There are lots of people in Washington who claim to want to tax the rich. But it’s worth looking past the rhetoric and focusing on the actual policies being enacted. Here’s the NYT:
Accounting firm brochures and websites are peppered with headlines like “Using opportunity zone investment to super charge estate planning” and “Investing in Qualified Opportunity Zones with Irrevocable Grantor Trusts.” In the trade press, a tax lawyer explains how to combine the opportunity zones tax break with a pre-existing tax break for selling stock in small businesses. On a popular opportunity zones website someone asks: “How can I combine cryptocurrency mining while taking advantage of the opportunity zones tax incentive?” Another site advises how best to combine the benefits of opportunity zones with the Historic Tax Credits.. . .
Those tax returns showed that 84 percent of the zones got no opportunity zones money at all. Half the money went to the best-off 1 percent of zones. That’s hardly surprising. With so many zones to choose from, much of the money flowed to those that were already rising or those that governors chose foolishly. Some 25 percent of New York State’s opportunity zones are in booming Brooklyn. The city government in Austin, Texas, one of the fastest-growing metro areas in the nation, asked for four opportunity zones. The governor allotted it 21.
The best way to reduce this problem is to move to a tax system with lower marginal rates and fewer loopholes. Unfortunately, we are moving in the opposite direction. For instance, there are indications that Congress may bring back the SALT deduction, which primarily benefits wealthy people. And marginal tax rates are likely to increase, which will encourage even more wasteful tax dodging:
During his campaign, President Biden vowed to “reform opportunity zones to fulfill their promise,” but so far the administration hasn’t proposed anything or used its regulatory muscle. And its proposed capital-gains tax increase and other tax increases would only make opportunity zones even more attractive to the tax-averse rich.
The efficiency gains of the 1980s and 1990s are gradually being undone.
PS. I did a podcast with David Beckworth discussing my new book. Here is the transcript.
READER COMMENTS
Alan Goldhammer
Oct 11 2021 at 3:48pm
Scott Sumner gets my vote for President in 2024 as long as this is the only issue he campaigns on! LOL, it is so true. The wacko Dems seem to think that taxing the rich is easy when the opposite is true. At least it looks like the recent international agreement will give us a base corporate tax rate across the world. Now if they can only get rid of all the rest of the preferences starting with the electric car rebate stuff.
I think it was Congressman Kemp who years ago came up with the opportunity zone concept but he must be rolling in his grave seeing how it is abused. It’s too funny that both Dem (Brooklyn) and Rep (Austin) leaders are setting this abuse up so it’s too easy.
Andrew_FL
Oct 11 2021 at 6:25pm
Austin isn’t run by Republicans
Alan Goldhammer
Oct 11 2021 at 6:49pm
I am aware of that. However, I believe the Opportunity Zones are set by the state. That’s the way it is handled here in Maryland.
Matthias
Oct 12 2021 at 9:54pm
If you want a tax that’s efficient and hard to evade, just go for a land value tax.
Corporate taxes, especially taxes on corporate profits, just lead to financial engineering to avoid them.
Rajat
Oct 11 2021 at 4:00pm
I’ve seen this in Australia too, since the GFC, and then when productivity subsequently growth slows, people want to blame ‘deregulation’ and privatisation.
zeke5123
Oct 11 2021 at 6:10pm
I have been frequently critical of your posts, but I think this one is spot on. For what it is worth, I am in the tax business so this is an admission against interest.
steve
Oct 11 2021 at 7:19pm
“The best way to reduce this problem is to move to a tax system with lower marginal rates and fewer loopholes. ”
Is this really possible for anything other than a short period? Someone with lots of money will inevitably donate lots of money and a loophole will be created for them or their interest group. Politicians will work in their own interest and so will those with the money to influence them. Incentives matter.
Steve
Scott Sumner
Oct 11 2021 at 10:07pm
“Is this really possible for anything other than a short period?”
The top MTR was 90% in the 1950s, which is quite a long time ago. So progress is possible. If it’s not possible, then should we all just give up on public policy?
Matthias
Oct 12 2021 at 10:26pm
Also different countries have different tax system and keep their differences for long times.
So persistent differences can persist, despite the existence of donors.
Thomas Lee Hutcheson
Oct 13 2021 at 8:07am
My question is, does this move us closer to a progressive consumption tax, comparison made at unchanged revenue levels.
Brandon Berg
Oct 11 2021 at 9:52pm
It’s not clear to me that the SALT deduction actually does benefit the wealthy. In a static analysis, sure. But I think that the reason blue-state Democrats are so enamored with it is that it makes it easier to raise taxes on the wealthy.
That is, if high-income taxpayers in California get a 40-cent refund on their federal taxes for every dollar they pay in state taxes, it’s a lot easier for the California government to jack up top marginal tax rates than it would be if California taxpayers had to bear the full burden of state taxes.
The best part, from the perspective of California Democrats, is that the SALT deduction actually allows them to tax rich people in states like Texas and Washington. When California increases taxes, federal revenues fall due to increased deductions. To compensate, the federal government has to raise rates, meaning that taxes go up on taxpayers in states with low or no income taxes.
I believe that in equilibrium, the SALT deduction promotes a higher total tax burden, especially on the wealthy. It’s the “If we’re splitting the bill, I’ll have steak and lobster” effect. That’s why Democrats love it and Republicans hate it.
Scott Sumner
Oct 11 2021 at 10:09pm
Sure, but by that logic the corporate income tax also doesn’t fall on the rich. I was discussing the fact that people in Washington claim to want to raise taxes on the rich, as “tax the rich” is usually defined.
Alan Goldhammer
Oct 12 2021 at 1:42pm
Most property taxes are imposed at the city or county level and not the state level. Certainly, that’s how it is here in Maryland. SALT deductibility is not uniform within a given state as a result.
Thomas Lee Hutcheson
Oct 11 2021 at 9:56pm
I have never heard of “opportunity zones” being considered part of tax reform, so I don’t see how this is relevant to the question.
I still want to know what decision taxing taxes paid to SAL government undistorts? If one is trying to tax consumption progressively, why tax this particular kind of NON consumption.
Scott Sumner
Oct 12 2021 at 1:04pm
I’ve answered your question several times.
MarkW
Oct 12 2021 at 7:38am
For proponents “Tax the Rich!” is intended to work as a political strategy — whether or not it works as a revenue generator is much less important.
Todd Moodey
Oct 12 2021 at 10:55am
MarkW, you’re comment is right on the mark. I’ll add that if inefficient changes in the tax code are (re) introduced, Tax the Rich! proponents will merely point to falling revenue, or revenue less than it would have been in the absence of the changes, as evidence that the rich need to be taxed even more. The reality is complex and messy enough to allow them to find experts who will support that position, and the vast majority of the voting public won’t be able to see past the headline, nor will they care. The prime mover in politics today is signalling, not anything that seeks to address truly common, important problems. For proof, see the bill Governor Newsom recently signed mandating gender-neutral toy sections in large retailers: deeply unserious but effective and predictable given California’s politics.
Jose Pablo
Oct 12 2021 at 6:08pm
“which primarily benefits wealthy people.”
How is that a relevant argument discussing taxes? … or even, what does it mean? very likely that “reduces the outsized burden that the tax code imposes on (some) wealthy people”.
In “primarily benefits wealthy people” the only word we can be pretty sure of fully understand its meaning is “people” (and “which”)
Reading now “The Hidden Cost of Federal Tax Policy” by Jason Fichtner and Jacob Feldman one can only be amazed by the simplicity of the first paragraph of the introduction: “The most basic goal of tax policy is to raise enough revenue to meet the government’s spending requirements with the least impact on market behavior”
That simple:
a) the amount of money to be raised (the expending requirements) is a normative decision. Many of us believe, with Jasay that
“The two statements “the state found that increasing group P’s utility and decreasing that of group R would result in a net increase of utility,” and “the state chose to favor group P over group R” are descriptions of the same reality.”
b) From a “technical” standpoint, tax should be judge on their ability to minimize the impact on growth and prosperity (the “leaks” in the “leaking bucket”) for a “given level” of “expenditure requirements”
It is difficult to understand the connection between “benefiting” (or not “benefitting” at all) the rich and the size of the “leaks”.
Discussions on who is “benefitting” or on the bigger or lesser “progressiveness” of another parch to the fiscal code are just a demagogic smoke screen. Efficiency should be the name of the game … at least if we look for prosperity. If what we want, as a society, is “revenge” and the triumph of envy then Economics cannot be of any help, I am afraid.
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