17.02.2011
In the News, Policy Points
John Quinterno of South by North Strategies Ltd. recently appeared in a news story about the Governor of North Carolina’s recent “State of the State” address.
Meanwhile, John Quinterno, a principal with South by North Strategies, a Chapel Hill research firm that analyzes the state’s economy, questioned the impact of the corporate tax cut. He said the tax generally only applies to large companies and most of them already pay a lower tax rate due to existing tax breaks.
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Of the 6.9 percent corporate income tax rate the governor proposes cutting to 4.9 percent, Quinterno said, “While it sounds good, relatively few corporations actually pay it.”
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[Gov. Bev] Perdue will face further pressure from progressives once she rolls out her budget and gives the details of her proposed cuts in programs and services. But Quinterno said she and the Republican-led General Assembly have left themselves few options given the state’s economic and budget circumstances and their unwillingness to raise taxes or revise the state tax code.
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“They are facing a very difficult situation and in some ways they are trying to square a circle,” he said. “They are trying to protect fundamental services, but at the same time trying to do that with a revenue stream and a revenue system that is not able to generate the investments that people say they want. Add to that the whole balanced budget requirement the state has and no one faces very good choices.”
16.02.2011
Policy Points
Economic policy reports, blog postings, and media stories of interest:
16.02.2011
Policy Points
Economist’s View asks how to increase public support for social insurance programs.
The key here is to overcome the belief that the majority of people using these services are “gaming” the system to get handouts they don’t deserve. If we are going to successfully defend the social insurance system, it is this belief that must be countered. Of course such behavior goes on, there will always be people who try to take advantage of any system that is put in place (in the public or private sector), but this is not the predominant feature of these programs. The share of “deadbeats” is not large, it is relatively small given all the good such programs do, and that’s the message that needs to be delivered. The social benefits clearly exceed the costs of providing these services, but it will be tough to make this case convincingly — the opposition can always find isolated cases where people take advantage of the system and surround them with negative publicity. This has been a successful strategy, and it will take a concerted effort to counter overcome such efforts.
16.02.2011
Policy Points
TaxVox points out that the home mortgage interest deduction is an expensive case of the federal government acting “as a reverse Robin Hood.”
The single biggest housing subsidy is the mortgage deduction, which will add $130 billion to the deficit in the coming year alone. But even worse, at a time when both Democrats and Republicans claim to worry about the long-term deficit, the MID is a case of government acting as a reverse Robin Hood—the biggest subsidies go to those who need it least. The Tax Policy Center estimates that more than 70 percent of the benefit of the mortgage and property tax deductions go to the highest-earning 20 percent of households—those making $104,000 or more.
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This happens mostly because the tax break on home loans is structured as a deduction. Imagine, for instance, that you and I both pay $1,000-a-month in mortgage interest. If you are in the 10 percent bracket (a married couple with adjusted gross income of $36,000 or less), your after-tax interest cost is $900. If my wife and I are in the 35 percent bracket (with taxable income of $379,000 or more), our after-tax cost is just $650. And that’s after federal taxes. The benefit is even more dramatic when you figure state income tax breaks.
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This upside down subsidy also encourages the purchase of more expensive houses. I understand that some communities have very high housing costs. I live in one. But the average sales price in the U.S. last year was just $270,000.
15.02.2011
Policy Points
Economic policy reports, blog postings, and media stories of interest:
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