President Donald Trump has long been known for his fondness for superlatives when describing his projects and policies. His administration’s proposal for a tax cut is certainly no exception. In a recent interview with the Associated Press he declared: “It will be bigger, I believe, than any tax cut ever. Maybe the biggest tax cut we’ve ever had!”
Americans just got their first taste of some of the details of his tax overhaul. Treasury Secretary Steve Mnuchin repeated his boss’ boast about the tax cut’s size and said it would slash the top corporate rate to 15 percent from 35 percent. It would also simplify individual income rates and reduce them a little, while doubling the standard deduction and eliminating certain itemized deductions.
In assessing whether his cuts might be the biggest ever, many pundits have pointed to President Ronald Reagan’s tax overhaul in 1981, which reduced government revenue by 2.9 percent of GDP.
But was that really the biggest U.S. tax cut ever? Hardly. In fact, we have to go back almost 150 years – immediately after the Civil War and the beginning of the income tax – to find the American whopper of tax cuts. Put simply, it would be very hard for Trump to exceed that cut. Continue reading
It is almost April 15th; the time many people in the U.S. file their income taxes. Shocking as it may seem, personal income taxes don’t provide most of the federal government’s revenue. Since World War II personal income taxes have consistently provided less than half of all the money taken in by Washington.
Just as shocking has been the change in the source of federal revenues over time. The official statistics show in the 1940s and 1950s corporations picked up a major share of supporting the federal government. Today, it is taxes on workers. Social security and Medicare taxes are now four times more important in providing revenue for the government than they were in the mid-1940s. Continue reading
As the old saying goes, there are only two things certain in life: death and taxes. While being taxed is a certainty, the rate and types of income being taxed is not.
Each of the five remaining GOP hopefuls – Donald Trump, Ted Cruz, Marco Rubio, John Kasich and Ben Carson (who appeared on the verge of dropping out as this article was written) – has released tax proposals on his official website. Examining these plans provides a rough idea of what will happen to the tax system if a GOP candidate wins the November presidential election. Continue reading
Over the last few years, a new idea for improving public health has been slowly spreading across the world: a ban on selling cigarettes in packages with custom brand designs. Instead of selling branded tobacco, all cigarettes are sold in either plain packages or packages with grotesque pictures showing the health consequences of smoking.
The obvious question is: is it effective at reducing smoking rates? The less obvious one: what are the economic consequences of a healthier population? Continue reading
April 15th is tax day, a day many people dread. Economists believe most people are rational calculating machines, but many of us don’t behave rationally about filing our taxes. Instead, most of us wait until the very last minute. Figures from the end of March suggest roughly 50 million or 1/3 of all this year’s individual tax returns in the US will be filed between the end of March and the middle of April. This is NOT a good idea for most of us. Continue reading
Earlier this semester I gave a lecture on the economics of non-profit organizations. Non-profits are given their status because the government wants to provide extra incentives for organizations to tackle problems and for individuals to donate money to solve these problems. In my lecture I discuss some standard examples like hospitals, symphonies and colleges. Then I take students to GuideStar, which reports on the finances of non-profits. GuideStar allows you to see the actual forms, called the 990, that almost all non-profits file each year with the IRS. Some students are then assigned the tasks of creating homework problems based on the lecture. Jerry Lavoie, one of my students, sent in an amazing homework that showed the NFL is a non-profit organization that pays no taxes. I was shocked to read this, but after double checking his work, it is true. Continue reading
Bill Gates is currently the U.S.A.’s richest man with a net worth of about $80 billion dollars according to Forbes magazine. Mr. Gates has been at the top of the wealth charts for decades. As the wealthiest man he is the person most impacted by any kind of inheritance tax since his estate will pay the most when he dies. What does Bill Gates think about inheritance taxes? As I’ll show below, Mr. Gates thinks that inheritance taxes are a good idea. Continue reading
Everyone loves to complain about taxes. While we all make a fuss, how much do taxes influence our lives? Japan just ran a small tax experiment and the results are very clear. Even relatively small changes in sales taxes have a big impact on when we purchase things. Continue reading