The awkward fact, however, is that more than half of the value of these tax expenditures reflects exclusions from income that actually make it easier for individuals to file taxes. Many tax expenditures allow taxpayers to exclude or deduct income that is not received in cash and would be much harder to measure precisely than wages on a W-2. Taxing home production, imputed rent on owner-occupied housing, pension earnings, inside buildup on life insurance policies, and all government benefits would move the tax system closer to many economists’ ideal “Haig-Simons” concept of taxable income, but would in fact make filing taxes much more complex.
Pointer from Mark Thoma. Keep in mind that Furman is still part of the Obama Administration and so is not completely free to speak his mind. Still, I would bet he believes at least 90 percent of what he says here. I think that the one thing he leaves out is the payroll tax. I would place a high priority on reducing the payroll tax, which I think can be counted as progressive tax reform.
Are people really talking about these? I seriously doubt Obamacare simplified the employer-anchored insurance subsidy.
Only economists think about “Haig-Simons” income. My specialty is public finance, and while I completely understand HS, I think it’s crazy. No voter is going to think it’s reasonable for imputed rent to be taxed. Or the value of mowing their own lawns.
No of course not. But if these can be included in the category of ‘tax expenditures’, then the framing can be shifted — perhaps we’ll all come to appreciate how light and simple taxes already are given that government allows us to live in our own homes, care for our own children, and make our own sandwiches without requiring us to file reports on these activities or pay for the privilege.
There are all kinds of goodies in the article. For example, touting the ‘cadillac tax’ on healthcare (which approximately nobody thinks will actually ever be imposed — or was ever intended to be) and then, shortly after, complaining about reform via subterfuge. And I love the proposed solution to the US imposing a high corporate tax on repatriated foreign income — namely to tax it when it is earned regardless of whether or not it is ever repatriated. That, of course, would only exacerbate the disadvantages of being a US registered multinational and increase the pressure for corporate inversions.
And what is really so hard about educating voters that if the problem was not spending enough money on healthcare, we can declare victory and slowly phase out the employer-anchored insurance deduction because it is the right thing to do.
Imputed rent is taxed in plenty of other first world countries and they don’t think it’s crazy. And property taxes are close to an imputed rent tax anyway with the difference being they are flat instead of progressive with income, and, for the moment, strictly local.
Property taxes are understood as a tax on property owners for local services, not as a tax on non-cash income. And they are already quite progressive in that wealthier people tend to own more expensive homes and pay substantially more in property taxes (my own are about 3x the national average) while generally putting less of a demand on local services than do low-income residents living in cheaper houses.
But, of course, imputing income on home production is the crazier idea of the two — which you don’t address.
Well, now I can’t run for office.
I failed to pay FICA when I cleaned my own house and babysat for my own kids 😉
I used to strongly support cutting payroll taxes, until Scott Sumner beat it into my head that labor income taxes are equivalent to consumption taxes. Given how beautifully simple it is to collect them, I now think payroll taxes should be the last taxes we cut.
I could get behind a countercyclical payroll tax formula, with higher rates during booms and lower rates during busts, to provide an additional automatic stabilizer. But not permanent cuts.
I realize that fungibly everything goes into the general fund dumpster fire, but payroll taxes are ostensibly earmarked to entitlements.
I don’t think we disagree. I support social insurance programs, and payroll taxes are a very efficient way of funding them. Therefore I think payroll taxes should not be cut.
But even in a world without social insurance programs, I would advocate payroll taxes as a major source of government revenue since they’re so efficient.
Payroll taxes are an awful way of funding them because they go into the general fund (get wasted) and disappear.
Logistically, aren’t payroll taxes just a flat tax on income?
It seems funding the government is no longer one of the many purposes of taxation. I feel very old.
Look on the bright side. Maybe you were just naive when you were younger!