It goes without saying that 2020 has been a terrible year. It brought the worst pandemic in a century, the nastiest presidential election campaign in modern U.S. history, and an extraordinary example of policy-making failure in the face of a historic public health and economic crisis.
Nevertheless, it is time for Vox Taxation to name the 10 worst tax policy ideas of 2020. The first three come from the states, courtesy of my colleague from the Center for Tax Policy Richard Auxier. The rest is for the 2020 presidential campaign and pandemic relief.
10. Illinois’ failed progressive income tax initiative. A more progressive income tax would have helped solve the state’s longstanding tax problems. But instead of putting something simple on the November ballot, the legislature sent voters a unnecessarily complex plan which also included a poison pill, an unpopular tax on retirement income. It’s no surprise that voters rejected the plan. Now the governor says he needs to cut spending by $ 700 million this year.
9. Proposals to abolish taxes on state income Mississippi, West Virginia, and Arkansas. Lawmakers in Republican states often look for ways to swap the income tax they hate for higher sales taxes. But why did they try to do it in the midst of a pandemic when sales tax revenue decreased with consumer spending? None of these proposals will become law, but this is a case study in tax denial.
8. Missing a tax windfall. You might think cash-strapped states would seek tax revenue wherever they can get it. Again Florida and Missouri have still not organized to collect taxes from online retailers, even though it has been more than two years since the Supreme Court Wayfair The ruling allowed states to require online sellers to collect and remit these levies. In case Florida and Missouri haven’t noticed, online sales are booming.
7. Delay required distributions from pension plans. Congress decided it did not want to force retirees to take their required 2020 Minimum Distributions (RMDs) in the face of a declining stock market, so the CARES Act allowed them to postpone mandatory withdrawals to next year . At best, the delay was little more than a gift to the wealthiest retirees. But that hasn’t done anything for the vast majority of seniors, who receive distributions because they live on it, not because the IRS requires it. Oh, and the stock market is up over 60% since the CARES law was passed in late March.
6. Loss carryovers. A third very bad idea in the CARES law. This allowed companies to use losses to offset profits, and thus reduce the taxes of previous years. If Congress had only done this for pandemic-related losses in 2020, it might have been defensible. But it has allowed companies to use losses going back to 2018 to offset profits as far back as 2013. Back to the future was a fun movie. The concept makes tax policy terrible.
5. President-elect Joe Biden’s promise not to raise taxes for those earning $ 400,000 or less. There were two things wrong with this central promise of Biden’s campaign. The first is the underlying assumption that $ 400,000 in annual income somehow defines a struggling middle-income household. Quick reminder: the median household income in the United States in 2019 was $ 68,703. Second problem: it will be really difficult for Biden to keep his promise.
4. President Trump’s fiscal black box: No presidential candidate in living memory has said less than Trump about what he would do with voter taxes if elected. Five chips is not really a campaign platform.
3. Return from lunch three martinis. Before 2017, businesses could deduct 50% of the cost of business meals and entertainment. The Tax Cuts and Jobs Act abolished the tax deduction for business entertainment and further limited the deduction for meals. But President Trump, owner of hotels and golf courses, has called on Congress to reinstate the 100% deduction for business meals. And Congress welcomed it. Let’s raise a fully tax-deductible toast to one of the worst tax provisions in the bill.
2. Trump’s payroll tax holiday. What if you had a Christmas party and no one came? In August, Trump announced a decree which allowed workers to defer paying payroll taxes in the last quarter of 2020. Trump not only called it a public holiday, he promised to “end” the tax, which supports Social Security. Except that his order only postponed the tax. This meant that workers had to offset their unpaid payroll taxes in 2020 in 2021. Fortunately, few private employers accepted his idea of Trump, although federal workers had no choice.
1. The winner is: The failure of Congress and President Trump to agree on additional pandemic relief for nine months. When the pandemic first struck, Congress responded quickly and cautiously. But then a toxic combination of campaign politics and an almost complete absence of presidential leadership stalled the effort until lawmakers finally passed a bill this week. Since their last action in March, more than 310,000 Americans have died from COVID-19 and 9 million fewer are working. Tragically, this epic failure in policy making wins the Lump of Coal Award 2020.