Just One Minute
Balanced Fare: We Report, You Deride

Tuesday, January 21, 2003

Krugman Opposes The Proposed Bush Tax Cut

Tear out the front page! Well, no matter how much Krugman dislikes this tax cut, I am still not going to support it.

However, the interesting reporting on the tax cut is elsewhere in the Times. Floyd Norris tackles the complexities in eliminating the double taxation of dividends (following his earlier article). This article is clearly emphasizing the negatives, but the central point is clear - corporate tax returns are not filed until long after the fiscal year end (sort of like personal tax returns). If a corporation does not know what it paid in taxes, how can it be certain that its dividend is exempt? Hmm?

Well, for starters, many (some? most? a few?) corporations are consistently profitable and only pay out a small portion of their income as dividends. Assuming that retained earnings can be carried forward, the uncertainty over whether this type of corporation can declare an exempt dividend should be minimal.

Or, my own idea, the final rules could be written with a one year lag between taxes and dividends. [Mini-Update: Lucky guess. In a follow-up, Floyd Norris tells us that the lagged dividend solution will be proposed. Also, the deemed dividend is mandatory, but the capital gain step-up can also be used as a step-down. Clear?]

Now, here is an article highlighting one of the joys of a tax code laden with ornaments: "Bush Proposal May Cut Tax on S.U.V.'s for Business".

What happened?

"The tax code now caps deductions for most automobiles. But the largest vehicles — those that weigh more than 6,000 pounds fully loaded — are exempt because the relevant portion of the code was written in the 1980's, before the rise of the sport utility vehicle, and was intended to exempt big pickups needed on work sites. Now the tax incentives also give business owners not involved in hauling — doctors, real estate agents, accountants — more incentive to buy the biggest S.U.V.'s instead of smaller ones, or cars."

An Administration official admits that this merits a bit of reflection:

But a top budget official said today that the administration might be open to changes in the tax code that would bring cars more in line with big trucks.

"We have an open mind about whether the deduction for cars needs to be refined," said Dr. John Graham, the administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget."

So, was this just an "oops", or part of an evil plan? With a tax code this complex, who even knows? But it is probably safer (and more fun) to assume the worst.

Comments: Post a Comment