Content Tagged: tax

Murray-Ryan Budget Cartoon Roundup

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December 27, 2013

 

The advent of the 2013 Murray-Ryan budget agreement has brought a great opportunity for political cartoon analysis in the classroom.  The October 13 blog outlines some great ways to bring political cartoons to students through authentic, critical analysis.  Close reading, followed by asking what students see and think is happening, and then asking about the author’s point of view leads to a thorough analysis!

Michael Ramirez, 2013

Nate Beeler, 2013

Adam Ziglis, 2013

Mike Luckovich, 2013

Steve Sack, 2013

Nate Beeler, 2013

 

 

 

 

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The Buffett Rule and Obama’s 30% Threshold

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April 13, 2012

The Buffett Rule has become a major talking point for politicians and economic specialists over the past few weeks. However complex the rule may be, Jeanne Sahadi for CNN Money provides a few basics on what you might want to know in her April 10th article. So what is the Buffet Rule exactly? The Buffett Rule, named after investor Warren Buffett, would ensure that millionaires and billionaires pay a higher percentage in their federal taxes. President Obama believes that the threshold should be no lower than 30%. According to the article:

To measure whether a millionaire is paying at least 30% of his income in taxes, the bill would take into account what the individual paid in federal income and payroll taxes plus the new 3.8% Medicare surtax set to take effect in 2013.

A big question about the Buffett Rule is how much money it would bring the federal government. From figures developed by the Joint Committee of Taxation, the rule would generate $47 billion over ten years. That said, Sahadi notes that many believe that it would complicate the tax code and do little to lower the deficit.

Teachers can use this article to further analyze the Buffett Rule with their students. Some questions to consider are: Should the threshold proposed by President Obama be more or less than 30%? Does cutting the deficit in such a small manner (billions instead of trillions) even matter? Teachers can also work on developing a tax code with their class that is more “fair” and “equal.” They should think about this in terms of the different people being taxed and what their possible reactions might be to paying varying percentages.

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Are Tax Breaks a Good Thing?

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April 2, 2012

Which costs the federal government more: a $2,100 check from Uncle Sam or a tax break worth $2,100?

Jeanne Sahadi for CNN Money begins her article about the national government’s “hidden” spending by asking this question. In reality, $2,100 is the same cost for both, but the tax break does not count towards the federal budget. Fiscal experts are troubled by these tax breaks because they could end up causing the government to lose billions of dollars. The government, however, uses these breaks as ways to get certain goals accomplished without spending “physical” money. Sahadi provides two examples:

Congress wants to foster homeownership, so it lets homeowners deduct their mortgage interest. Lawmakers want to reduce greenhouse gas emissions, so they offer a tax credit to companies that produce biofuels such as ethanol or biodiesel.

 

If these tax breaks were considered government spending, a major topic of discussion for politicians and presidential candidates, then the government’s spending as GDP would be much higher. According to Sahadi, other unreported expenditures and fees help the government maintain a lower percentage of GDP spending. The article states that, “In all, if they were also recategorized in the budget, government spending in 2007 would have to be reported as 25.4% of GDP — or a nearly a third more than advertised.”

Reevaluating the tax code would allow policymakers to see how much the government actually spends. Donald Marron, director of the Tax Policy Center, asserts that limiting tax cuts would increase the revenue of the federal government, hopefully bringing in billions of dollars. Nonetheless, a debate on the tax breaks must occur because many passed breaks go unevaluated after their acceptance. Marron states, “hidden spending should get the same scrutiny — and inspire the same enthusiasm for cuts — as the spending on entitlements, domestic programs, and defense that is targeted by today’s fiscal hawks.”

Teachers can use this article to discuss tax breaks and the many different types that exist. Possible areas to investigate: environment, industry, real estate, nongovernmental organizations (NGOs), etc. A possible activity is to research the presidential candidates tax plans and see the different areas in which they propose tax breaks. Students could discuss whether or not these breaks would be popular if citizens had to pay for them outright.

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New Plan to Reduce Deficit Continues

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March 28, 2012

A proposal closely resembling the Simpson-Bowles Plan from the 2010 deficit-reduction commission continues to move forward in Congress, reports Damian Paletta for the Wall Street Journal.  Though many expect the plan to fail any vote in Congress, it signifies the possibility of new bipartisan effort.

Reps. Steve LaTourette (R., Ohio) and Jim Cooper (D., Tenn.), have sponsored the new bill that plans “to reduce the federal budget deficit by more than $4 trillion over 10 years through a combination of spending cuts and tax increases,” Paletta explains.  This plan joins a number of budget proposals made in the past few weeks, though this one is the first with any bipartisan support.

This proposal cuts the deficit in a number of ways.  First, it would lower tax rates while simultaneously eliminating or limiting tax breaks.  These changes would account for almost $1 trillion in deficit reduction over 10 years.  With regards to social insurance, the plan would set a limit on the long-term growth of federal health care spending, as well as make large changes to Social Security and other entitlement programs.  The plan also would ask congressional panels to make cuts to federal programs that would amount to $300 billion.

Paletta reports that, thus far, at least three Republicans and four Democrats in the House support this plan.  This bipartisan support is one instance of a new effort from both parties to negotiate the budget ahead of the November elections.  Even so, both the White House and the Republican leadership have offered alternatives to this plan. The projections of the plans are given the graph below.

The Republican budget proposal, presented by Rep. Paul Ryan (R., Wis.) last week, restructures Medicare and Medicaid and does not include any tax increases.  Mr. Ryan, commenting on both plans, said: “I applaud my colleagues for working in a bipartisan manner in an effort to address Washington’s fiscal crisis.  Unfortunately, the proposal fails to confront the key driver of the debt: the explosive growth of government spending on health care.”

A White House official, in response to the Ryan Budget, said that it “protects massive tax cuts for millionaires and billionaires… [it was] understandable that some members of the Republican Party appear to want to take a more reasonable approach.”

Bringing the Article into Your Classroom

This article raises a number of interesting questions to discuss with your students: First, what do they think about the newest, bi-partisan budget proposal? Second, why do they think the Republican Party leadership will not support a plan proposed by House Republicans (with Democrats)? In the same vein, why has the White House given its own proposal, rather than supporting the Democrats who have helped create this plan?  As students, do they support one plan over another? Why?

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Obama’s New Payroll Tax Law

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February 24, 2012

According to a CNN article by Tom Cohen, Obama signed a law on Wednesday that would extend the payroll tax cut, unemployment benefits, and prevent cuts in payments to Medicare doctors. With Obama’s signing, these topics are now sorted out for the remainder of the year. President Obama and his administration also released a plan that would lower the corporate tax rate as well as reduce the number of tax breaks businesses can receive. His plan lowers the corporate tax rate from 35% to 28% and outlines a proposal that would follow the “Buffet Rule,” a rule that would tax people that make an annual income of over $1 million to pay at least a 30% tax rate. Political strategists view Obama’s tax plan as a means to distinguish himself from the Republican nominee and as the groundwork for a campaign against a “do-nothing” Congress.

The extension of the payroll tax cut lowers the percentage workers pay into Social Security and also plays a key role in Obama’s economic recovery plan. From the article:

The roughly $100 billion measure, a key part of Obama’s economic recovery plan, has reduced how much 160 million American workers pay into Social Security on their first $110,100 in wages. Instead of paying 6.2% had it lapsed, they’ll be paying 4.2%, a break worth about $83 a month for someone making $50,000 a year.

Teachers can use this article and past blogs to discuss how the tax rate will influence the reduction of the federal deficit and the possible implications it could have on funding federal programs. A class debate would be an excellent idea for students to deliberate on the corporate tax rate and the positive/negatives for Obama’s lowering of it. Students could then write a short paper/essay with their opinion and use evidence from the debate to support their claim.

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Campaigning and Cutting the Deficit

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February 23, 2012

In less than one year, this country will vote to elect a new President.  As the Republican candidates spar in frequent debates, campaign advertisements, and other modes of publicity (as well as through the formal primary elections), Obama’s campaign team also has entered the public eye.  Rather than differentiating Obama from the Republican candidates through his stance on social issues, the Obama campaign has decided to look at which candidate would cut the deficit the most, reported Devin Dwyer for ABC News.

The Obama campaign recently released a memo that analyzed the budget proposals of Mitt Romney and Rick Santorum, the two frontrunners in the Republican primaries.  Dwyer reports:

Obama aides, citing studies from the Tax Policy Center and Center on Budget and Policy Priorities, conclude Romney’s public budget proposals would add $175 billion a year to the deficit.  They claim his proposed tax cuts and increased defense spending would not be adequately offset by as yet unspecified spending cutes the size of which are deemed ‘simply not plausible.’  The memo also claims Santorum’s plan would add $990 billion to the deficit in 2015.

In contrast to this memo’s conclusions, both Romney and Santorum have stated that they planned to cut government spending as President.  In an email to ABC News, Dwyer reports, Romney campaign spokeswoman Andrea Saul “did not directly refute” this memo’s analysis.  Rather, she highlighted the fact that, during the Obama presidency, the deficit has grown by over $5 trillion.

Bringing This Article into the Classroom

Dwyer’s article points to the fact that Obama’s campaign has decided to attack both Romney and Santorum for their proposed budgets and their effect on the federal deficit.  In a class discussion, you may ask your students why they think the Obama campaign is choosing to focus on the federal deficit as a campaign strategy rather than simply focusing on social issues?

This article also lends itself to a discussion on the different approaches Republicans and Democrats take to taxing and spending.  By examining the general philosophical differences of small vs. big governments, students will have a greater appreciation for why the Obama campaign sees their memo as an effective attack on the Romney and Santorum campaigns.

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Is Government Debt Analogous to a Family Mortgage?

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February 1, 2012

Paul Krugman, a 2008 Nobel Prize winner in Economics, wants you to stop comparing the federal debt to the debt of an individual.  In a recent New York Times op-ed piece, Krugman reframes this issue to explain why he believes that the federal debt is not the most urgent issue this government faces.

Krugman begins by pointing out that, despite the fact that the unemployment rate has been “disastrously high” the past two years, Congress has focused its energy on reducing the budget deficit.  Krugman lambasts both Congress and the economists with whom Congress has been consulting:

When people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about – and the people who talk the most understand the least.  Perhaps most obviously, the economic ‘experts’ on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits.

Krugman goes on to point out what specifically these economists have gotten wrong: in the short term, they claimed that the budget deficit would lead to increasing interest rates, though interest rates actually have dropped over the course of Obama’s presidency.

In the long term, Krugman claims, governments do not have to pay back their debt in the way individuals must pay back personal debts.  He explains: “An over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.” As discussed in earlier posts, the federal government borrows money by issuing bonds.  Though foreigners own many of these bonds, for each dollar of American debt claimed by foreigners, Americans have 89 cents worth of claims on foreigners.  In addition, American investments in foreign assets are more risky than foreign investments in the U.S. – which means that Americans earn more from their assets than foreigners do.

Krugman eventually does concede that debt is a problem without modest increases in taxes – and that raising taxes does have a cost.  He concludes by saying that the government may only continue to maintain a high debt if it also raises taxes.  Since this government is so anti-tax, however, it is unlikely that taxes will be rising anytime soon.

In order to introduce this article into the classroom, you may first want to introduce Krugman with a brief biography to contextualize his claims.  You may then ask the following discussion questions: What economic principles does Krugman introduce in this article (for example, do collecting taxes lead to more or less productivity)?  What are alternative opinions to what Krugman claims? Because Krugman makes many bold statements in his article, what alternative opinions have been discussed in this class in the past? What opinion/idea about the value of having a budget deficit makes more sense to you?


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The State of our Economic Union

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January 25, 2012

On Tuesday night, President Obama addressed Congress in the annual State of the Union speech.  The transcript of his speech may be found here. In just under an hour, Obama called attention to his accomplishments, described his plans for the future, asked Congress to try to overcome partisan difference to get things done, and invoked the American Dream as the ideal to which our country is striving.

During the speech, Obama only mentioned the federal deficit twice.  The first mention was buried within the first ten minutes.  He declared: “American manufacturers are hiring again, creating jobs for the first time since the late 1990s.  Together, we’ve agreed to cut the deficit by more than $2 trillion.  And we’ve put in place new rules to hold Wall Street accountable, so a crisis like this never happens again.”  In this mention, the agreement to cut the deficit seems to be just another of his many accomplishments.  It merely is part of a list, sandwiched between job creation and new regulations for Wall Street.

The second mention is much more informative and complete. He explains:

“When it comes to the deficit, we’ve already agreed to more than $2 trillion in cuts and savings.  But we need to do more, and that means making choices.  Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans.  Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households…As I told the Speaker this summer, I’m prepared to make more reforms that reign in long-term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors.  But in return, we need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes.”

According to Obama, the key to lowering the deficit is twofold: the government needs to act more frugally and reform policies that are expensive, and it needs change the tax code so that wealthier citizens pay more.

If your students were not required to watch the State of the Union, you could assign students to read parts of the speech or articles describing the speech.  Due to the fact that the State of the Union may be found on so many different media, you may assign students to pick one medium to watch/read/listen to the speech.

You may begin a discussion on Obama’s speech by asking: how did Obama first bring up the government debt? Why does he mention it within the context in which he does?  When else does Obama address the federal deficit, and what does he propose to address the deficit?  Why did Obama only dedicate two sentences to addressing an agreement made by Congress that took months to decide?  What do you, as students, think about his proposals? What are alternatives to what he proposed?

Because Congress currently has a Republican majority, many critics claim that Obama will not be able to get any of his proposals done during his last year of this term.  Others say that this State of the Union was the Obama’s response to the Republican primary candidates’ criticism.  What do your students think about these two criticisms?

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Payroll Tax Cut and Social Security Funding

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January 6, 2012


In a December 29th article for The Washington Post, Jia Lynn Yang discusses the impact the recent extension of the payroll tax cuts will have on Social Security funding. Yang states that nearly $100 billion will be transferred from the federal government’s general revenue pool to the Social Security trust fund. Although the tax cuts are supposed to be short-term, many lawmakers believe that the current political climate and economic sluggishness might allow for the perpetuation of tax cuts. Politicians pushing for the continuation of tax cuts with the intent of stimulating economic spending troubles economic experts. They believe that if this proceeds, then Social Security will “will lose its status as a protected benefit owed to every working American and instead become politically vulnerable, just like any other government program.” The program could become susceptible to federal initiatives and face possible funding limitations. According to Nancy Altman, co-director of the advocacy group Social Security Works, “all of a sudden Social Security will have to compete with every other program, whereas before it had its own dedicated revenue.”

Social Security trust fund has nearly $2.6 trillion, enough to pay the pledged benefits to retirees until 2036. This fund, Yang remarks, has been developed over time and accumulates its finances from the federal 12.4 percent payroll tax. Under this system, employers and employees each pay half of the tax (6.2 percent), yet the latest tax break lowered the share of employees by 2 percentage points and saved American families more than $900. From the article:

The pressure to cut the tax came from the country’s slow-growing economy. Last December, Republican lawmakers fought to extend the George W. Bush tax cuts, which were about to expire, while the White House pushed for a tax credit called Making Work Pay. Their compromise: a two-year extension of the Bush tax cuts, a year of extended unemployment benefits and a one-year payroll tax cut that effectively replaced Obama’s tax credit idea.

There has already been a push to continue the tax cuts for 2012 largely due to the belief that ending them would lead to a reduction in economic growth by two-thirds of a percentage point. According to the article, Senate Majority Leader Harry Reid (D-Nev.) plans to develop a committee to ensure that the cuts will remain for the entire year. However, members of both Congressional parties have expressed their opinions on how the payroll cuts could negatively impact Social Security funding.

Teachers could use this article to link historical events to current issues facing the American government and its people. Students could research the development of the Social Security program under President Franklin D. Roosevelt and the basic guidelines of the program. They could then chronicle the changes it has experienced over past decades to better understand the present state the program is in. Past blogs should help them with their investigations and strengthen their understanding of the relationship between Social Security and the federal deficit.

Teachers can also ask their students about the benefits and disadvantages of the payroll tax cut. Questions to consider: How does the current tax break benefit employees? Employers? Does it have a positive or negative impact for one group or both? How do the tax cuts impact Social Security’s independent stream of funding? With the current changes, should Social Security receive more from the federal government’s pool of revenue than other programs? Why or why not? What might be some short-term and long-term gains for Americans? What might be some negatives? How does a reduction of payroll taxes spur economic growth and how might this reduce the federal deficit? Teachers and students should discuss these questions and others to strengthen their understanding of how payroll tax cuts impact Social Security funding as well as the multitrillion dollar deficit the federal government faces.

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Expiring Tax Cuts

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November 29, 2011

Now that the supercommittee has failed, automatic spending cuts, distributed across many government programs, will begin on January 1, 2013. These spending cuts have been framed as a win for the Republicans, since they are not accompanied by any tax increases, what Democrats wanted.

Ezra Klein, writing for the Washington Post blog, “Wonkbook,” identifies one neglected but crucial point in this matter: the expiring Bush tax cuts. January 1, 2013, does not just mark the beginning of the automatic spending cuts.  It also marks the end of the massive Bush tax cuts enacted 12 years ago.  For every dollar that the automatic cuts eliminate from government spending, there will be three dollars of tax increases.

Klein examines the implications of these two things happening simultaneously, and how it compares to the proposals of the supercommittee:

“If you count reduced interest payments, the two policies alone would reduce future deficits by about $6 trillion.  That’s far more than anything the supercommittee came close to discussing. It’s distributed far more progressively than anything the Democrats have even considered proposing.  And all that needs to happen for it to pass is, well, nothing.”

Klein goes on to explain to that, while there are ways the government to create an alternative to the simple expiration of Bush’s tax cuts, the road to this alternative is far from straight.  Republicans, he notes, will not be able to stop the expiration without Senate Democrats and President Obama’s support to pass an alternative.

It seems simple that the Democrats simply should refuse to work with the Republicans and allow for this massive tax increase, but Klein suggests otherwise.  He believes that there are two reasons why Republicans still have some bargaining power.  The first is that the $3.8 trillion collected in taxes will come primarily from the middle-class, and Democrats already have expressed a preference to make the Bush tax cuts for income under $250,000 permanent.  Politically, the Democratic party may fear a loss of support from the middle class, a huge part of its voter base, if those taxes increased. Without those tax cut, however, only 20 percent of the potential gain is left.  The second is that the simultaneous cuts in spending and massive increases in taxes would be too stressful for the U.S. economy. A slow phase-in of such increases may have worked, Klein claims, but these cuts expire all at once.

In the classroom, this article lends itself to a number of different group or class-wide discussions.  Some questions to consider: should the Democrats oppose any attempt to extend again (or make permanent) the Bush tax cuts? Why might Democrats feel compelled to oppose any Republican proposal (against what Klein claims)?  What are the economic implications of massive tax increases paired with lower federal spending?  If teachers have been discussing basic economic theory, they may ask their students to draw graphs of what government spending and taxing will look like over the next ten years, along with the size of the national debt each year based on the difference of the spending and taxing taken from the current size of the debt.

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