Paradise Papers proves that cutting taxes will have “dynamic” effects

Watch: The Paradise Papers – Secrets Of The Global Elite

One of the central debates on the Republican tax reform proposals is how much their plan will “cost” the government.  This begs the question as to why not taking as much of people’s money as you previously intended to take is considered a cost, but we’ll leave that aside.  Republicans argue that any tax proposal ought to scored dynamically, that is, to model how the tax changes will affect individual and firm behavior.  They argue that improvements in the tax system will increase economic activity and therefore create additional taxable activity.  While the tax rate is less, there will be a larger base of economic activity and thus the “cost” of the tax change is less than under static scoring, which assumes no change in behavior.  The Democrats argue that we ought to score any proposal based on no change in behavior, since that is a more fiscally conservative approach.

But Mr. Wyden is sharply critical of the bill Republicans are drafting now, which he said includes gifts to big businesses and the wealthy, “funny math” for budget scoring that will assess the cost of the plan, increased deficits and “a bunch of false promises to the middle class.”

While I applaud fiscal conservatism generally, call me suspicious that concern over the deficit is their primary concern.  The effect of static scoring is effectively to kill any tax cut, while making any tax hike positive.

Economists have long argued that however much good or ill the government can do for the economy, the government can powerfully effect the incentives to work, save and invest.  As the old adage goes, if you want more of something, subsidize it, if you want less of something, tax it.  Now progressives (and some conservatives) fully understand this principle when applied to something they don’t want (e.g., cigarette smoking), or when they want to support something they like (e.g., green energy).  But when it comes to income taxes, they say we must insist there will be no change in underlying economic behavior, at least in how we score tax proposals.  This brings us to the Paradise Papers, which strangely enough are not getting as much press as I expected (or hoped for).  The Paradise Papers were released by the International Consortium of Investigative Journalists, who effectively “outed” a large number of famous corporations and individuals who are shielding money from taxation through off-shore entities (as in the Cayman Islands).  This includes the Queen of England, Madonna, Apple Computer, and Wilber Ross (President Trump’s Commerce Secretary).  Now there is no suggestion that what these individuals and firms have done is illegal, but what it does prove is that people will change their behavior to avoid taxes.  This should be a relatively non-controversial conclusion; indeed it should be patently obvious.  Yet those that insist that we score any tax proposal statically are effectively denying this obvious reality.

Now there is a basis for challenging “how much” we expect behavior to change.  It is true that some overzealous politicians have claimed that tax cuts will “pay for themselves.”  Only in very high taxation regimes is this likely to be true, so we can call any claims that the tax cuts will “pay for themselves” as dubious as claims that we won’t see any change in economic activity.  I remain hopeful that some sort of tax reform will pass, and it will lead to higher economic growth.  We can’t continue the previous decade’s 2% growth rate and solve the fiscal problems we have.

106 thoughts on “Paradise Papers proves that cutting taxes will have “dynamic” effects”

  1. “While I applaud fiscal conservatism generally, call me suspicious that concern over the deficit is their primary concern.”

    Gotta get that dig in to poke at the Democrats, or else this might not be conservative enough, lol.

    Perhaps it is not their primary concern, but it is clearly higher on their priority list than it is for Republicans. That’s why Democrats are more in favor of upper-class tax increases. They are more aware that there is no free lunch.

    Republicans actually think that we can have tax cuts AND billions more added in military spending AND still be fiscally conservative too. Who’s the bigger fool: Paul Ryan, or those who think he is a deep thinker on fiscal matters? It’s a toss-up, I’d say.

    Meanwhile, the Republican in the White House is so dishonest that his economic adviser claims that the “The wealthy are not getting a tax cut under our plan.” You can file this in the “there is a fool born every minute” file, along with ““We’re going to have insurance for everybody.”

    If we want to get over 2% growth, there are ways of doing that. Not that the Republicans would ever do what could be done. Gotta get those tax cuts for their well-to-do base, or else don’t call them again, lol. https://www.cnbc.com/2017/11/07/ny-rep-collins-says-donors-told-him-to-get-tax-reform-done-or-dont-ever-call-again.html

    1. Jeff, what type of legislative actions would you recommend instead of tax reform to promote further growth? You’ve expressed your displeasure with tax cuts, but have not offered any alternatives.

      1. So honestly, it wouldn’t be popular but economics has taught us that if we decrease rates and cut deductions or credits so that the overall tax burden is the same that will have a positive effect on growth. It would also most likely end up shifting the tax burden the poor, depending on how it’s done.

      2. Let working families with children keep more of their money and increase taxes on higher income levels to pay for it. Progressive, and not the GOP’s fetish with regressive, taxation.

        Here is one plan: https://khanna.house.gov/media/press-releases/release-sen-sherrod-brown-and-rep-ro-khanna-introduce-landmark-legislation

        Extra money in the pockets of working families with children will likely be spent and spent soon on education, health care, and daily expenses. It will not be sitting idle in some offshore bank.

        We do not have a capital shortage in this country. But we do have a problem with the wages of workers not keeping up with productivity.

      3. Won’t continuing to raise taxes on the wealthy exacerbate the very issue that you’ve expressed an issue with: idle money in offshore bank accounts? By raising taxes on the higher income brackets, we’ll incentivize more tax avoidance than we have now. Tax revenue will drop even lower than it is now, and the deficit will grow even larger. I don’t see how this plan, which would greatly increase tax credits, could raise revenue once we account for the increased tax avoidance that will occur in response to the higher rates.

      4. “Let working families with children keep more of their money and increase taxes on higher income levels to pay for it. Progressive, and not the GOP’s fetish with regressive, taxation.”

        Jeff, the current tax plan does increase the standard deduction for both individuals and married couples from 6-12k and 12-24k roughly. Since when has the GOP touted a regressive income tax?

    2. “Gotta get that dig in to poke at the Democrats, or else this might not be conservative enough, lol”

      As opposed to you always having to get your dig in to poke at Republicans or Cedarville?

      “If we want to get over 2% growth, there are ways of doing that. Not that the Republicans would ever do what could be done.”

      Considering we are around 3% growth now, due at least in part to the regulation relief REPUBLICANS have done, I’d say they have at least done some of the things that can be done. Of course, knowing you, you oppose that as well… or else just deny the role deregulation has played.

      I’m with Carter. Let’s hear what your solutions are.

      1. Evidence for your claim that slightly higher growth can be directly attributed to deregulation? Or are you just making stuff up to support your team?

        Why the obsession with 3% growth? Or is that just some level that is slightly higher than that enjoyed under President Obama and is just used as a way to dig at the former president?

        Maybe this will bring you down to earth. https://www.marketwatch.com/story/trumps-first-9-months-the-economy-and-markets-are-ok-but-not-the-greatest-ever-2017-10-20

        Let’s give the president four years, and not just two quarters (lol) before we bring out the party favors, OK?

      2. Jeff, both Carter and Nathan have asked for your alternative ideas yet you keep digging at theirs? What is the better alternative if they are wrong?

      3. Interesting. I mention “3% growth” one time, as a one-time specific response to your using 2%, and that makes me obsessed with “3% growth”.

        And my comment regarding that did not directly or indirectly refer to President Obama at all. When I said Republicans had done deregulation, it was a direct response to your skepticism that Republicans would not do things that could be done to increase growth.

        I was hardly celebrating 3% growth nor am I rolling out confetti cannons. Your article you think will bring me back down to earth is unnecessary as I never left earth to begin with.

        So thank you for once again completely misconstruing my comments.

    3. “Republicans actually think that we can have tax cuts AND billions more added in military spending”

      The main thinking here is that “the more income is taxed, the more people will try to get out of paying and ultimately will not pay.” If I make $100, 000and am taxed at 50%, for example, I loose $50,000 to the government that I earned. I would try to get out of paying as much as possible too and may only end up paying 15%. However, if I make $100,000 and am taxed at only 20%, I’m much more likely to just pay the government the $20,000 and be done. The government actually increased its revenue by $5,000 by reducing the amount I owed. The issue is only exasperated as income increases. Responsible tax cuts do have the potential to increase government revenue if done properly because there would be less incentive to avoid the task. The reward simply wouldn’t be worth the risk with a lower tax so I think more people would just pay it and be done.

      1. That would work if we had a massive tax-fraud system. But people have great risk personally if they avoid taxes. Most people pay them. Corporations can stash their money elsewhere at no risk to themselves. They aren’t defrauding anyone. And making it so they can voluntarily pay more than they will in the Bahamas is always a losing proposition.

    4. Jeff, thank you for being the one voice on this blog that is not self-delusory and fights back against the false prophets of our culture.

      1. I think we can logically disagree on tax policy without calling each other false prophets. I disagree with Jeff on tax policy evidently but am not about to label him a false prophet cause he disagrees.

  2. I think it might be time to sit down and evaluate our tax bills and laws that are already in place, instead of trying to come out with new legislation regarding taxes left and right. The first benefit we will see from this is a sigh of relief from the American population. “Finally, information about taxes that doesn’t mean I have to pay more of them!” We need to tighten up the loop holes of the tax system and try to progress our way to a more black and white tax system that people cannot wiggle their way out of if they find the right maze trail to the cheese. As you mentioned, what these notable people are doing is not illegal, so I am not condemning those who find loopholes as the bad guy here. I am saying that with a revision of pre existing tax bills we might be able to close off those loopholes (or some of them), and the money the government deserves will be brought in. If we bring in the money that is supposed to be the governments, we may begin to see an opportunity to decrease taxes across the board as a result of the previously elusive dollars.

  3. I think it is interesting the relationship between taxes and the revelation of information that is provided in the release of the Paradise Papers. It is a very true comment that people will do their best to avoid having to give up more of their money, and while Republican tax reform bill does seem to have both some good and not so good effects, I think at the end of the day, the most important way to measure a bill is the dynamic way. This fluid form of measurement could be effective because it can measure how the bill is going to affect one person and see how what economic output that person will have. In the other way, it will also measure how the tax bill measures up against large firms. In doing the dynamic way, no matter how big the cost (to a certain extent) to the government, it would be in the people’s best interest if the majority of the citizens benefit from a reform.

  4. I had never heard of the Paradise Papers until reading this article. They are very interesting. I would have not thought that the Queen of England would feel the need to hide money since she already gets paid to live lavishly as a living symbol.

  5. The Paradise Papers ought to be a wake up call to governments all across the globe. I do not look at this and see corrupt individuals; I see people desperately working to protect their hard earned resources. Governments should want these kinds of massive money makers to keep doing what they are doing. They are usually the people creating the wealth. Congress should make moves to reduce taxes to bring more business to the US. We act like this issue is so complicated, but it is only complicated because we have such an extensive and expensive tax code. People would not go to these convoluted and costly lengths to hide their money if taxes were significantly cheaper. Sure, the government may not be able to afford to provide as many public services, but these could be accomplished by the private sector. After all, the private sector does pay for everything the government does already.

  6. But wouldn’t we need to be more attractive than the alternatives? We can’t compete here if we need to lower corporate taxes to the silly rates that the channel islands have. Jersey got rid of their corporate tax in 2008. Can we realistically be MORE attractive as a place to hide your piles of money?

    1. Theophilus
      I’m not sure I understand your point. Are you asking if the U.S. needs to be more attractive than other countries with its corporate tax rate, i.e., that we need to have the lowest possible tax to get people to repatriate profits?

      1. Well, yes, when it comes to what’s been revealed with these specific leaks. It’s showing that tax havens work really well, but we can’t realistically make a counteroffer.

        No one is surprised that companies are hoarding overseas. That makes sense. But to say we can get that back with reduced taxes implies that we will reduce them in a way that competes with these places, and we can’t. Unless I’m missing some larger point.

      2. @ Theophilus
        One of the core principles of economics is the concept of the margin; there are always marginal decision makers that are just on the edge of deciding to invest in a tax shelter off-shore or not. What the quantity of marginal decision makers there is, or what tax rate would bring about repatriation, I have no basis of arguing. But we do know that some that are off-shore would find a meaningful and permanent change to the tax code here sufficient to bring the dollars home, and there would be others that would not now go in the future with lower taxes. And the lower we get the rates, the less incentive there would be to go off-shore. Remember, the tax rate is not likely the only margin these individuals and firms are operating on–there are compensating advantages to being in the U.S. So yes a change could bring some $$ home.

        But that wasn’t really my point in the post; rather that simply that incentives matter and there will be changes in behavior even (likely primarily) on the part of those that don’t invest offshore with a change in tax regime.

      3. Fair enough. I thought your point was more specific to the leak, which had me confused. Incentives definitely do matter, I was more just expressing doubt that, the cat being out of the bag now, that we could entice Apple back with their billions by changing taxes.

        Really though, money is fungible, and other than tax revenue (which is a non-issue in this discussion) I’m not sure how Apple bringing their hoard back would be helpful. They aren’t employing a million people in the channel islands with it. Why do we assume that their money would be more useful sitting here instead of there? It’s invested and earning a return either way for them, and with no taxes to boot in Jersey.

  7. I liked what Haymond had to say about taxes today. The government sometimes likes to pretend that people are not avoiding taxation, even when a number in politics work to avoid it. I feel as though they do not consider that with lowering taxes, they will begin receiving revenue from people and firms that were previously avoiding taxation. If they ease up on taxes our economy will grow, and eventually government revenue will go up with the growing economy.

  8. I found this blog post rather interesting, as I recently have heard of rich individuals and celebrities who attempted to avoid taxation. Several months ago world renowned soccer players Cristiano Ronaldo and Lionel Messi were found to be guilty of not paying appropriate income taxes. Even though these individuals live outside of the United States, a key thought to consider is that those who do not pay taxes now will not begin to pay taxes down the road, even if the tax system is changed in the United States. Anyone would pick paying nothing over paying something, even if the amount charged is rather small. Consequently, if the government raises taxes even higher, then more people will be tempted to place their income and financial assets in an offshore account where it can escape from an aggressive tax system.

  9. The main issue here is not that Democrats are skeptical of the Republican’s tax plan. I think the main issue that needs to be addressed is that people are going to take advantage of the tax system, regardless of the plan. The Paradise Papers that Haymond references proves this. the best way to stop this, in my opinion, is to simplify the tax code. I agreed with President Trump when he proposed the simplistic way to tax. This would decrease the loopholes in the tax system greatly, and overall have a positive effect on the tax system.

    1. If people are taking advantage of other citizens by breaking the law, we call the police.

      If people are taking advantage of other citizens by not properly paying their taxes, we should call the IRS.

      But conservatives usually want to defund if not completely eliminate the IRS. Is it because some like darkness rather than light, because their deeds are evil?

      Should we simplify the criminal code simply because people break the law? Of COURSE not.

      The bottom line is ENFORCEMENT through a stronger IRS that forces people to pay their fair share.

      1. “Should we simplify the criminal code simply because people break the law? Of COURSE not. The bottom line is ENFORCEMENT through a stronger IRS that forces people to pay their fair share.”

        Rubbish. Comparing the tax code to the criminal code falls into the apples to oranges category. It simply is not the same thing. A simpler tax code means it is easier to enforce which means the IRS would not need to be the bloated bureaucracy it is today to properly do its enforcement job.

        The bottom line is a simple tax structure with minimal loopholes that is easy to understand and that can be properly enforced by a leaner, efficient, more cost-effective, agency.

  10. I have heard that companies have moved money to other countries to keep it from getting taxed, but I wasn’t aware that the process had a name: the Paradise Papers. That shows how unaware the American people are of what is actually happening in the tax system, how it works, and who/how to cheat the system. We need to become more informed and look at solutions from both sides of the debate.

  11. I think we’ve had several instances where cutting taxes has actually led to an increase in revenue, and I struggle to understand the notion that tax cuts will simply explode the deficit (and that’s not even counting the GDP growth benefits). What I would love to see is a coupling of tax cuts with spending cuts as well, which seems to always be stretching political credibility but would be quite beneficial. The pain of anemic growth would be greatly lessened if it didn’t have to support so much.

    1. You are confusing correlation with causation. You gotta get out of the right wing bubble, lol.

      All else being equal, cutting taxes will produce less income than keeping taxes as they are.

      Those who are interested in cutting taxes are NOT interested in feeding the beast. Rather, they are interested in starving it.

      1. “All else being equal, cutting taxes will produce less income than keeping taxes as they are.
        Jeff, as you well know (and it was the intent of this post), this is precisely the point–there is not “all else equal”. Ceteris Paribus does not apply.

        However, I will concede your last point. I am indeed interested in “starving” the beast, but we both know that can never happen. The reality is I’m just trying to ensure the beast doesn’t get third helpings of dessert. Starving? Ha. Take a look at the growth in federal spending line and try to make any case we’re starving it.

    2. “All else being equal, cutting taxes will produce less income than keeping taxes as they are”

      This is the disagreement. You say ‘all else being equal’ when others see it differently. There are lots of factors involved that have been discussed at length above. The point is not all else is necessarily equal in some people’s point of view.

      1. That is not good enough.

        This is not merely a matter of opinion. It is rather a matter of mathematics and taxpayer behavior.

        If tax decreases had the obvious effect of increasing revenues, then our debt problems could be solved in an instant: zero taxes!

        If something wrong is repeated enough, some people will believe it anyway. That is the nature of propaganda.

      2. @ Jeff Adams
        “This is not merely a matter of opinion. It is rather a matter of mathematics and taxpayer behavior.”

        We can all agree to this. The question for you, is what happens to taxpayer behavior when tax rates increase (or decrease)? Basic economic theory suggests that the incentive to work, save and invest is reduced with higher tax rates, and increased with lower tax rates. Do you disagree with that proposition and, if so, why?

        This thread is never about anything more or less than do people respond to incentives in their behavior WRT taxes?

  12. Based on the amount of time that people complain about taxes, I guess that the true test of how effective a tax policy would be, is how many people use the legal ways to avoid paying the tax. Unfortunately for the common person, their ability to take advantage of this Paradise Papers phenomenon is limited. I hope that the decision-makers in Washington realize that it would be best for the country and the economy overall if the taxes are cut, and even cut significantly. The government’s revenue would increase, and the economy would be better off overall.

  13. Our leaders in the United States have a very difficult task ahead of them regarding a successful tax bill. There will always be people who are not happy with how the taxes are currently, but we must do what is best for our country. I think that the best way for the government to currently increase revenue is to ultimately cut taxes, which will ultimately cause our economy to grow.

    1. You have it backwards.

      If you want higher tax revenue, you must increase taxes on upper levels of income.

      If you want higher economic growth now, you need to get more money in the hands of those who will actually use it now, and not save it for a later day.

      If we had a shortage of capital, then I would recommend cutting taxes on those who have more capital for investment; but that is definitely NOT a problem now, as evidenced by low interest rates.

      1. Jeff, we obviously disagree, but I’ll play along a little here. How high do you think upper levels of income should be taxed? Are they high enough now and you just want to keep them there or do you think they should be even higher?

        If the rate gets high enough it will discourage any incentive for wealth creation, a negative for all, not just the upper income earners.

  14. Carter said, “Won’t continuing to raise taxes on the wealthy exacerbate the very issue that you’ve expressed an issue with: idle money in offshore bank accounts? By raising taxes on the higher income brackets, we’ll incentivize more tax avoidance than we have now.”

    No, it won’t. Your argument does not make sense.

    If that were the case, then the wealthy would WANT higher taxes, so they could keep more away, lol.

    It is absurd to think that the wealthy would stop avoiding taxes if they were just low enough. They are much lower now then they used to be, and yet they still want them lower.

    One of the reasons why the deficit decreased under Obama was because he raised taxes on high levels of income. Higher taxes tend to bring in more revenue, all else being equal.

    1. Carter is right about raising taxes on higher brackets being a disincentive to these people creating more jobs and wealth.

      “If that were the case, then the wealthy would WANT higher taxes, so they could keep more away, lol.”

      What kind of nonsense is this? No one wants higher taxes, not me, not you, not Bill Gates, not minimum wage workers, not anyone.

      “One of the reasons why the deficit decreased under Obama was because he raised taxes on high levels of income. Higher taxes tend to bring in more revenue, all else being equal.”

      Again with the “all else being equal”. And deficit decreases? Obama had the largest deficit totals of any President ever.

      1. Sad to see how propaganda can destroy minds.

        No, President Obama did not.

        https://www.google.com/search?q=obama+deficit+spending&oq=obama+deficit&aqs=chrome.0.0j69i57j0l4.2103j0j7&sourceid=chrome&ie=UTF-8

        Largest compared with what? The size of the economy?

        Remember, in order to be honest, one cannot use FY 2009 in the calculations. Need to start with 2010 regarding the deficit under Obama. The 2009 budget was already in place by the time he took office in January. 2009 deficits go under GW.

      2. “Remember, in order to be honest, one cannot use FY 2009 in the calculations. Need to start with 2010 regarding the deficit under Obama. The 2009 budget was already in place by the time he took office in January. 2009 deficits go under GW.”

        No, one can and must give much of 2009 to Mr. Obama. Whatever faults Mr. Bush had, he did not jam through the stimulus which contributed much of the deficit in 2009. Your point would be fair if you caveated with something like, “much of the deficit in 2009 should go to Mr. Bush since revenues were down to his bad economy,” but to ignore the stimulus is disingenuous.

      3. Are you putting words in my mouth? You know that is dishonest. I was taking 2009 going to Bush into account Jeff. It still is Obama. Bush has the highest INDIVIDUAL YEAR over Obama, yes, but that was not what I said. I was adding 2010-2017 for Obama vs 2002-09 for Bush. Bush’s total deficits fall under 4 trillion, not praiseworthy at all, but Obama’s total deficits fall roughly around 6-6.5 trillion, the largest ever as I said. Last time I checked, Jeff, 6 is greater than 4. It’s called math. And as Dr Haymond said, Obama’s Stimulus Bill skews the ’09 numbers several hundred billion. Nice try but the facts are on my side, Jeff.

        “Sad to see how propaganda can destroy minds.”

        So true.

    2. Let’s think about this, Jeff, with some numbers. I’m going to use pretty simply numbers just to keep things easy to deal with for the benefit of all readers. Let’s say that the cost of hiding money in an offshore bank account is 20%, including the amount you do end up actually paying for taxes in the process, of income for a particular tax bracket that does not currently engage in this activity. The reason that they do not currently do this is that the current tax rate for this group is 15% of income, so they will choose to pay the taxes and carry on with life. If we raise the tax rate for this group up to 25%, they will begin hiding their money from the government because it is cheaper than paying the actual taxes. By making the taxes themselves more expensive, we’re encouraging more and more people to pay the expense to hide their money. I do not hide my taxable income offshore because it is way too expensive for me to do so. However, if the government raised taxes to a point where I’d actually save money by going through the hassle to hide it, why wouldn’t I do this? We’re going to lose those people on the margin that have just barely decided to keep on paying taxes.

      1. If they hide their money in a bank account overseas or hide it in a bank account here makes little difference. It does little/nothing to help the economy.

        If we had in this country a capital shortage–the evidence for which would be found in high interest rates–then I would AGREE. Cut taxes on those who could most likely provide that needed capital.

        But we DON’T have a capital shortage in this country. We haven’t for a long time.

        If we want to jump start the economy by increasing the rate of economic growth, the citizens who should have more of their money should be those who will spend it soon if not NOW, NOT store it away for a rainy day.

        Because of that, we should cut taxes on lower incomes. Tax credits for working families who will put every penny to use in the economy now, not for families who spend their weekends playing golf and who will try Mai Tais with Buffy and Biff in Palm Beach!

        I hope I made myself clear.

      2. Since we’ve moved from tax avoidance to bank accounts, I’d like to ask a few more questions about your ideas.
        1. Won’t the money spent by consumers at businesses find its way back to the big business bank accounts after the consumers have purchased their goods?
        2. Why wouldn’t lower income consumers begin saving larger portions of their income once they have more to spend, perpetuating the very “problem” you’ve sought to correct?

    3. Jeff,
      You are completely legitimate to feel frustrated by the fact that wealthy people hide their money overseas to avoid taxes. This grates against me as well. However, a pillar of economic thinking says that people respond to incentives. It is not surprising or (illegal) that this form of tax evasion takes place. PEOPLE RESPOND TO INCENTIVES. If you believe that the wealthy are greedy then it makes perfect sense that they will go to great lengths to avoid giving their money up. If you believe that they are normal humans it still makes perfect sense why they would want to avoid having large amounts of their money taken.

      Carter is right. If you increase the amount of money that will be taken from people (tax hike) you will incentivize more people to try harder to avoid the tax (the more money that will be taken by a tax the more appealing avoiding it would be). The only way to combat tax avoidance is to make it less appealing which you could do by criminalizing it (I am not a proponent of this) or by making the effort not worth people’s time (lower the rates). But to assume that people will not respond to a tax hike or cut is to negate human nature.

  15. No, Nathan, comparing the IRS to law enforcement is NOT rubbish.

    If we had an IRS that was properly funded, it would have the ability to collect all of the taxes that are due to provide for our citizens, including our troops.

    Each year there are literally hundreds of billions of dollars in uncollected tax income. Close to 20% of reportable income is not even reported to the IRS.

    If people actually paid what they are supposed to pay, we might not have a deficit in the first place!

    You are welcome to stand where you want, but I am standing for what is right. Tax evasion is theft. And we need a stronger IRS to crack down on thieves.

    1. Jeff, tax avoidance is different than tax evasion. Avoidance is not a crime or morally wrong. This new bill is attempting to close some of the loopholes you are talking about, so why would you be against that?

    2. Have I said anywhere that I was against people paying what they are supposed to pay? NO

      Did I say anywhere that I supported tax evasion? NO

      What I said was that we should have a simpler tax code that is easy for the taxpayer to understand: Mike Canino said above “I have a Master’s degree and struggle to do my taxes, even as TurboTax “walks me through” the process.” Do you oppose making taxes easier for people? If you stand by your answer that all that needs done is to throw more money at the IRS enforcement division, then, yes, you do oppose making taxes easier for the taxpayer.

      I also said that a simpler tax code makes it easier for the IRS to make people pay what they should be paying. You seem to be intentionally ignoring the whole point that tax reform will make the IRS’s job easier as well.

      Again, I repeat, if we had a simple, easy to follow, tax code, then the IRS would have the ability to collect all the taxes that are due to provide for our citizens, including our troops, and could do it more efficiently and with less waste.

      And yes, the comparison to law enforcement, in the way you used it, and which I explained, is, indeed, rubbish.

      1. Most people do not itemize. Only 30% or so don’t take the standard deduction.

        For most people, taxes are not that hard.

        If it is SO hard, then just take the standard deduction. Problem solved.

        If you want MORE than the standard deduction, then, fine, but shouldn’t you have to work to prove that you deserve MORE than the standard deduction?

        I think one should. But then again, I live in a country where people want something for nothing.

      2. ” …shouldn’t you have to work to prove that you deserve MORE than the standard deduction?”

        What nonsense is this? Someone should WORK to PROVE they deserve to keep more of their OWN money?

        Do you not understand what a deduction is? It is the government saying that someone can keep more of their own money for whatever purpose the deduction was created to serve. Tax deductions are NOT the government letting someone have more money, it is letting them keep more of what is theirs in the first place.

        The same goes for tax rates by the way.

        Now, I am not saying the government is wrong to tax. The Bible is clear that taxes should be paid.

  16. “Jeff, the current tax plan does increase the standard deduction for both individuals and married couples from 6-12k and 12-24k roughly. Since when has the GOP touted a regressive income tax?”

    The Senate tax bill is regressive in that it raises taxes on many middle-class families, all to fund a tax cut on those who really don’t need it and will likely just pocket the money for some future use.

    As I have said, this is all about tax cuts for the upper-crust. Even the president has backtracked from “The wealthy are not getting a tax cut under our plan” to a Twitter post in which he OPENLY ADVOCATES cutting upper-crust taxes down to 35%.

    1. You don’t understand the definition of a regressive tax, Jeff. Regressive means that a lower income is taxed at a higher rate which is not in the bill. Even if you are right about the changes, just take some random, round figures of 25% taxes on $75,000 and 40% taxes on $500,000. If they change the first rate to 30% and the second to 35% it is still a progressive tax, not regressive since the larger amount is a higher rate. So I say again, when has the GOP touted a regressive income tax?

      1. Where did I say that the income tax itself was regressive? Are you putting words in my mouth? You know that is dishonest.

        Income tax rates and what people actually pay in federal taxes are very different.

        Federal taxes include far more than income taxes. If wealthy people are going to get a net tax cut while many middle class people are going to get a net tax increase, which seems to be the case at this moment, then taxation is regressive.

      2. Jeff, you simply don’t understand this.

        You said this: “Let working families with children keep more of their money and increase taxes on higher income levels to pay for it. Progressive, and not the GOP’s fetish with regressive, taxation.”

        I said this: “Jeff, the current tax plan does increase the standard deduction for both individuals and married couples from 6-12k and 12-24k roughly. Since when has the GOP touted a regressive income tax?”.

        You responded: “The Senate tax bill is regressive in that it raises taxes on many middle-class families, all to fund a tax cut on those who really don’t need it and will likely just pocket the money for some future use.”

        I responded: “You don’t understand the definition of a regressive tax, Jeff. Regressive means that a lower income is taxed at a higher rate which is not in the bill. Even if you are right about the changes, just take some random, round figures of 25% taxes on $75,000 and 40% taxes on $500,000. If they change the first rate to 30% and the second to 35% it is still a progressive tax, not regressive since the larger amount is a higher rate. So I say again, when has the GOP touted a regressive income tax?”

        Then you call me dishonest because I think your definition of regressive is wrong. That’s all it is. You are talking about the change in taxation, not the rate itself. Plus, this is all hypothetical right now until there is a concrete bill passed by both houses.

        Definition: “A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.”

  17. “If the rate gets high enough it will discourage any incentive for wealth creation, a negative for all, not just the upper income earner.”

    That is nonsense.

    That makes as much sense as telling your boss that you don’t want a raise because it will make your taxes go up. Some people may well do that, but they are fools.

    Lol, that is NOT how it works. I used to feel the same way, until I learned from the real-world experience.

    Besides, wealth creation does not come from high net-worth individuals as much as it does from those who purchase the goods and services.

    THEY are the true job creators. THEY are the real wealth creators.

    To illustrate, at a university, the true job creators are the students who purchase the services of the faculty in pursuit of a degree–perhaps the most valuable piece of paper they may ever hold. Without the students, there would be no jobs for the faculty!

    1. It is not nonsense. By the way, you did not answer my question of what should the highest tax bracket rate be? You obviously think it should be high, but how high? I’m sure you have heard of the Laffer Curve. A 0% rate and a 100% rate will get no revenue. A lower tax rate on companies and high income earners allows them more usable income. With this money they can hire more workers, create better goods and services, provide better benefits, etc. The employees who are getting better wages and benefits then have more usable income which provides more tax revenue from that person than before, allows them to buy (and makes them more likely to buy) more goods and services, contribute more generously, if inclined, to charities and/or church. Both sides are connected to each other, Jeff. One doesn’t work without the other.

      1. You need to immerse yourself in the data before you start. Economics is inductive, not deductive.

        You said “A lower tax rate on companies and high income earners allows them more usable income. With this money they can hire more workers, create better goods and services, provide better benefits, etc.”

        You are making claims on the basis on no evidence or even reasoning. Let’s get back to the REAL world, shall we.

        Speaking of the real world, here is what CEOs said recently about this very issue.
        https://www.cnbc.com/2017/11/15/ceos-raise-doubts-about-gary-cohns-top-argument-for-cutting-the-corporate-tax-rate-right-in-front-of-him.html

      2. I cannot take you seriously when you cite the Laffler Curve as evidence. You might as well cite the theory of the four humours or miasmatic theory or alchemy.

        The data show that the Laffler Curve is wrong. Supply-side economics does not work.

      3. So you think a 100% tax rate would create revenue? It would not, absent people who want to work for no return. Likewise a zero percent rate would create none. That’s all the Laffer Curve says. Where the most productive rate falls is not specified by the Laffer Curve. Jeff you are the one in your own fairy land. Of course there will be articles that agree with you. It doesn’t make them right. CNBC isn’t exactly down the center when it comes to their coverage. I have a minor in economics, Jeff. You would still be in school if you even had minors in all the fields you claim expertise in which seems to be everything.

    2. Mr. Adams,
      Your argument is fallacious. Consider your statement:
      ““If the rate gets high enough it will discourage any incentive for wealth creation, a negative for all, not just the upper income earner.” That is nonsense. That makes as much sense as telling your boss that you don’t want a raise because it will make your taxes go up. ”

      In the example of a tax increase, the worker faces a labor/leisure tradeoff–and leisure is an economic good with value. If the reward to labor goes down (due to a tax increase), then an optimizing individual will increase their consumption of leisure until the relative subjective marginal value of leisure equals the marginal value of what the price of their labor would purchase. Effectively, the price of leisure goes down when the tax rate goes up. When the price of any economic good decreases, more of it will be consumed.

      Now your example of being unwilling to take a raise because you will have to pay higher taxes has none of this: you would simply be forgoing additional income by refusing to take a raise. No one would refuse a raise for the same level of work, since any amount (even if less than it otherwise would be due to a higher tax rate) is greater than what one received previously.

      These are completely different animals.

      1. I see your point. But it is not a persuasive one, I am afraid.

        It makes sense in THEORY, but economics in the real world is not theory. You should know that.

        How many CEOS have turned down stock options, which make up much of the “income” they make over a million a year, because they did not want to pay taxes on those gains?

        How many professional athletes or movie stars have turned more money because they were afraid of paying taxes on it?

        How many real estate moguls have destroyed property because they got tired of paying taxes on it?

        In the REAL world, those who are successful would not stop working or work less hard because they pay more in taxes after a certain income level. If they did, then someone else more competitive might come along and take their spot.

        Can anyone imagine LeBron saying, “I make too much money and pay too much in taxes. Cut my contract so I play fewer games and make less money”?

        If someone would make such a foolish choice, someone else would step in take that person’s spot. THAT is the real world. Welcome!

      2. “In the REAL world, those who are successful would not stop working or work less hard because they pay more in taxes after a certain income level. If they did, then someone else more competitive might come along and take their spot.”

        At the current rates, yes, it is not high enough to totally discourage any more incentive. But the point is it could easily get there with attitudes like “the rich can afford it so soak them more”. And for me personally it’s also a matter of fairness. Taxing one income group at a higher rate than another is discriminatory to me and not fair. I don’t necessarily mind a progressive tax, as long as it’s not totally out of control. Right now there are pretty large differences in rates. If I were in charge I’d want it alot closer to, if not at, a flat tax. But I’m not.

  18. It just doesn’t make sense why people still push for higher tax rates. People respond to their income being increased or decreased. If individuals have less disposable income, they are going to spend less, and if they have more disposable income, they will spend more. We as a country need to push for economic growth and the best way to stimulate the economy is to cut taxes and allow people to spend their income.

    1. The reason for higher taxes is simple: we have bills to pay, and we don’t bring in enough revenue to pay off the bills we already have.

      And now we have a president who wants to jack up defense spending?!? And the suckers agree?!?

      Where did the fiscally conservative Republicans all go? I do not see any here any longer. They were out in force when a Democrat was in the White House, lol.

      We should be running SURPLUSES during strong economic times such as these. What are we going to do when we hit a recession and there is no room to cut taxes any longer?

      It is grossly irresponsible to support tax cuts at a time like this. That is what makes it wrong.

  19. Of all the ideas thrown around in this article, it seems as though the baseline one is just concerning the elasticity of labor. We seem to disagree on even the basic concepts of what will happen when taxes are cut/raised, and that undermines the efficacy of the subsequent debates. So if we could go back to Dr. Haymond’s initial post then, one solution might be if the two sides agree to find a middle ground: to reject the completely static projections, while have a team of economists from both sides work on a very conservative estimate of the growth. Maybe this could give both sides a baseline to argue from that would at least be in the realm of acceptability for them.

  20. “I have a minor in economics, Jeff. You would still be in school if you even had minors in all the fields you claim expertise in which seems to be everything.”

    Appeal to authority. Fail.

    1. Appeal to Authority: “Using an authority as evidence in your argument when the authority is not really an authority on the facts relevant to the argument.”

      Oh no, having an economics minor does not help one understand this topic more than not having one does. Seriously?

      1. An argument’s soundness has nothing to do with the person making it. People with years of education can be completely wrong about something they think they know is right.

        I don’t care what your background is. It is completely irrelevant.

    1. You, yet again, have missed my point. Regressive involves a comparison of one rate to another, not the change in a particular income group’s rate.

      1. I don’t think you read what I wrote.

        How can we have a conversation when you are only listening to yourself speak?

      2. I read what you wrote. I think regressive means a higher income bracket has a lower rate, and you think it involves raising a lower rate while lowering a higher bracket’s rate. We disagree, that’s all.

    2. And speaking of predatory, Jeff, why would increasing taxes on the rich be less predatory? It still is government taking more money. Are you saying breaking into a rich person’s house and stealing a TV is less wrong than doing the same to a middle class person’s house?

      1. Your analogy (that of taxation with breaking into someone’s house!?!) is so ridiculous that it pretty affirms that it is a waste of my time to engage you any further.

        Have a nice night.

      2. I am simply saying you seem to think it is more than ok, perhaps even mandatory, to take a larger share of the wealthy’s money than the middle class or poor’s. Why do you think this is ok? If you think it is predatory to raise taxes on one, why is it different for another? And still, you haven’t said your preferred top rate.

  21. I’m not 100% sure if I understand this article, but if the main problem here is corporations moving their money overseas to avoid taxation, wouldn’t it make sense to eliminate corporate tax completely? Corporate taxes basically mean that individuals have to pay taxes twice (money they earn from dividends + income tax from employment). So, if you wanted to provide incentives to corporations to keep their money in America, then eliminating a corporate tax could achieve this goal.

    Again, I’m not tracking 100% on this article here, so any helpful / useful correction would be valued.

  22. This is the first I have heard of the “Paradise Papers” and the “Panama Papers”, but it seems to have been happening for a long time now. It seems each country is a bit scandalous and needs to fix the issues within their country. In the video, a man from Canada Liberal Party was asked how he would measure success, his answer was, “By the money coming in the till its pretty easy.” However, he was keeping millions of dollars in the Cayman Islands. There are many people that find ways around paying taxes.

  23. Jeff said, “No, one can and must give much of 2009 to Mr. Obama. ”

    If by “much” you mean “a little,” then yes. If you mean a lot, well, then you are wrong again.

    The budget for FY 2009 was written back in summer 2008. It was not his budget, obviously. He was one member of Congress, yes, so he deserves a little, yes. But not much.

    The TARP bailouts–responsible for much of the deficit in 2009–was signed by Bush.

    The way budgeting works, the budget for the next year is done in the previous year.

    President Obama did not take office until 2009.

    Sorry, Charlie.

    1. No matter what you figure with the 2009 numbers, as I said above, even if you give it all to Bush, Obama’s deficits were higher than Bush’s.

      1. I see your point.

        Although deficits went down under Obama, they were on average higher than they were under GWB.

        Obama deserves some blame for this, since he maintained the Bush tax cuts, which were responsible for blowing up the deficit during the Bush years. Remember, under Clinton there were SURPLUSES.

        Obama was wrong for not ending the Bush tax cuts.

        There was no need to do that then, and there is definitely no need to cut taxes now. As I said in the very post that began this thread, it is nonsense to think that one can increase defense spending, give what Trump called “insurance for everybody,” while cutting taxes and not running deficits.

        By advancing reckless tax cuts, the GOP has pretty much killed off any remaining reputation it had for being fiscally responsible. The GOP should maintain the increase in taxes that took place under the ACA.

        But that won’t happen. The GOP will do ANYTHING for upper-crust tax cuts, even raise middle class taxes.

      2. Well, personally, I would like to see decreased spending coupled with lower taxes. You are right that there seems to be no interest, at least from most members (there a few that legitimately want it but not enough), in this right now from the majority of both parties. Hopefully that will change, and hopefully the right things will be cut. Probably wishful though.

  24. “By the way you STILL have not said what the highest rate should be in your opinion.”

    Geesh, you’re pushy. Take it easy.

    What do you want me to say, lol?

    The highest rate of what? Estate taxes? Income taxes? Taxes on unearned income? Capital gains? Payroll taxes? There are many kinds of taxes, you know.

    1. Jeff, considering this whole discussion has centered around income tax, it should have been pretty obvious what rate Daniel was talking about.

      As far as being pushy, how many times have you repeated a question you wanted answered, noting that someone STILL had not answered? Quite a few…

  25. “So you think a 100% tax rate would create revenue? It would not, absent people who want to work for no return. Likewise a zero percent rate would create none”

    Daniel, I did not say this.

    Please stop strawmanning me. It is dishonest.

    1. Jeff, look at the punctuation Daniel used. “So you think a 100% tax rate would create revenue?”.

      See the question mark? It was phrased as a question seeking to confirm (or dispel) the takeaway Daniel took from your view that the Laffer curve is wrong.

      You were not strawmanned.

  26. I would definitely say that this post’s (along with many other posts’) comments have given me significantly more to think about than the original post. Mostly because I totally agreed with the post, and a lot of the comments gave me differing viewpoints which made me have to think. So thank you to all the people that seem to violently disagree with the majority of posts made on this site! You are actually making me think as to why I hold to certain views and so I’m able to learn for that.

  27. “The data show that the Laffler Curve is wrong.”

    You said this. The Laffer Curve says a 100% rate would create no revenue. So while not directly, you implied you think either a 0 or 100% tax could create revenue in some way.

  28. If there is truly nothing wrong with people putting their money in off-shore accounts, then there is no reason to make a big deal about it. The large tax rate has caused them to put their money elsewhere, but I guess that a tax cut would also encourage them to keep their money here. It depends on what they want to do. It is there money, and they are responsible for what they do with it, not the government.

  29. Daniel asked, “Do you see other things besides defense spending that can be cut?”

    Good question.

    I am not sure defense spending should be cut all that much. However, I am against any idea of significantly jacking UP defense spending, though, which is what the president as well as the GOP has suggested we do. In general, we spend way too much in defense, but that spending has indirect effects that have nothing to do with war (think the internet!)

    I think we should cut spending in all areas slightly as well as increase taxes slightly. The estate tax should be significantly increased. I oppose the idea of wealth without work.

    I am not a tax and spend liberal. When it comes to individual and civil rights, I am definitely a liberal when it comes to protecting individuals from government control.

    Hope this helps you know where I am coming from.

    1. The idea of wealth without work is a Biblical concept, but you also say you want to protect individuals from government control. The estate tax being repealed would benefit the inheritor but is, in essence, the government controlling how the deceased wants their money to be allocated. Would you advocate an estate tax on all or one that only kicks in at a certain monetary value say, just an example, one million dollars, so people can pass on the family farm so to speak or cover end of life expenses and leave some but would tax people such as corporate owners passing on their “empire” to their heir? Just trying to get an idea of your opinion.

      Separately, I think the lowering of the corporate rate would be a good balance if we could actually significantly halt or end the corruption when it comes to pay to play deals between politicians and businesses. This would make it more fair for those who do things the right way and maybe cut some of the corruption in D.C. and other places. I’m not saying cutting the rate will accomplish this, just saying it can offset the hurt to businesses if their backdoor money is cut off and make things more legitimate. One of Trump’s slogans was “Drain the Swamp”. While a little has been accomplished I think there could be much more done than has been. We’ve seen baby steps, but it has been fairly disappointing so far. There is still time. My confidence is not high though. The whole point is trying to close loopholes and maybe stop some of the corruption while giving businesses a more attractive tax rate.

    2. “The estate tax should be significantly increased. I oppose the idea of wealth without work.”

      Jeff, at some point, someone worked to create that wealth. Many times that wealth was created by work for the very purpose of passing it on.

      Also, our estate tax is already the 4th highest in the world (40%) and it accounts for only about 0.6% of total federal revenue. Jacking it up would have a very minimal, if any, impact on the deficit, so it seems the only real reason one would have for wanting it raised is not truly budgetary but just personal opinion, e.g. “I oppose the idea of wealth without work”.

  30. The Paradise Papers are clear evidence of the way people will simply get out of paying more taxes. They will find alternative ways to do business that is in their own interest. Changing taxes merely changes the ways businesses go about avoiding them. I had never heard of The Paradise Papers before this article, but now I can see how this principle occurs in real life situations.

  31. If it is not actually illegal to avoid taxes by keeping money out of the country, then I do not see why this was viewed as such a scandal. I think that what should be taken from the situation is a need to examine the motives behind doing this. It only makes sense that people will want to avoid giving up the money that they have worked to earn. If we raise taxes, it will just provide an incentive for even more people to take steps like this to avoid taxation. It seems clear that if people find it necessary to work this hard to avoid taxes, then there must be something wrong with the system. Lowering taxes on these people would allow them to keep their money in the country, giving it more of a chance to stimulate our economy instead of being hidden away.

  32. So, if the US lower taxes, they think the companies that move to other countries to avoid US taxes would come back to the US. This means the US could get a net increases in tax revenues, maybe.

  33. I am not sure why, but I found it extremely surprising and jarring to see some of those big names on a list of people who evaded their taxes. I understand why they did it, but really… Anyway I’ll admit and say that I don’t know much about taxation and whether or not what our country is doing is the best course of action, but I can see from the comment section that many are very passionate about the situation

  34. I think this can be boiled down to a phrase Dr. Haymond uses in class quite often which is: “If you want more of something subsidize it and if you want less of something tax it”. For people to complain that people and corporations are hiding money from the government to hide from taxes points to the fact that if you tax something you will get less of that item or in the governments case, less income. To tax corporations and individuals at a high rate just gives people the incentive to work less hours, hide money, or not spend money in the economy. These are all poor options so I look forward to seeing the tax bill that will be passed under the Trump administration because I believe that this will be the first major change in the tax system in many years.

  35. I had never even heard of the Paradise Papers before, although I knew that people sometimes avoided taxes by moving off-shore. I don’t think this is very shocking; everyone is always looking for ways to avoid or reduce their taxes, although most people don’t need to go that far.

  36. I now have a name for the crime I have heard of – Paradise Papers. I am glad you brought it up and you are right that it is not publicized as it should be. It is no secret that individuals, whether personally or within a large company, avoid taxes. To prove the point you make on incentives from taxes, I will share what I have witnessed on income tax behavior. I worked as a waitress over the past few summers and nearly all of my coworkers claimed less than a dollar on their cash tips to get around taxes. Those same coworkers clocked out right before hitting overtime so they would not get taxed anymore than they had to. Most of those waiters and waitresses, however, did not make more than a few hundred dollars on their tax returns where I was making a few thousand. This is on a much smaller scale but it goes to show people will cheat the system where they can.

Leave a Reply

Your email address will not be published.