Impact - Tax Core - Michigan 7 2023 BEKS

Taxes Core
Woohoo! Thanks to Arthur, Brian, Caroline, Ellie, Hannah, I-Jun, Madeleine, Ophelia, and Res for all their hard work
Got questions? Email laernst@umich.edu
We really tried to cover our bases between tax types currently used in camp files and taxes that could be used as funding planks. There’s a random section with some random cards we discovered along the way. The tariffs section could be fun for T-Taxes. Sin taxes are things like gambling, alcohol, marijuana, etc.
Taxes Good
!Generic
AT: Taxes Cause Inflation
Taxes are inherently disinflationary.
Josh Bivens 22, the chief economist at the Economic Policy Institute (EPI), 7/26/2022, “Inflation is no excuse for inaction on needed tax reforms and investments,” https://www.epi.org/blog/inflation-is-no-excuse-for-inaction-on-needed-tax-reforms-and-investments/, rezz
Today’s inflation is a real concern⁠—it is running too high and is reducing households’ purchasing power. But linking fiscal policy decisions about the proper level of taxes and spending in the medium and long run to today’s inflation makes little sense. Even worse, many of these policymakers cast both the tax increases and the spending increases as potentially inflationary. This is not just unwise—it is simply economically innumerate.
In this post, we make the following points:
The direct effect of tax increases is to slow the pace of aggregate demand growth, not increase it. This means that the tax increases included in proposed fiscal policy packages are disinflationary, full stop.
In the medium to long run, the investments included in proposed fiscal policy packages will reduce costs that American families face for a number of crucial goods and services, from health insurance premiums and prescription drugs to energy costs and child and elder care.
A fiscal policy package that expands social insurance and public investments⁠—and finances these by progressive tax increases⁠—is essentially aiming to meet pressing social needs with a moderately larger footprint of the public sector in the economy.
Currently, the U.S. public-sector footprint is extremely small compared with other advanced economies, to the detriment of the economic security of U.S. families.
There is nothing inflationary about this larger public footprint. Since the pandemic recession began, inflation has actually run more slowly in countries with higher spending as a share of GDP.
Generally speaking, fiscal policymakers are uniquely ill-suited in the short run to restrain inflation that has been caused by excess growth in aggregate demand⁠—this fact is why the Federal Reserve is generally given primary responsibility for this task.
However, the inflation of the past year has largely not been driven simply by excess growth in aggregate demand, meaning there were some tools that fiscal policymakers could have deployed to help restrain price growth, but they were not taken up. A quickly enacted excess profits tax, for example, could have restrained the dominant source of price growth in 2021.
Taxes—even highly progressive ones—are disinflationary
The tax increases that have been proposed as part of various fiscal policy packages in recent months are extraordinarily progressive, raising the vast majority of their revenue from high-income households (or corporations). Because high-income households save so much more out of a marginal dollar of income than they spend, this means economy-wide spending and aggregate demand are affected only slightly by tax changes on these households. But, a slight effect doesn’t mean no effect: Raising taxes on high-income households will unambiguously slow aggregate demand growth.
All else equal, slower aggregate demand growth puts downward pressure on inflation. This is true even if one does not believe that today’s inflation is largely a function of aggregate demand growth rising too fast relative to the economy’s underlying productive capacity (“too much money chasing too few goods”). In short, policymakers arguing against the tax provisions of proposed fiscal policy packages on the basis of today’s too-high inflation are demonstrating extreme economic innumeracy.
Proposed public investments would help reduce costs and future inflationary pressures
While tax increases are disinflationary, it is true that public spending increases are inflationary, all else equal. But context is crucial here. For one, the spending in these proposed packages will hit the economy gradually over time. These packages are not stimulus packages like the American Rescue Plan (ARP), which injected huge amounts of spending into the economy all at once by design to stabilize a sinking economy. Instead, the fiscal packages being debated today are largely about public investments—measures that will expand the economy’s supply side. These capacity expansions will tamp down inflationary pressures as they come to fruition.
An obvious example is the proposed investments in child and elder care. These types of investments have been shown to significantly boost women’s labor force participation rate, and this labor force growth is a key addition to the economy’s capacity. For those who think today’s inflation problem is “too much money chasing too few goods,” expanding the economy’s supply-side capacity enables more goods to be produced, hence tamping down inflationary pressures.
Of course, by far the most pressing investment need facing the U.S. and global economies today is reducing carbon emissions to slow climate change. If climate change proceeds under the “business-as-usual” scenarios wherein emissions are unconstrained by policy decisions, the results for the economy’s supply side are incredibly damaging. Climate-driven supply-side contractions moving forward will be extremely inflationary (not to mention causing huge human misery often quite hidden from macroeconomic aggregates).
Finally, many of the provisions in the fiscal packages under debate will reduce some of the most salient costs harming U.S. households. High-quality child care, for example, is extraordinarily expensive for most families today. Subsidies that cap its cost will provide huge relief to families. In the jargon of economists, this actually is not a reduction in “inflation” per se. But in the minds of the vast majority of the public, reducing the costs that pressure their family budgets is likely every bit as good as a reduction in “inflation.”
AT: States Solve
States can’t solve - only federal government taxes can reduce inflation.
Leclaire ‘22 [Joëlle Leclaire; Department of Economics and Finance, Buffalo State College, Buffalo, PhD; 12-1-2022; "Taxes Are Deflationary and Can Be Used as a Deflationary Tool"; SpringerLink; https://link-springer-com.proxy.lib.umich.edu/chapter/10.1007/978-3-031-11240-9_7; Accessed 6-24-2023; Bell-AT]
Table 1 shows the amount of money received by the US Federal government from the various types of taxes that we discussed above. It makes quite clear the largest category of taxes paid to the Federal government is the personal income tax, which is followed closely by social insurance taxes. The third largest source of Federal tax is the corporate income tax. These three categories of taxation are all taxes on incomes (either individual income or corporate profits). Together they overwhelm all the other sources of Federal government revenue by a factor of around 30. The majority of Federal government taxes reduce income directly. As a result, they reduce spending and demand in the entire economy. This puts downward pressure on prices.
Table 2 looks at the revenue sources of state and local governments. It should be noted at the outset that the tax collected at these lower levels of government in the US is close to the amount collected by the Federal government. Table 2 shows that the largest categories of state and local government receipts are state income taxes and sales taxes. Two large Federal taxes—corporate income taxes and employment taxes (primarily state unemployment insurance)—are relatively small contributors to state and local government revenues. So, unlike the Federal government, whose main tax is primarily income taxes, state governments rely nearly equally on taxes that are imposed on incomes and taxes that are imposed on the sales of goods and services. Also unlike the taxes imposed by the Federal government, these tax revenues usually lead to greater spending by state and local governments; so state and local government taxes typically return tax revenues to the local economy and to the flow of consumption and income. So, they do not have a large deflationary effect. This is one reason that fiscal policy in the US is usually conducted at the Federal level.
Capital Gain Tax
Effective
Capital gains tax targets the wealthiest
Rychkov 22 [Anthony Rychkov, seattle law school, “Critical Tax Theory: Combatting Racial and Income Inequality in America,” Seattle Journal for Social Justice, Vol 21, Issue 1, https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=2148&context=sjsj ]
1. Maintain or Increase the Capital Gains Tax On April 25, 2021, the Washington legislature passed Senate Bill 5096, which imposes a 7% tax on capital gains of more than $250,000.174 According to State Representative Noel Frame, the intent of the bill is for “the wealthy to pay their fair share.” 175 Beginning in 2023, the law is expected to raise $550 million annually, and the bill exempts a wide range of assets from taxation (like retirement accounts, real estate, livestock, timber, and certain agricultural lands).176 Of course, the law is not without opposition. Within days of the bill’s passage, a lawsuit was filed against the State, alleging that the law imposes an income tax, and thus violates the state constitution, specifically Article VII, Section 1 of the Washington constitution, which requires all taxes to be “uniform upon the same class of property.177 On March 2, 2022, Douglas County Superior Court Judge Brian Huber agreed and overturned the capital gains tax on the basis that the tax 172 DAVIS ET AL., supra note 13. 173 WASH. STATE BUDGET & POL’Y CTR., supra note 15, at 16 (capital gains are profits from the sales of corporate stocks, bonds, real estate investments, and other financial assets.). 174 Joseph O’Sullivan, Washington House Approves New Tax on Capital Gains as Fight Brews Over a Referendum, SEATTLE TIMES (Apr. 21, 2021, 5:11 PM), https://www.seattletimes.com/seattle-news/politics/washington-house-approves-new-taxon-capital-gains-as-fight-brews-over-a-referendum/ [https://perma.cc/A7A6-WGR7]. 175 Id. 176 Id. 177 Id.; WASH. CONST. art. VII, § 1. 114 SEATTLE JOURNAL FOR SOCIAL JUSTICE SEATTLE JOURNAL FOR SOCIAL JUSTICE violated Article VII, Section 1 of the Washington constitution.178 Washington Attorney General Bob Ferguson announced that his office would appeal to the Washington Supreme Court as “[t]here’s a great deal at stake in this case, including funding for early learning, child care programs, and school construction.” 179 Similarly, President Biden’s proposed imposition of taxes on unrealized capital gains could also face legal challenges from opponents as it is unknown whether taxes on unrealized capital gains are different from income taxes allowed by the Sixteenth Amendment. 180 Attorney General Ferguson’s appeal is pending before the Washington Supreme Court, and oral arguments before the Court are expected in January 2023. 181 Proponents of the tax say that it is not an income tax, but instead a “sales tax that only is collected when a sufficient amount of stock is sold.”182 Additionally, following the November 2021 General Election in Washington State, state Advisory Vote No. 37—which concerns the new capital gains tax—was rejected by over 60% of Washington voters.183 Note, 178 Judge Overturns Washington State’s New Capital Gains Tax, KING 5 NEWS (Mar. 2, 2022, 7:22 AM), https://www.king5.com/article/news/politics/state-politics/overturnswashington-states-capital-gains-tax/281-41326c01-0ad3-49bf-8dac-5bf3374f881b [https://perma.cc/Z3QE-235G]. 179 Id. 180 Rappeport, supra note 30. 181 David Gutman, Washington Supreme Court to Hear Challenge to New Capital Gains Tax, Bypassing Court of Appeals, SEATTLE TIMES (July 13, 2022, 2:07 PM), https://www.seattletimes.com/seattle-news/politics/washington-supreme-court-to-hearchallenge-to-new-capital-gains-tax-bypassing-court-of-appeals/ [https://perma.cc/PJE9- 4T2Y]; Taylor Soper, Washington State Capital Gains Tax Can Move Forward with Supreme Court Case Pending, GEEKWIRE (Nov. 30, 2022, 6:36 PM), . https://www.geekwire.com/2022/washington-state-capital-gains-tax-can-move-forwardwith-lawsuit-pending/ [https://perma.cc/29WR-J6Q4]. 182 Mike Lewis, Signature Shortage: The Future of Washington State’s Capital Gains Tax is in the Hands of State Supreme Court, GEEKWIRE (July 12, 2022, 4:46 PM), https://www.geekwire.com/2022/signature-shortage-the-future-washington-states-capitalgains-tax-in-the-hands-of-the-courts/ [https://perma.cc/6M6R-3X3W]. 183 November 2, 2021, General Election Results: Advisory Vote No. 37, OFF. SEC’Y OF STATE (Nov. 23, 2021, 4:07 PM), https://results.vote.wa.gov/results/20211102/advisoryvote-no-37.html [https://perma.cc/5A3K-Y9EM]. Critical Tax Theory: Combatting Racial and Income Inequality in America 115 VOLUME 21 • ISSUE 1 • 2022 however, that advisory votes are nonbinding in Washington. 184 This public sentiment may be indicative of either the public’s strong opposition to tax increases on the rich or its ignorance of the true intent of the tax (or both). Ultimately, a capital gains tax would impact the wealthiest in Washington State, the top 1%, with little to no impact on low- and middle-income families. 185 Like the increased revenue from higher federal taxation on high-income groups, the increased revenue from Washington’s capital gains tax would be used to provide more resources for schools, early learning programs, and other investments that could create greater opportunities for people of color.186
Solves Inequality
Increasing capital gains tax solves inequality – current tax gap allows the rich’s income to go untaxed
Saez and Zucman 20 [Emmanuel Saez and Gabriel Zucman, both Professors of Economics at Berkeley, founders of tax justice now, “The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomics Accounts,” Journal of Economic Perspectives, Vol 34, No 4, https://doi.org/10.1257/jep.34.4.3. ]
The Rise of Wealth Inequality A first step toward the creation of US distributional national accounts was taken in Saez and Zucman (2016), who produced estimates of US wealth inequality allocating 100 percent of the household wealth recorded in the Financial Accounts, the official US macroeconomic balance sheet. Household wealth includes all the nonfinancial assets (such as real estate) and financial assets (such as equities, bonds, and pension wealth, whether held in individual retirement accounts or through pension funds) of US households, net of debts. In 2019, the Federal Reserve released its own official Distributional Financial Accounts painting a similar picture of a large rise in wealth concentration. Measuring Wealth When There Is No Administrative Data on Wealth Because there is no administrative data on wealth in the United States, Saez and Zucman (2016) use an indirect method, known as the income capitalization technique, to estimate wealth inequality. The idea is to link the Financial Accounts aggregates to the income flows that these assets generate: thus, interest-bearing assets are linked to interest payments, corporate equities are linked to dividends and capital gains, business assets are linked to business profits, and so on. Concretely, if the ratio between the stock of interest-bearing assets in the Financial Accounts and the total flow of interest income reported in tax returns is 50, then someone with $1,000 in interest is assigned $50,000 in bonds, saving accounts, and other interestgenerating assets. Wealth, in other words, is estimated by capitalizing income; in the preceding example, interest is capitalized using a capitalization factor of 50, or equivalently, an interest rate of 2 percent. Because not all assets generate taxable income (pensions, most importantly, do not), tax data need to be supplemented with other data sources to capture all forms of wealth. The basic capitalization method is simple and transparent, and it delivers results consistent with other evidence about US wealth. In 2016, according to the basic capitalization method, US billionaires owned $3.1 trillion in wealth, a number close to the $3.0 trillion implied by the Forbes annual list of the 400 wealthiest Americans. Tax units with less than $1 billion and more than $50 million in net wealth owned $9.2 trillion, a number not dissimilar to the $10.2 trillion found in the Survey of Consumer Finances. In its simplest form, the capitalization method relies on the assumption that within an asset class, the link between income reported in tax returns and wealth is the same across individuals; in other words, that people have the same realized rate 6 Journal of Economic Perspectives of return to wealth. Of course, not everybody actually has the same realized rate of return. The rates of return may even be positively correlated with wealth. In Saez and Zucman (2016), we showed that the assumption of constant realized returns within an asset class appeared reasonable, based on data from estate tax returns matched to the income tax return of the decedent the year before death, the Survey of Consumer Finances, and tax returns from foundations. In particular, we showed that the capitalization technique works well for US foundations despite the fact that the wealthiest foundations—with sophisticated investments in private equity and hedge funds—have higher total rates of returns than less wealthy foundations. The reason for this apparent paradox is that the high total returns of top foundations stem from high unrealized capital gains, not from high realized income (interest, dividends, realized capital gains) relative to wealth. What matters for the capitalization method is that within an asset class, the flow of realized income be proportional to wealth, which generally seems to be the case. However, we also found in matched estate-income tax data, an interest rate premium that seemed to appear among the rich starting around the time of the Great Recession of 2008–2009 and noted (Saez and Zucman 2016, p. 550) that this pattern should be watched. Subsequent research suggests that the interest rate premium of the rich has become a fixture of the post-Great Recession era. In the Survey of Consumer Finances, the top 1 percent richest households have a higherthan-average interest rate in the 2010, 2013, and 2016 waves of the survey by a factor of 1.3 (Bricker, Volz, and Hansen 2018; Saez and Zucman 2019a). In matched estates-income tax data, estates above $10 million have continued to exhibit a slightly higher interest rate than average Americans after 2012, the last year in Saez and Zucman (2016) (Smith, Zidar, and Zwick 2020). Thus, assuming that all Americans have the same interest rate exaggerates the interest-bearing assets of the wealthy in the post Great Recession period. For equity wealth, the capitalization method infers assets based on dividends and realized capital gains, and thus it cannot capture the wealth of someone who receives no dividend and barely realizes any capital gains. A striking example is given by Warren Buffett, the main shareholder of Berkshire Hathaway, a company that does not pay dividends. In 2016, Buffett disclosed he had an adjusted gross income of $11.5 million in 2015, a negligible realized return relative to the value of his stake in Berkshire Hathaway, which amounted to about $60 billion (as reported in Cohen 2016). Six of the top 10 wealthiest Americans—Jeff Bezos (Amazon), Ma

Preview shortened. Download the file for the full document.