How to Raise Revenues Without Raising Taxes

How to Raise Revenues Without Raising Taxes

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Pete Davis of Capital Gains and Games has a great post about ways we might raise revenue without increasing taxes:

If we could just come up with $400 billion of revenue increases that Grover Norquist wouldn’t classify as a tax increase, a debt limit deal could be cut within days. This is hardly the first time that Washington has raised revenue while avoiding calling it a tax “increase.”

1. Index with the chain-weighted CPI-U instead of the CPI-U – $208 billion FY12-FY21 – Following the Boskin Commission Report on CPI overstatement in December 4, 1996, the Bureau of Labor Statistics made several changes to the CPI based upon its recommendations and published a new chain weighted CPI-U that has come in lower than the CPI-U by 0.38% per year on average. Northwestern University Professor Robert Gordon recounts the history well here and explains why he believes the CPI-U remains overstated by at least 1.0%. Last March, the Congressional Budget Office estimated that switching to the chained CPI-U would raise FY12-FY21 income tax revenues by $72 billion, would lower Social Security benefits by $112 billion (p.58), and would lower Federal Civilian, Military, and Veterans pensions by $24 billion (p.56), for a total of $208 billion over the next 10 years.
 
2. Collect taxes already owed – $2.9 trillion FY12-FY21 – The IRS estimated that in 2001, $345 billion was owed but not paid to the federal government, of which the IRS collected $55 billion through enforcement actions. That leaves plenty of existing taxes to be collected. However, since the bulk of it is in cash payments to small businesses, the only way to collect is to force those small businesses or those paying it to report it. Many deficit reduction measures of the past 30 years have included various enforcement measures with mixed results. Increased IRS information reporting and enforcement actions against small business will be very unpopular.
 
3. Dividend Repatriation Holiday – +25 billion FY11-FY13, -$53 billion FY14-20 – This Joint Committee on Taxation letterto Rep. Lloyd Doggett (D-TX) on April 15, 2011 estimated a $25.5 billion revenue increase over three years as U.S. multinationals rush to repatriate dividends at a 5.25% tax rate, 85% less than the present law 35% rate. The problem is that the federal government was also estimated to lose $53.2 billion over the next seven years as corporations increased dividend payouts and relocated overseas. This is an extreme example of short-run gain and long-run loss, but that’s exactly what we did in 2004-2005, when we first adopted this for one year. President Obama is opposed because studies showed that repatriation did not create promised jobs – firms cut jobs – and most of the benefit went to dividend recipients and to stock buybacks. However, if he wants to make a lot of U.S. high tech multinationals very happy to improve his reelection chances, his stand could change.
 
4. Capital Gains Tax Cut – ? – Years ago, when I was still a revenue estimator at the Joint Committee on Taxation, a House Ways and Means Staff Director told me with a smile, “Pete, tell me again I can raise revenue by cutting the capital gains tax and by raising it!” Thinking he was serious, I launched into an explanation of how realizations would jump in response to a cut, although after a few years, it would lose revenue, and an increase would do the opposite. Like the dividend repatriation holiday, a capital gains cut can raise revenue in the first few years, but lose more over the long run. This is a highly controversial topic because there’s such a difference between the short run response and the long run response. Here’s what CBO said about such revenue estimates in 2002. Last March, CBO estimated raising the top rate on capital gains from 20% to 22% would raise $48.5 billion FY 12-FY21 (p.142 here), but the current House will never accept that.
 
5. Convert Traditional IRAs to Roth IRAs – ? – Somebody help me here. I know we’ve used this two or three times in the past to raise revenue by currently taxing transfers from a traditional IRA, where the taxpayer deducted some or all of his contributions up to a limit, to a Roth IRA, where the proceeds can be withdrawn tax-free because the contributions were made with after-tax contributions. I haven’t seen an estimate of how much this is, but if you think future tax rates are going up a lot, it would make sense to switch. Just found this CBPP analysis.
This is very interesting when you consider that items 3 and 4 are tax cuts and the assertion that they will raise revenues is a supply-side argument.
About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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Comments

  1. Andrew Weaver says:

    Politicians,
    I urge you and your fellow colleagues to stop discriminating against the majority of Americans. Due to several of your polices to lower the national debt suggest cutting programs that help elderly, poor and unfortunate citizens. This crosses a dark threshold into class discrimination. In part because the majority of Americans continue to have their programs cut or under funded by government. While the rich continue to be exempt from paying their fair share in taxes. It’s unconstitutional to allow any person the ability not to pay his or her equal share in taxes. Not to mention if the rich paid an equal percentage then our national debt would be cut dramatically. And then you could have legitimate discussions about cutting or reducing other costly programs. Because every American needs to contribute in fixing our national debt crises caused by big businesses profit schemes and the failures of our regulatory agencies. Nevertheless if politicians continue to discriminate then the blowbacks will only be worse for future generations of Americans. So the question now is how far are you going push us down this threshold of class discrimination? Because this type of class diversity only gives negative mentalities toward American democracy.
    “We are, each of us, angels with only one wing, and we can only fly embracing each other.”
    -Luciano De Crescenzo

  2. Andrew,

    Nice screed, but wealth redistribution is not the answer to income inequality. The real class warfare is the left’s demonization of the successful. This happened in 1917 Russia, 1933 Germany, 1959 Cuba and most recently in Venezuela. Didn’t turn out very well in any of these cases.

    Liberals understand that people who have not succeeded in life are desperate to avoid blaming themselves for it. Thus, the left gives them a scapegoat: It is the fault of greedy, cheating, conniving, evil rich people.

    Class warfare works because human beings find it painful to blame themselves for their own failures in life.

    But Shakespeare was right:

    The fault, Dear Brutus, is not in the stars but in ourselves that we are underlings.

  3. Michael J. Miller says:

    I agree with Andrew. Let’s have everyone pay an equal share in taxes. Of course, the wealthy will have to pay a lot less to make it equal …

  4. Mr. Libertarian says:

    What does “fair share” mean? Should someone successful have to work January tru October to cover his tax debt and he gets to keep what he earns in November and December? Does anyone believe that this encourages growth, or to take risks in business? I am tired of this socialistic nonsense that doesn’t work, never has worked, and never will work. Tax rates are bogus anyway, we should have lower tax rates and less loopholes/right offs.

  5. Jeff Chamberlin says:

    I would like to know why the richest 2% feel that they are different than me? I make a fairly good living, a little more than $40k a year. I pay payroll taxes on 100% of my income. Why is it that for those that are fortunate enough to be above the $106k a year mark feel that they are different? Powerhouses such as Warren Buffet and Bill Gates have even weighed in saying that this is ridiculous. You earn a paycheck, pay your taxes…whether you are chief burger flipper at McDonalds or Chief Executive Officer at McDonnel Douglas. If we paid the taxes we owed, we would not have a debt. If, and I am not sure of what the exact numbers would be here, we eliminated the tax limit of $106k and made it apply to ALL payroll taxes, then we could drastically reduce the tax rate accross the board and at the same time have a revenue stream.

  6. Jeff,

    They are different than you because they pay more taxes. The top 10% of income earners pay 71% of federal income taxes.

    Stop believing the propaganda from the left that suggest that the rich aren’t paying their fair share. It’s a rank lie.

    If we put no limit on social security wages, it would be the biggest tax increase in the history of the world. Also, it would give the federal government a huge surplus in social security.

    Social security is an insurance program. It’s not supposed to be a revenue raiser.

  7. Daniel Fahrenheit says:

    Peter,

    Shakespeare was giving the voice of Cassius in those lines. Do you know how those men seized power? The only way they could. They took it. Brutally.

    If a society is set up without social mobility, you can be sure, some underling will say to another “the fault is not our stars but in ourselves,” and look for a solution, like Cassius, that the wealthy power holders didn’t bargain for.

    So be careful what you wish for.

    Daniel

  8. Daniel, they didn’t seize power. Octavian kicked their revolutionary asses.

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  1. [...] Pete Davis of Capital Gans and Games has a great post about ways we might raise revenue without increasing taxes: If we could just come up with $ 400 billion of revenue increases that Grover Nordquist wouldn’t classify as a tax increase, a debt limit deal could be cut within days. This is hardly the first time [...] Tax Lawyer’s Blog [...]