A Better Way to Tax the Rich?

Plus, a bipartisan step to fix the IRS

Larry Summers Says He Has a Better Tax Plan Than AOC and Elizabeth Warren

Right idea, wrong approach. That’s the message from Larry Summers, former Treasury secretary under President Bill Clinton, and Natasha Sarin, a Penn law professor, on the tax-the-rich proposals from Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Elizabeth Warren (D-MA).

Writing in the Boston Globe, Summers and Sarin say they agree with Ocasio-Cortez and Warren that large increases in federal tax revenue are needed, and that raising taxes on the wealthiest Americans is the right way to go. But they argue that there are better ways to accomplish those goals — and raise far more revenue — than by lifting the top marginal tax rate to 70 percent, as Ocasio-Cortez has suggested, or introducing a wealth tax, as Warren has proposed:

“Where we differ from Warren and Ocasio-Cortez is in our belief that the best way to begin raising additional revenue from highest income tax payers is with a traditional tax reform approach of base broadening and loophole closing, improved compliance, and closing of shelters. We show that these measures, along with partial repeal of the Trump tax cut, can raise far more than recent proposals. These measures will increase economic efficiency, make our tax system more fair, and are perhaps more politically feasible than a wealth tax or large hikes of top rates. It may be that measures beyond base-broadening are appropriate and desirable given the magnitude of the revenue challenge we face. But base-broadening is the right place to begin.”

Their plan centers on:

  • Stepping up IRS enforcement and audits to raise revenue;

     
  • Closing corporate tax shelters;

     
  • Closing individual tax shelters and eliminating the carried interest tax break for investment fund managers;

     
  • Eliminating “stepped up basis,” the tax break that heirs get on inherited assets that have appreciated in value;

     
  • Capping tax deductions for the rich;

     
  • Ending the 20 percent pass-through deduction introduced by the 2017 GOP tax overhaul

     
  • Lowering the threshold for the estate tax;

     
  • Raising the corporate tax rate to 25 percent, up from the 21 percent created by the GOP tax law.

To get more details, read their full piece here — and look for a follow-up on Friday with more analysis of the Warren and Ocasio-Cortex proposals.

Klobuchar Unveils $1 Trillion Infrastructure Plan

Presidential candidate Sen. Amy Klobuchar (D-MN) released an infrastructure plan Thursday that she said would be her top priority should she win the 2020 election.

“Here’s the truth,” Klobuchar said in a tweet. “Our infrastructure is falling apart and we need bold action to fix it. That’s why I’m announcing a trillion-dollar plan to overhaul and build America’s infrastructure.”

Citing the more than 50,000 structurally deficient bridges currently in the U.S., Klobuchar’s press release touted her role in quickly securing financing to rebuild the Interstate 35W bridge in Minneapolis, which collapsed in 2007. In addition to repairing bridges and roads, Klobuchar proposes to rebuild public schools, improve public transit, invest in green energy infrastructure and connect every household to the internet by 2022 while creating “millions of good-paying American jobs.”

Klobuchar also tweaked Republicans for their failure to pass an infrastructure plan over the last two years. “President Trump is asking Congress for $200 billion for infrastructure in his budget proposal that will somehow support an over a trillion-dollar investment, but his plan is a mirage and he leaves the details up to lawmakers,” her press statement said.

Some key details from Klobuchar’s proposal:

  • The plan calls for $650 billion in direct federal spending.

     
  • A new, independent federal infrastructure bank would leverage $250 billion to $300 billion in direct loans and loan guarantees to support roughly $400 billion in additional spending.

     
  • Investment would be targeted at seven specific areas: roads, highways, and bridges; airports, seaports and inland waterways; public transit and rail infrastructure; public schools; high-speed internet; clean energy; and water quality.

     
  • Klobuchar would revive Obama-era Build America Bonds, which subsidized infrastructure projects, and authorize new bonds focused on private investment in public infrastructure and green energy.

     
  • Klobuchar proposes “a series of corporate tax reforms” to help pay for the plan, including raising the corporate tax rate to 25 percent, up from 21 percent imposed by the 2017 tax law.

     
  • The nation’s largest banks would face a new financial risk fee to provide additional funds.

Congress Takes a Bipartisan Step to Fix the IRS

A bipartisan group of lawmakers on Thursday offered legislation aimed at improving the Internal Revenue Service.

The Taxpayer First Act of 2019, which lawmakers say is the result of years of work by the Senate Finance Committee and the House Ways and Means Committee, includes a broad range of provisions to modernize the tax agency and make it serve the public better (you can find the official summary here).

Those provisions include:

  • Requiring the agency to submit plans to restructure to become more efficient, update technology systems and enhance cyber security;

     
  • Establishing an independent office of appeals within the IRS and other steps to strengthen the rights of taxpayers facing IRS enforcement actions;

     
  • Protections against tax identity theft and measures designed to improve interactions with the agency for filers who have had their identities stolen;

     
  • Measures to improve the IRS whistleblower program;

     
  • Changes to the agency’s private debt collection program meant to ensure that lower-income Americans are not targeted.

The bill reportedly would also raise the penalty for failing to file a tax return.

The House passed similar legislation last year, but those bills weren't taken up in the Senate, according to The Hill. The House Ways and Means Committee is expected to vote on the bill next week, The Hill says.

Sen. Chuck Grassley (R-IA), who chairs the Senate Finance Committee and introduced the legislation in the chamber along with Sen. Ron Wyden (D-OR), said Thursday that some of his colleagues had other ideas for IRS reforms that didn’t make it into the bill. “I want them to know that I see this legislation as a first step toward reforming the IRS and strengthening taxpayer protections,” he said. “I agree that there is more we can do.” But both senators said they hope this bill can be passed quickly.

GDP Growth Revised Down to 2.2% in Q4

The U.S. economy grew at slower rate than initially estimated over the final three months of 2018, the Commerce Department said Thursday. Gross domestic product rose at a 2.2 percent annualized rate for the quarter, down from an initial estimate of 2.6 percent.

For the full year, inflation-adjusted GDP grew by 2.9 percent, unchanged from the previous estimate. Comparing output in the fourth quarter of 2018 to that in the fourth quarter of 2017, the economy grew 3.0 percent last year, slightly slower than the initial estimate of 3.1 percent.

“The slowdown in GDP growth, from 3.4% in the third quarter, is a straightforward story about the end of the kick from tax cuts, which was never going to last long,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.

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