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From last night’s Daily Show; a great promo for Bruce’s great new book–but also a great promo for tax economists.  Kind of makes us look appealingly dweeby, doesn’t it?!

Here is a sort of data dump (sorry) of various reactions I’ve had to the President’s FY2013 budget proposals in the past week.

My organization, the Concord Coalition, put out this statement on Monday, accompanied by the video summary above that my colleague Josh Gordon and I made.

(I also did this radio interview on Patt Morrison’s show on southern CA’s NPR station, KPCC, on Monday.)

I was most intrigued by what is new in the President’s proposals in terms of tax policy:  there’s actually a bolder move to combine the “Buffett Rule”–raising taxes on the rich so that their effective (average) tax burdens aren’t any lower than those of middle-class households–with a more fundamental tax reform strategy (which economists like) of broadening the tax base.  I’ve said before that there are lots of different ways to raise taxes on millionaires, but I’d prefer to see it done by reducing tax expenditures (which disproportionately benefit higher-income households and are also economically inefficient) rather than by (just) raising marginal tax rates on the currently rather narrow definition of taxable income.

Two tax proposals new to the President’s budget this year that score well in this regard are: (i) the expansion of the limit of itemized deductions policy to a broader set of tax preferences–including the exclusion of employer-provided health benefits (wow!); and (ii) letting the expiration of the Bush tax cuts for high-income households extend to the full expiration of preferential dividend tax rates, such that they would return to being taxed at full, ordinary income rates.

I wrote on Concord’s blog about the itemized deduction proposal here.

I write about this “Buffett Rule route to fundamental tax reform” among my other reactions to the tax policies in the President’s budget in my next Tax Notes column, which comes out next Monday.  I’ll give a Cliff’s Notes version of that column here then.

My column in this week’s Tax Notes (subscription-only access here) focuses on just a few of the different ways we could get more tax revenue from millionaires, summarized in the table above.  (The sources for all these numbers are various distributional estimates from the Tax Policy Center, referenced in the Tax Notes publication.)  The progressive nature of the federal income tax system, where tax burdens as a share of income in general rise with income through marginal tax rates that rise with income, and the implied upside-down subsidies created by poking holes in the tax base with exemptions and deductions (a.k.a. “tax expenditures”), makes it easy to raise tax burdens on the rich.  We can either make the rate structure steeper, or we can broaden the tax base for any given (already-progressive) rate structure.

Some ways are better than others from an economic efficiency standpoint, in that they level out the very uneven playing field, reducing the tax distortions between fully taxed and more lightly taxed (or untaxed) activities.  These would include proposals 3 and 4 –treating capital gains and dividends like ordinary income, and limiting itemized deductions to 28 percent.  Others might be viewed as preferable from a fairness perspective if the goal is to reduce income inequality and increase the share of the tax burden borne by millionaires–a statistic I dubbed “millionarity” in the table.  These include proposals 2 (letting just the high-end Bush tax cuts expire) and 5 (the millionaire surtax).  Still, my favorite tax policy option to point out is the one already in current law (#1 on the list above): letting all the Bush tax cuts expire, which scores low on “millionarity” but high in terms of total revenue raised and even the total dollar amount of higher taxes on millionaires.  You want to collect more in taxes from millionaires?  Just collect more taxes in general by not passing any more tax policy changes (allowing the Bush tax cuts to expire as scheduled, this second time around, at the end of this year), and you’re assured that you’ll get a disproportionate amount coming from those same millionaires who now disproportionately benefit from those tax cuts we keep extending (and deficit financing).

Another way to raise taxes on millionaires is to use yet another Alternative Minimum Tax (AMT), focused on millionaires only–like the proposal recently introduced by Senator Sheldon Whitehouse (D-RI).  I spoke with Forbes’ Janet Novack about why that’s more clever from a political perspective than an economic one.  Also in Janet’s column, my friend Len Burman astutely points out the huge incentive to divorce that would be created–if you’re lucky enough to be an unhappy but rich couple, at least. 

I’m turning 50 in a few weeks, but I’m not Anywhere Approaching Retirement Plans (AARP).  In fact, I’m an optimist and think I’m only about halfway through my life, as well as only about halfway through my working career.  And “quality adjusted” for how much wiser I have gotten over the years, that means I’ve really got most of my life and most of my working career still ahead of me.  That’s why I am having a hard time accepting my invitation to join the organization formerly known as the American Association of Retired Persons (AARP)–now just known as AARP–even with all their nice discounts and although their mission statement certainly sounds right up my (nearly-50-year-old) alley:

AARP is a nonprofit, nonpartisan organization with a membership that helps people age 50 and over have independence, choice and control in ways that are beneficial and affordable to them and society as a whole, ways that help people 50 and over improve their lives. Since 1958, AARP has been leading a revolution in the way people view and live life.

The AARP now emphasizes a broader notion of “quality of life”–rather than just “quality of retired life.”  They just happen to focus on those people who are 50 and over, not necessarily retired people, but just “older” or more “mature” people.  (I personally prefer the term “mature” to “senior,” although true confession time:  As some indication that I at least subconsciously have started identifying myself as a “senior,” the other day when I came across this CNN story’s headline which began “Senior’s Photo Deemed Too Sexy…”, I must confess I immediately clicked onto the article out of curiosity, expecting to see someone my age in the photo, and not the high school “senior” it turned out to be.  LOL.  I hadn’t even read far enough into the headline to notice the “yearbook” reference.)

If today’s AARP is really about helping those “50 and over [to] improve their lives” but also to encourage in the 50+ crowd the kind of “independence, choice and control” that could be “beneficial and affordable” to “society as a whole,” then AARP needs to break out of their old habit of automatically demanding that the retirement-age federal benefit programs not be modified to reflect the new characteristics of their no-longer-so-retired membership.  (The latest example was their unfortunate ad campaign designed to bully the supercommittee out of recommending any reforms to Social Security–which I was not too happy about.)

When AARP was founded in 1958, life expectancy at age 65 was about 5-6 years less than it is today, as shown in the chart above, which comes from a recent issue brief by the Congressional Budget Office. In the report, CBO explains how raising the eligibility age for Medicare and Social Security benefits–in ways that would only partially catch up to increases in longevity that have taken place over the years–would reduce the costs of the programs.

With my impending AARP eligibility and my dad’s very recent retirement at an age far exceeding the “normal” retirement age, I decided to write about this issue in a column for the Christian Science Monitor.  I explained that raising the “retirement age”–shorthand for the eligibility age for receiving full retirement benefits–seems to be just common sense, but I also acknowledged that given how we all age differently and work different types of jobs, any reduction of retirement benefits can’t be done in just an across-the-board, one-size-fits-all, way.  I concluded that:

Just as with any federal budget issue, this is a hard choice. If lawmakers are going to cut spending and deficits, they will have to cut overall benefits on average. There’s no way around that.

But cutting benefits for those who can afford to work longer, both financially and physically, can spare – and perhaps even strengthen – the benefits for those who cannot easily work longer.

And those fortunate enough to be the ones who can “afford it,” like me and my dad, may hardly be upset about this common-sense policy change. That’s because we are also the ones most likely to choose to work longer for reasons that have little to do with money.

Then last Thursday I spoke on this topic on Patt Morrison’s radio show on southern California’s NPR station, KPCC, where we heard a variety of perspectives from the listeners who called in.  The podcast recording is available here on the show’s website.

Bottom line is that with all of us living longer, at least some of us will choose to work longer.  As tough as it is to generalize with one-size-fits-all eligibility rules, does it really make sense to keep our rules fixed at where they were decades ago, back when 50 or 65 was a lot closer to being “almost old” or “old” than it is now?  I know many AARP members view their roles as parents or grandparents as their proudest achievements, and their kids’ and grandkids’ well being as what they care most about.  That makes me wonder if the AARP leadership even recognizes that and knows what the organization is doing when it simultaneously claims to have a mission to benefit “people age 50 and over” and “society as a whole” and opposes reforms to benefit programs that would raise eligibility ages.