What Deductions Would You Deduct?

Tuesday, July 12, 2011

Tax revenue has become central to the deficit debate in Washington right now. Pulitzer-Prize winning journalist David Cay Johnston, Reuters columnist, and author of the forthcoming book The Fine Print: How Big Companies Use "Plain English" and Other Tricks to Rob You Blind, explains those tax deductions and so-called loopholes that are up for debate and takes your calls on which ones you think make sense and which ones don't.


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Comments [30]

Terry Ott

I heard a claim today (on radio, and just a snippet as I was dialing around). It was that when the Bush tax cuts came about, income tax revenues as a percentage of GDP surged ahead. True?

Elsewhere I read a statistical analysis going WAY back that the rise and fall of the top rates has done little to increase or decrease the percentage of GDP collected in taxes.

Both of these seem counterintuitive, but were also seemingly backed up by historical data. Are they true, or did someone cook the numbers somehow to show a desired answer, OR does the analysis just fail to consider other relevant variables?

Jul. 13 2011 03:47 AM

@David from Houston...Perhaps you weren't listening, a flat tax is NOT a fair tax, no matter how many times you repeat it. Once the rates are equal, it becomes a race to define what is and what is not income.

I'm with the first caller - I think it was Susan...Eliminate all deductions, all loopholes, all tax shelters. If you earned it, sold it, borrowed against it or whatever... it's income, so pay up. I want progressive rates marked at multiples of the
the median incomes so that Congress has barely anything to talk about when it comes to taxes, the rates and what is or is not income. CPA's and tax lawyers will need to learn something more useful to do. Congresspeople wil have to find new ways to sell themselves.

I expect that rates would go down as less income is hidden but this is a big enough change that it would be okay by me for Obama to bend down the curves on Medicare and Social Security to get it.

Anybody else feel like writing and asking Barack to go for it?

Jul. 12 2011 07:45 PM

In talking about tax deductions when itemizing you never mentioned that the AMT takes away almost all itemized deductions from those with fairly large incomes.

Jul. 12 2011 04:56 PM
David Behrman from Houston

I would eliminate ALL deductions by enacting the Fair Tax. There is only one way to effectively simplify the U.S. tax structure: scrap the tax code, do away with the IRS, implement a federal sales tax. In this way, everyone will pay something, no one can evade taxes (unless they just don't buy anything), and we won't have to worry about April 15 EVER AGAIN!

Jul. 12 2011 12:12 PM
Melissa from Ridgewood, NJ

There really needs to be more pushback on Boehner's (and other Republicans') talking point about not increasing taxes on the "job creators." Talk about class warfare! In other words, the rich are productive, contributing members of society who shouldn't be asked to give any more; the poor are merely takers who use up resources. Thank goodness there are people like David Cay Johnston who do the research to show what a lie this is. If only there were more outrage out there.

Jul. 12 2011 12:09 PM
resident alien from Williamsburg

Money will always try to avoid getting taxed.

Unless there is a campaign finance reform,
the ones with the most money will always get the best deal.

Until politicians will not have to depend on the richest donors to get elected,
"special interests will always get a "special deal".

Other countries have the same problem, but tackled it better. For example, successful parties/candidates (the ones who get elected/into parliament) will get most of their campaign expenses reimbursed (obviously the same rate for everyone)...etc....pp

Jul. 12 2011 12:05 PM
Stella from Manhattan

Kudos to Susan and BYoung516 for making such a persuasive argument for eliminating deductions and taxing everyone at the same rate. Our current tax system favors the rich, and feeds their disproportionate sense of entitlement. The more they have, the more they keep, and the middle and working classes bear the burden. "Ill fares the land, to hastening ills a prey, Where wealth accumulates, and men decay." (Oliver Goldsmith, quoted by Tony Judt in Ill Fares the Land).

Jul. 12 2011 11:37 AM
John A.

Republicans got their jobs because they said they would cut taxes (therefore) 1 job is saved when that repub. cuts taxes. If he lets taxes up then precisely 1 job is "killed". So... nobody is lying, it's just the number of jobs that is a "little off".

Jul. 12 2011 11:36 AM
Brian from Hoboken

I would like to see a flat tax with no deductions. Somehow my wife and I get hit with about $15k per year due to the AMT, which was created to make sure the very wealthy couldn't use their tax lawyers to get out of paying taxes. Now it hits us. At least a flat tax would mean hedge fund moguls and others would have to pay up. Exempt the first $50k of income since those people don't pay any federal taxes at this point anyway after deductions, child credits, and earned income credits. The country wastes billions to comply with the ridiculous tax code. This would simplify it.

Jul. 12 2011 11:36 AM
james from nyc

This person make to much sense and what he says is to selfless.

He would get assasinated if he was elected into congress

Jul. 12 2011 11:35 AM
Mr. Bad from IL

I really hate this moronic statement popularized by that bottle blonde bimbo, Monica Crowley, to wit:

"Nobody ever got a job from a poor person."

UTTER NONSENSE. Workers create the value and productivity for ANY business, good management is usually the difference between profitability and bankruptcy for some businesses, especially small ones, but a manager or owner does not "give" anybody a job, they hire, based on the success of the business and 99.9% is owed to the value created by their workers. In essence, workers give other workers jobs, management would love to give nobody a job, and every business that is well managed runs with a minimum amount of expensive human capital in order to stay lean/efficient.

The truthful statement would be:

"Nobody ever got a job from a rich person, rich people don't need to work or employ anyone."

Libertarian morons on this board are too much sometimes. Also, what sort of dolt starts a business with his/her own money? A future pauper that's who - most businesses are financed by loans made possible by - yup, you guessed it, banks underwritten by our taxes, deposits and infrastructure.

Jul. 12 2011 11:35 AM
jgarbuz from Queens

Sixteenth Amendment

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

Jul. 12 2011 11:33 AM
David Mellor from Highland Park, NJ

Please, in any discussion on taxes and the justification of a progressive tax system, you must discuss the total tax liability of individuals at every level of the income spectrum. The income tax is the only progressive tax, and counterbalances the regressive sales taxes (poor people spend a higher percentage of their income), the flat capital gains tax (which benefits the wealthy more than anyone else), the flat payroll taxes, and the flat property taxes (which again tend to hurt those on fixed incomes more than those with high incomes).

Jul. 12 2011 11:30 AM
jgarbuz from Queens

The wealthy always opposed taxes on income, and called it "communism" back in the 1890s. We had an income tax during the Civil War, and it was abolished, and only brought back in 1916 and became part of the Constitution then. So the rich opposed income taxation, and it took a Constitutional Amendment voted on by 2/3rds of the States to create it.

And, naturally, the rich who cannot get rid of the income tax now, at least want to flatten it so that the poorer workers pay the larger portion of the overall taxes collected on incomes.

But the argument of which is the preferable system for economic growth, flat versus progressive, has good arguments on both sides, and since we can't put the economy into a laboratory, and test the effect of different taxation methods on lab rats, we can only debate it. We cannot come to a definitive answer.

Jul. 12 2011 11:29 AM

Please ask your guest why he thinks he is asked so seldom to appear on our media-- he speaks with such clarity, he educates, he does not spin or curry favor.

Why is not on a major network? Such as, oh, even NPR?

Why is his voice so seldom available to us, except on YouTube?

Jul. 12 2011 11:28 AM
Carl Ian Schwartz from Paterson, N.J.

All of the talk of tax rates and deductions leaves out an important distinction. The top tax rate is NOT on ALL income. The tax rates are stepwise and intended to leave people with enough money. So if you're earning between $100 and 200K, you pay one rate, and on anything ABOVE that a higher rate.
The "right" has used this to scare people since the 1970s. It's simply not true.
Deductions have their uses, and can funnel funds into truly necessary activities, such as the arts, medical research, etc.
The tax code was revised in 1942 to pay for World War II--a fight for national survival. Nobody starved, and people like Louis B. Mayer had a declared income of something like $192K and paid the 93% tax on the top dollars, but managed to live very comfortably. It was NOT 93% on EVERYTHING.
Unless and until the public understands that the Federal (and State) taxes are done in a stepwise manner, the more this issue gets demagogued.

Jul. 12 2011 11:26 AM
Ken from Little Neck

"Money does not equal vitrue" - this may be the most powerful and important statement I've heard in this whole debate. The rich are not better than the rest of us.

Jul. 12 2011 11:25 AM
jgarbuz from Queens

I agree with those advocating the elimination of ALL tax deductions and subsidies in toto. They distort the marketplace. All income should be treated equally as well, but there has to be a mildly progressive income tax so those who can afford a bit more pay proportionately a bit more.

Jul. 12 2011 11:20 AM
Katie from Brooklyn

Well said, Suzanne! Best caller I've heard in a long time.

Jul. 12 2011 11:20 AM
gary from queens

Our tax system is like religion.

Religious people do good because they believe they will be rewarded in heaven.

Taxpayers give to charity because government rewards them with tax deduction.

As an atheist, i do good because i'm altruistic. i expect no rewards.

We need a flat tax on wages and all income. no tax subsidies or deductions. two or three rates. All low rates, because the resulting revenues will be higher than what the tax system now yields.

And government will shrink. (WHich is why liberals oppose the flat tax)

Jul. 12 2011 11:19 AM
Truth & Beauty from Brooklyn

As far as I'm concerned, the entire IRC needs to be scrapped. I don't know how the original figures were arrived at, but the rates are patently unfair.

I do have a question, though: Doesn't the charitable deduction to religious institutions violate the church/state laws? If religious institutions don't have to pay tax, why would donations to same be tax-deductible?

Jul. 12 2011 11:19 AM
Ken from Little Neck

To your last caller: BRAVO! Thank you for promoting common sense and the common good!

Jul. 12 2011 11:19 AM
JaySee from N. NJ

Deductions from income tax should not be changed for INDIVIDUALS in the 'middle and lower classes."

Get rid of all the special interest deductions, and the ones that the rich hire special lawyers to find and use. I like Brian's suggestion to limit deductions to the 15% bracket.

As for "not taxing those who generate jobs" -- that's such BS... a broker who makes over a million dollars a year does not hire anyone because of his income (probably already has a maid, gardner, nanny, etc so wont be hiring new ones).

WHAT ABOUT THE JOBS LOST by all the spending cutbacks the Pubs want? A helluva lot more people will LOSE jobs from the spending cuts than will be gained from the 'tax breaks for the rich.'

"don't tax the rich because they provide jobs" is just plain specious and BS.

Jul. 12 2011 11:18 AM
Martin Chuzzlewit from Manhattan

Caller Suzanne-
I'm glad it's so easy to be stridently "progressive" with other people's money.

Jul. 12 2011 11:17 AM

Maybe I didn't hear him right, but it sounded to me as if Brian described the deductions as if they were tax CREDITS rather than deductions.

Tax deductions reduce your taxable income and then indirectly the total tax you owe. They don't directly reduce your tax liability.

Jul. 12 2011 11:14 AM
Ken from Little Neck

The political climate is becoming increasingly disheartening. I understand that the long term debt is a problem that needs to be dealt with, but it's completely missing the point. The problem right now is JOBS JOBS JOBS. Making a serious effort to put people back to work will not only benefit the current unemployed, it will also make the economy easier to deal with. You don't have to play around with deductions and marginal rates, you could generate real revenue under the current system just by having more people on payrolls. Why does nobody care about this?

Jul. 12 2011 11:13 AM
Larry from Williamsburg

Here is a question I never hear reporters ask Republicans. The Republicans keep saying that we should not tax those who "create jobs." Well, taxes are lower than they have been since the 1950s. The gap between rich and poor is wider than since the depression. So, these job creators have more money than they have in a long time and have for some time now. Where are the jobs? Since they have not done anything for society with the wealth they have accumulated, why should their taxes remain at an historic low?

Jul. 12 2011 11:09 AM

I'm with Susan...wipe out all deductions and tax everyone ...and by everyone I mean EVERYONE, including corporations) at 15%.

It would eliminate the deficit. Not sure why we can't get this right now. It would seem to answer both side's most stringent objections.

Jul. 12 2011 10:52 AM
Susan from nyc

Solving the debt crisis is not difficult. What is needed is the following:
1. Eliminate ALL deductions (that means mortgage, charity, child, state and local tax, business loopholes, etc.) If Congress really thinks something is worth supporting, they will have to appropriate funds for it openly and defend the decision. After all, every deduction someone gets means everyone else pays more, since government must still be funded.
2. Institute a single, progressive income tax that covers ALL income--there is no reason to tax income one does not work for (i.e., capital gains) at a lower rate than income one puts in time and effort to earn. Set these rates to actually cover our obligations. Now that the Supreme Court has recognized corporations as persons with equal free speech rights, tax them at the same rates as persons.
3. Disallow any political contributions from non-constituents--representative government can only function if those in office actually represent those who elected them rather than those with deep pockets. Set representative pay and privileges at the mean for their constituents.

The current system breeds distrust and contempt, as our purported representatives ignore their constituents in favor of their corporate paymasters, obscuring their bought-and-paid-for favors with endless, incomprehensible layers of taxes and deductions. If the Democrats and Republicans can't (or won't) act in our interest, we will vote for a third party, one with a moral compass.

Jul. 12 2011 10:16 AM
gary from queens

Question: Do you want to do away with "lobbyists"? Democrats had made that a dirty word in the last 3 years. Any government official who hired one "sold out" to the "special interests."

Start with first principles. WHY are there business and labor lobbyists in DC in the first place? And WHY do they throw money at elected officials?

BECAUSE tax breaks, subsidies, regulations, can mean life of death in the market place. Their ability to influence legislators and the President ABOUT THOSE GOODIES is vital.

AND the bigger the government, the more GOODIES there are. That means there's MORE AT STAKE with big government. THUS, BIG GOVERNMENT IS THE PROBLEM.

So, if we want to rid ourselves of GOVERNMENT FOR SALE, then we must reduce the size of government.

As we speak, the Justice Department has asked several banks to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on ALLEGED discrimination.

Prosecutions have already generated more than $20 million in loan set-asides and other subsidies from banks that have settled out of court rather than battle the federal government and risk being branded racist. An additional 60 banks are under investigation, a DOJ spokeswoman says.

No doubt, lobbyists for banks are now forced to deal with this new assault by big government---from a supposedly "post-racial" administration.

This is a repeat of the easy-lending cycle that led to the housing crisis. Democrats will never learn. Big government is the problem.

Jul. 12 2011 10:00 AM

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