A major part of the budget gridlock in Washington has been a showdown about taxes and their role in balancing the nation’s books. Should federal tax rates be cut or raised? Who’s paying their fair share, and who’s not? Should the tax code be simplified by closing loopholes? Should it be replaced altogether, with a flat tax or a national sales tax? In this series, Texas Enterprise digs beneath the rhetoric to find the facts on taxes and explores what a more rational tax system might look like.
Decoding Taxes
It's been 20 years since Bill Clinton and George H.W. Bush squared off in the 1992 presidential campaign, but the contentious debate over taxes in that race has lessons for today’s investors. McCombs Accounting Professor John Robinson finds that the tax rhetoric of political candidates influences the prices of bonds and stocks.
It's been a year since Warren Buffett penned a New York Times op-ed calling for higher taxes on millionaires like himself. Since then, the issue has become a potent political symbol. But is Buffett's proposal economically sound, or is it merely a gimmick?
Confusion, avoidance, loopholes, manipulation. The current state of American corporate income tax evokes all these words and more. By one measure, U.S. companies pay the highest corporate tax rates in the industrialized world: 39.2 percent, versus an average of 25.4 percent. But by other measures, they pay some of the lowest amounts. In 2009, corporate taxes were 1.7 percent of America’s gross domestic product, compared to an industrialized average of 2.8 percent. The tax contributes a scant 8 percent of Uncle Sam’s revenues. “It’s a small percentage, and we’re spending a lot to avoid it,” says Sandy Leeds, senior lecturer in finance at McCombs.
As the federal income tax nears its 100th birthday, the revenue source is being reconsidered in light of alternative ideas. Several tax and finance experts at the University of Texas at Austin suggest that the U.S. consider a parallel tax system: a national consumption tax.
When it comes to taxes, many Americans believe they’re paying too much and/or someone else is not paying enough. Who's right?
Tax breaks, loopholes, shelters, and subsidies are really government spending by another name, most economists say. Congressional budget rules call them “tax expenditures” and define them as, “Those revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” Whatever you call them, they may be costing the U.S. Treasury billions of dollars each year.
