they deliver on their promises without opening themselves up to the old "tax and spend" label? Reforming tax entitlements -- a large, mostly under-the-radar part of the federal budget -- might just give them a way out of their predicament.

As a result of the 1986… more

Hopes for Tax Reform in 2007

Articles — Wed, 10 Jan 2007 06:54:00 -0500

Will 2007 be the year of fundamental tax reform? It should be, but in all likelihood, it will not be. Still, there are plenty of changes that could be made to move the tax code in the right direction.

First, the reasons there should be tax reform. Everybody hates the tax code. There is no better political rallying cry than "I am going to reform the tax code to make it simpler, fairer, and better for the economy." The same line is used by the most liberal and conservative would-be reformers. Unlike other public policies in need of reform --… more

Tax Inheritance, Not 'Death'

adminn — Wed, 05 Jul 2006 05:19:00 -0400

Something is missing from the current debate over the hundred-year old estate tax. Instead of eliminating it or merely scaling it back to a point beyond recognition, we should instead be considering expanding the tax on money passed from one generation to the next.

Proponents of repealing the so-called death tax, which oftentimes taxes a person's earnings twice -- once when earned and then at death -- argue that it is unfair (not to mention morbid.)

Rather than pointing out the flaws in this fairness argument, opponents of estate tax repeal have fallen back on a divisive class-warfare approach. The estate tax… more

The Bucks Don't Stop

Articles — Sun, 19 Feb 2006 22:15:00 -0500

Although President Bush has presided over significant growth in federal spending, Congress routinely added to every budget he proposed in the last five years. On average, the extra spending totaled $80 billion a year, including supplemental appropriations for Iraq, Afghanistan and national disasters. By contrast, Congress routinely authorized less spending that President Clinton wanted.

So although Bush's proposed 2007 budget requests the second-largest spending increase in a decade, look for Congress to up the ante. For the chart detailing these additions, please see the attached PDF file.

Homeowner Tax Breaks are Breaking the Budget

Articles — Sun, 30 Oct 2005 00:00:00 -0400

President Bush's tax reform panel has ventured into political no man's land. It wants to limit the tax deductions for home mortgages, employer-provided health insurance and state and local taxes.

Individuals and businesses love these tax breaks. Democrats and Republicans embrace them for their own ideological reasons. The constituencies backing them are powerful. But these sacred cows are in desperate need of reform. The Treasury needs the money to close the growing budget deficit, and these tax breaks often benefit the wrong constituencies, even hurting the very economic strata they are intended to help.

The money involved… more

America Needs a Tax System that Reflects its Values

Articles — Thu, 27 Oct 2005 00:00:00 -0400

With President George W. Bush's Tax Commission about to issue its recommendations--opening up a rare opportunity for fundamental tax reform--we would do well to remember one of the iron rules of economics: whatever we tax, we will get less of and whatever we do not tax, we will get more of. In other words, we should tax what is bad, not what is good.

By this logic, America's current tax system is as wrong-headed as it is backward: it discourages savings, job creation and higher wages, while encouraging energy consumption, waste and environmental degradation. Sadly, the Tax Commission has decided… more

Time for a New Budget

Articles — Sun, 23 Oct 2005 03:00:00 -0400

Congress and the president have made responding to Hurricane Katrina the highest priority of the federal government. The tremendous costs involved call for a grand rethinking of the nation's priorities. Given that we are only in the fourth week of the new fiscal year, and the current budget is already basically dead, the first step should be to pass a brand new budget.

The budget that the Congress passed this past spring, which covers the five years beginning in fiscal year 2006, was dangerously close to becoming derailed even before Katrina hit. That budget has since careened off track. It… more

Closing the Hurricane Gap

Articles — Fri, 07 Oct 2005 00:00:00 -0400

While it's impossible to measure the human suffering caused by Hurricanes Katrina and Rita, it is possible to measure their effect on the nation's budget. Given our precarious fiscal situation -- large budget deficits and huge imbalances for long-term entitlement programs -- Congress cannot afford to blindly add billions to the already swollen deficit. In the comming years (or better yet, months) there will have to be a bi-partisan effort to balance the budget for both the short and long terms. More immediately, Congress should act to make sure that the hurricanes aren't the fiscal straw that breaks the camel's… more

Dealing with the Deficit

Articles — Mon, 01 Aug 2005 00:00:00 -0400

With structural budget deficits stretching indefinitely into the future, the mounting national debt and few meaningful budget rules left in place, the chances of the deficit disappearing on its own are about as likely as finding a quick fix for health care. It is no wonder fiscal conservatives are in such a state of despair. Despite numerous warnings from the Congressional Budget Office, the Government Accountability Office, the Federal Reserve and the International Monetary Fund, the past four years have seen a solid deterioration in the nation's fiscal state of affairs. If nothing is done, it may… more

Fitting the Bill?

Articles — Wed, 13 Apr 2005 00:00:00 -0400

One sidelight of President George W. Bush's recent trip to Rome for the funeral of the pope was the apparently warm interaction between Presidents Bush and Clinton. In particular, Bush praised Clinton's thinking in the area of Social Security. This praise focused the public eye on an underappreciated fact. President Clinton devoted an enormous amount of effort to the study of Social Security reform. It may well be the case that Social Security reform would have been accomplished if impeachment had not taken over the agenda.

With that in mind, it is instructive to wind back the clock and look… more

The Three W's of Social Security Reform

Articles — Wed, 30 Mar 2005 00:00:00 -0500

It should come as no surprise that proposals to create individual accounts as part of Social Security reform are faltering. As the layers of promises are peeled back, it becomes increasingly clear that investment accounts are neither necessary nor sufficient to fix Social Security. Accounts will not make millionaires out of minimum-wage workers. Higher returns from investing in stocks will not work as some magic elixir that cures the challenges confronting Social Security. Accounts will not result in huge estates to leave to the next generation.

But the idea should not be abandoned.

If Congress is willing to make the real… more

The Corporate Tax is Dying!

Articles — Thu, 03 Mar 2005 04:00:00 -0500

The corporate income tax has always had enemies. Introduced in 1909 as an effort to close the country's worst budget gap since the Civil War, economists and capitalists almost immediately began to argue that it was inefficient and slowed down business. More recently, Presidents Reagan and Carter, as well as conservative economist Milton Friedman and liberal economist Lester Thurow, have all recommended that the country scrap it. In May 2001, then-Treasury Secretary Paul O'Neill called the tax system of the United States an "abomination" and proposed the abolition of the corporate income tax.

Efforts to repeal it,… more

A Tax Plan for Kerry

Articles — Mon, 24 May 2004 02:00:00 -0400

John Kerry not only has a message problem, he seems to have conflicting economic priorities. Kerry wants to make job creation and helping the middle class the central theme of his campaign, but he has yet to offer any bold or compelling ideas to back up the rhetoric. At the same time, he has been unable to find a way to square his broader jobs agenda with his commitment to fiscal prudence. Allow us to suggest a solution to both problems: abolishing the payroll tax.

Although you'd never know it from listening to our political leaders, the largest… more

Radical Tax Reform

Articles — Tue, 20 Jan 2004 12:00:00 -0500

We have become accustomed to thinking that taxes, like hemlines, can only go up or down. This isn't true. Over the centuries changes in the form of U.S. taxes have been at least as dramatic as changes in the rate of taxation.

For instance, most federal revenues now come from personal and corporate income taxes, and from the payroll taxes that fund Social Security and Medicare. But most government revenues originally came from excise taxes on luxury items such as tobacco, spirits, and sugar, and throughout much of the nineteenth century the bulk of federal revenues came from tariffs on… more

The Spending Tax

Articles — Sun, 29 Jun 2003 00:00:00 -0400

While Democrats and Republicans continue to bicker about tax cuts, they are ignoring the debate we should be having. That is, how can this nation fundamentally reform the tax code to achieve three critical goals: simplification, economic growth, and equitable tax burdens? What we need is a complete overhaul of our tax system -- from one that encourages a debt-consumption economy to one focused on saving and investment. This can best be done by instituting a "progressive consumption tax."

The current income tax is a labyrinth of exemptions, deductions, and credits, so complicated that even accountants need accountants. Many citizens… more

America's Children Will Pay for These Tax Cuts

Articles — Wed, 07 May 2003 00:00:00 -0400

With military victory in Iraq secured, it is time to recognise another battle being waged on America's home front -- a generational war. When two countries go to war, one side usually wins. But generational warfare is a losing proposition for all because of the long-term social, fiscal and political strife it creates.

The final bill to US taxpayers for regime change in Iraq will probably total in the hundreds of billions of dollars. By contrast, the liabilities now being passed on to members of the post-baby boom generation as a result of current policy actions or inactions are… more

An Economic Plan That Cancels Itself

Articles — Fri, 07 Feb 2003 04:00:00 -0500

President Bush's proposed budget blurs the important distinctions between stimulus and growth. Given the differing objectives of the two -- on the one hand increasing spending to stimulate the economy in the short term and on the other increasing saving to boost longer-term growth -- it is nearly impossible to accomplish both.

With the stimulus and growth components of the president's economic proposals canceling each other out, the budget plan is likely to accomplish neither.

When stimulus is the objective, deficit spending makes sense as a way to funnel more money through the economy to speed up recovery. An effective… more

'Pork for Pensions' Is a Fair Swap

Articles — Tue, 31 Dec 2002 04:00:00 -0500

The midterm elections ended the misconception that proposing changes to Social Security leads to a swift political death. President Bush has repeated his support for voluntary personal retirement accounts, and the moderate Democratic Leadership Council also leans toward the idea.

But how to pay for it? Reformers had targeted budget surpluses to fund the transition of Social Security from government collections and disbursements to personally directed investment accounts. But the war on terrorism and the recession-induced decline in tax revenue have produced a fiscal noose that threatens reform.

A potential solution is to take an ax to corporate welfare.… more