The Ten Worst Tax Policy Ideas of 2019

It is that time again.  TaxVox somehow has whittled down its list of the year’s bad tax ideas to 10 (plus one more serious item).  

10. The government shutdown. The federal government started 2019 largely closed for business, as Congress and President Trump haggled over funding for his Mexican border wall. The 35-day partial shutdown was the longest in US history and dragged on until Jan. 25. Among the agencies hamstrung by the shutdown was the IRS, which threw the beginning of tax filing season into confusion.

9. The no-refund myth. The IRS issued a routine report after the first week of the 2019 filing season that showed fewer and smaller tax refunds than in past years. Democratic critics of the Tax Cuts and Jobs Act (TCJA) jumped on the story, arguing that it proved the 2017 law was stiffing low- and middle-income households. Scores of news organizations took the bait. Just one problem: the story was wrong. Tax season 2019 refunds ended up looking a lot like 2018’s.

8. The capital investment myth. This was another one tied to the TCJA. Only it was being peddled by the Trump Administration and its supporters. The theory: The TCJA would generate an historic business investment boom, making workers so much more productive that their incomes would grow by at least $4,000 annually. There was just one hitch: It wasn’t true. Or to be charitable, it was wildly premature. Business investment bumped up just before and after Congress passed the TCJA, but capital spending sagged in the second half of 2018. For part of 2019, it was a drain on the economy.  

7.Opportunity zones.  This is one TCJA prediction that seems to be coming true. The 2017 law doled out   sweet capital gains tax breaks to investors in designated distressed Opportunity Zone communities. But, to the surprise of few, many of the benefits seem to be going to investors in high-end areas. A little political influence here, a phone call there, and suddenly investors in exclusive condos and yacht clubs were eligible for the tax breaks. There is  this one and this one. The most troubling: this one from Palm Beach.

6. Connecticut’s bungled meals tax. States love to raise restaurant meals taxes, in part because much of the levy is paid by tourists and other non-residents. But taxing food turns out to be…complicated. Connecticut raised its sales tax on meals by one percentage point, but clearly didn’t think it through. Among the meals and prepared foods subject to the extra tax: popsicles, bagels, power bars, hot bags of popcorn, and even pre-packaged bags of spinach. Critics pounced, and the revenue office eventually updated and trimmed the list of taxable items. Republicans still want to revisit the legislation. All over an extra one percent in the sale tax rate.

5. Taxing athletic scholarships.  The NCAA reluctantly agreed to let college athletes receive compensation from video game makers and others that use their names and images. The idea of these students making money so offended Sen. Richard Burr (R-NC) that he threatened to introduce a bill to tax tuition scholarships of any athletes who accept such outside compensation. Thus, he’d bar these college athletes from getting tax-exempt tuition subsidies, though they are available to any other students who work their way through college.

4. Paying for Medicare for All. Democratic presidential hopeful Elizabeth Warren somehow ended up trying to explain how she’d raise taxes to pay for rival Bernie Sanders’s Medicare for All plan. Unlike Sanders himself, Warren, umm, had a plan for that. Her ideas, including  potentially confiscatory taxes on the very rich and a new tax on employers, fell flat and her campaign stalled. 

3. The triumph of controversial assumptions. Both Warren and Sanders were heavily influenced by University of California Berkeley economists Emmanuel Saez and Gabriel Zucman, whose book The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, set the world of public finance aflutter. Their biggest attention getter: a claim that the richest 400 taxpayers pay a lower effective tax rate than the bottom half of the population. But to get there, they made many controversial assumptions—nearly all of which made it look like the rich were paying less tax and the poor were paying more than other analyses conclude. They are right to question the role of taxes in helping redistribute income. But that one big claim didn’t help their credibility.

2. Trump’s tax returns. Probably worth a full stocking of coal by itself. Let’s see, the president has repeatedly asked the Supreme Court to block prosecutors and Congress from seeing his returns and related financial records. California passed an unconstitutional law to keep candidates—including Trump— off its presidential primary ballot unless they made their returns public. And a whistleblower claims that at least one Treasury official meddled in an IRS audit of a Trump tax return.

1. Foreign governments still don’t pay US tariffs. President Trump gets a special lifetime award for his never-ending belief that tariffs are paid by foreign governments instead of US consumers. Just this month, he added new tariffs to steel and aluminum from Brazil and Argentina and wine and cheese from France.   

Finally, the passing of four economics giants. While the Lump of Coal Award is intended to be fun, it is impossible to end 2019 without remembering the loss of four giants of economics, each of whom had an enormous influence on public policy. Former Federal Reserve Board Chair Paul Volcker was given the unenviable job of stopping runaway inflation in the 1970s and, after much economic pain, pulled it off. Alan Krueger and Martin Feldstein made their marks in both government and academia, and Alice Rivlin was a unique force in economic policy for five decades.  They will be missed by their colleagues and friends, their many students and mentees, and by the policymakers they still influence.