Category Archives: Taxation

Mitt vs Mitt, Round 2

Former Massachussetts Governor Mitt Romney gave a speech in Detroit Wednesday. In it, he supports making the Bush tax cuts permanent. However, Mitt wasn’t always a supporter of the Bush tax cuts.

After refusing to endorse President Bush’s tax cuts when he was governor, Mitt Romney has now made them a central part of his presidential campaign, stirring accusations that he is changing his position to appeal to GOP primary voters.

In 2003, Romney stunned a roomful of Bay State congressmen by telling them that he would not publicly support Bush’s tax cuts, which at the time formed the centerpiece of the president’s domestic agenda. He even said he was open to a federal gas tax hike.

“For a Republican governor, I thought it was interesting,” U.S. Rep. Michael Capuano (D-Somerville) said. “I don’t prejudge people, so I thought he might have the courage of his convictions, but I guess I was wrong.”

In a key policy speech in Detroit yesterday, Romney said it is “absolutely critical” to renew President Bush’s tax cuts, set to expire in 2010, to help spur economic growth. It is a stance he has repeated in recent days.

So Mitt, in 2003 at least, was willing to raise gasoline taxes and income taxes. Now, in 2007 when he’s running for president, he’s for income tax cuts. Plus, he’s claiming to be a fiscal conservative as well. However, what Mitt claims and the truth are usually not the same.

But Romney’s fiscal policies in Massachusetts have received mixed marks from conservative watchdogs. The tax-averse Cato Institute gave Romney a “C” on its 2006 fiscal report card, saying the former governor acted aggressively to combat overspending, but failed to hold the line on taxes.

“His first budget included no general tax increases but did include a $500 million increase in various fees,” noted Cato Institute budget director Stephen Slivinski.

In other words, he’s a typical Northeastern Republican. What’s next I’m guessing is that Mitt is going to convert to evangelical Christianity before the South Carolina primary.

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at The and Rare. You can also find me over at the R Street Institute.

The Real Victims Of Corporate Taxes

Lawrence Kudlow has an excellent column out this morning responding to those, such as Hillary Clinton who denounced the profits earned by companies such as ExxonMobil:

The bottom line is that our economic system is all about free-market capitalism, and at the core of that system is profit. Profit isn’t a dirty word. From profits spring the abundance of this great country. Profits are the mother’s milk of stocks and the economy. Expanding profits provide businesses the resources to enlarge production operations and hire additional workers. This, in turn, is how incomes are created, wages that are then spent by American families. Why can’t liberals grasp this?

When the government meddles in the market and taxes companies more — when it sticks its nose where it doesn’t belong — it ends up hurting not just businesses, but all individuals. Taxing profits more means taxing families more. Taxing profits more leads to smaller wage gains for middle-income workers. When you tax American companies more, the American work force is paid less. And when you tax American energy companies more, they produce less energy. That means higher prices for gas at the pump and heating fuel at home. This may enrich Uncle Sam, but it comes at the expense of ordinary folks.


When you tax profits more you undermine the American work ethic and the incentive structure that goes with it. In fact, you demoralize the very system that has made this country great. It’s the people who ultimately pay the corporate profits tax — and that includes shareholders, pensioners, and other retirees. Business taxes should be headed down, not up.

Sounds good to me.

Edwards Has Big Ideas; Need Bigs Taxes

Edwards appears to be leading the charge of Democrats on this issue. He’s likely to drag the entire left side of the field over to promising some form of universal coverage. This may be either the rallying cry for our populace to raid each others wallets, or the death knell of Democrat ’08 electoral chances. Either way, he’s at least honest about what it’s going to cost.

Edwards’ health care plan includes taxes

Health care coverage would no longer be optional in the United States under a plan announced Monday by presidential candidate
John Edwards that would require all businesses to provide insurance and all Americans to have it.

The 2004 vice presidential nominee said he would raise taxes to pay for the plan’s cost of up to $120 billion a year.

Edwards said he would free up money for health care coverage by abolishing
President Bush’s tax cuts for people who make more than $200,000 a year and by having the government collect more back taxes.

“Yes, we’ll have to raise taxes,” Edwards said on NBC. “The only way you can pay for a health care plan that costs anywhere from $90 (billion) to $120 billion is there has to be a revenue source.”

I don’t, for a second, believe that this and all the other spending programs we need to pay for will be financed by increasing taxes on those making over $200K. They can claim that, but I guarantee every one of us will feel the sting. The Democrats are making noise about how wonderfully “fiscally responsible” they are, and $240B per year* is a LOT of new spending.

The question is whether the government has screwed up our health care system enough that the people will be duped into letting them take the whole thing over.
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Tax Withholding: Enemy Of Liberty

Brad Warbiany’s post about income tax withholding reminded me that, while the income tax came about in 1913, payroll withholding did not come into existence until the Second World War. Ironically, one of the people who came up with the idea was Milton Friedman, as Linda Chavez learned when she visited with him several years ago:

“I have to write a check every quarter to pay my taxes because I’m self-employed,” I said. “If more Americans had to do that instead of having the money automatically deducted from their paychecks, people would quit thinking of taxes as the government’s money rather than their own. We’d have a huge tax revolt,” I asserted.

Suddenly I heard Rose’s voice from the kitchen. “See, I told you what mischief you were causing,” she hollered, as Milton broke into a deep-throated laugh.

“The withholding tax was my fault,” he explained. Apparently, as a young economist working for the Treasury Department, Friedman helped design the federal withholding tax. It was not a totally indefensible act though, he said. “Without it, we would not have had a steady flow of money into the Treasury to fight World War II.”

Friedman also discussed his role in creating the withholding system we live with today in a Reason Magazine interview:

Reason: You were involved in the development of the withholding tax when you were doing tax work for the government in 1941-43?

Friedman: I was an employee at the Treasury Department. We were in a wartime situation. How do you raise the enormous amount of taxes you need for wartime? We were all in favor of cutting inflation. I wasn’t as sophisticated about how to do it then as I would be now, but there’s no doubt that one of the ways to avoid inflation was to finance as large a fraction of current spending with tax money as possible.

In World War I, a very small fraction of the total war expenditure was financed by taxes, so we had a doubling of prices during the war and after the war. At the outbreak of World War II, the Treasury was determined not to make the same mistake again.

You could not do that during wartime or peacetime without withholding. And so people at the Treasury tax research department, where I was working, investigated various methods of withholding. I was one of the small technical group that worked on developing it.

One of the major opponents of the idea was the IRS. Because every organization knows that the only way you can do anything is the way they’ve always been doing it. This was something new, and they kept telling us how impossible it was. It was a very interesting and very challenging intellectual task. I played a significant role, no question about it, in introducing withholding. I think it’s a great mistake for peacetime, but in 1941-43, all of us were concentrating on the war.

I have no apologies for it, but I really wish we hadn’t found it necessary and I wish there were some way of abolishing withholding now.

In the context of World War II, and considering the vast amount of money needed to fight and win that war, withholding does make sense. However, payroll withholding has outlasted that war by more than 60 years now and its impact has been felt far and wide.

Because of payroll withholding and the fictional “refunds” that people look forward to every April, the true cost of government is never revealed to the public. Yes, you see small amounts of money being taken out of your paycheck, but the impact of having to write a check every year, or every quarter, would be far greater and, as Brad points out, go a long way toward making people more aware of just how much money the government takes from them every year.

More importantly, though, payroll withholding is yet another example of a program adopted during a crisis, that far outlives the crisis for which it was created. Payroll withholding has lasted six decades.  Does anyone think the PATRIOT Act is going away anytime soon ?

Where Are The Spending Cuts ?

President Bush presented his latest budget proposal to Congress today.

As has become typical with these proposals, the White House thinks it will lead to surpluses and economic prosperty while the Democrats think it will lead to economic ruin. The problem with both sides is that they aren’t focusing on what’s really needed, massive cuts in spending:

The budget that President Bush will submit to Congress today shows the federal deficit falling in each of the next four years and would produce a $61 billion surplus in 2012, administration officials said. But to get there, Bush is counting on strong economic growth, diminishing costs in the Iraq war and tight domestic spending to offset the cost of his tax cuts.

Democrats yesterday criticized the five-year budget plan as overly optimistic, and predicted that extending the tax cuts past their 2010 expiration date would dig the nation deeper into debt rather than produce a budget surplus. Republicans countered that the tax cuts are critical to maintaining a healthy economy and that a balanced budget is not possible without them.

“Raising taxes . . . won’t help balance the budget — it will slow the economic growth that is creating the new jobs of tomorrow and increasing revenue to the federal government,” House Minority Leader John A. Boehner (R-Ohio) wrote in an essay distributed yesterday by his office. “Keeping our economy strong and promoting fiscal responsibility will get the job done. Raising taxes won’t.”

Republicans hope to make the tax cuts a central feature of this year’s budget debate, the first in which Bush will present his request to a Democratic Congress. Both the White House and Democratic leaders have vowed to eliminate the federal deficit by 2012, but Democrats have signaled their intention to do it in part by targeting tax breaks for corporations and taxpayers earning more than $500,000 a year.

“We think it’s absolutely critical that they be extended in 2010, when they otherwise would expire. Why? Because they have contributed to this growing economy,” White House budget director Rob Portman said yesterday on CNN’s “Late Edition.”

“We think it would be a mistake and a risk to our strong economy to have these tax cuts not continue,” Portman added.

Here, for example, is one of the things that’s wrong with modern Republican approaches to fiscal policy. Tax cuts aren’t good because they keep money where it belongs; in the pockets of the people and businesses that earned it. They are good because they “help the economy.”

While I agree that tax cuts are a net positive for the economy, I think Republicans make a mistake when they justify tax cuts based solely on their impact on the economy. By doing so, they leave the entire argument in favor of reducing the tax burden open to anecdotal evidence, however contrived it might be, of a tax cut that harmed the economy in one way or another.

More importantly, though, Bush’s budget doesn’t seem to address the biggest budget problem the Federal Government has, the continued growth in spending:

Bush’s budget projects slower spending growth from 2008 to 2012, with outlays rising 11.8 percent, compared with 14.7 percent in the CBO’s estimates.

Most of this spending, of course, comes in the form of so-called entitlement programs such as Social Security or Medicare. Until someone is Washington is willing to tackle those issues, the budget process will continue to be the farce that it’s been for decades.

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