There is new political will to eliminate disparities in how different types of income are treated by our tax system.

Tucked away in the health care bill is language that establishes the “unearned income medicare contribution.” Unearned income includes dividends, interest, and rental income. The new policy increases the imposition on unearned income by 3.8 percentage points, and by earned income by 0.9 percentage points.  The new level of taxation on unearned income becomes 19.8 percent for individual filers that earn more than $200,000 per year, or on dual filers earning more than (more…)

The IRS is going to make sure that the person you pay to file your taxes is accountable, competent, and within the guidelines of the law. The new rules, announced this afternoon, will focus on all paid preparers, save for attorneys and certified public accountants. They will also extend to tax prep software such as H&R Block’s At Home or TurboTax.

Going forward, tax preparers (except CPAs and attorneys) will have to register. The IRS will require 15 hours of training, annually, to registered tax preparers. They will have to pass competency tests and re-register every three years.

Why This Matters

Some people have already poked fun at these rules. That ignores the hard facts on the ground. While most tax (more…)

Cigarettes are slowly being taxed out of American way of life.  In some places it can cost more than $7 to buy a pack of cigarettes.  In New York, it can cost more than $9.  Federal and state taxes are increasing on cigarettes.  It’s so steep that people have largely abandoned the habit of sharing cigarettes in polite company.

Often, cigarette taxes are collected in the name of some kind of social good.  For example, in North Carolina, new taxes on cigarettes are going to pay medical costs.  A large share of those costs are actually income-targeted, too.  They go to pay state shares of Medicaid.

Lotteries, by the way, often have the same model.

Let’s look at payday lending.  It deserves some of the same treatment as cigarettes, undoubteldy.  Many might call payday lending a cancer on the communities where it is practiced.  Most of the public dialogue on what to do about payday lending focuses on either shutting it down, or on curbing its costs.

The latter aims often try to get the price of payday lending below some notion of usury.  In North Carolina, that price level is 36 percent.

In effect, legislation forces payday lenders to tone down the toxicity of their business model.  It is as if Monsanto agreed to create a roundup that only killed half your weeds.  It would be pretty certain that the weeds would come back, no?

What if — legislation required that payday lenders not be allowed to charge anything below an absolutely stratospheric price by enforcing high taxes on each payday loan transaction?  What if the cost of taking out $50 was attended by the fees for the payday lender, plus another $25 in fees for the state?  Or maybe another $50 in fees?

This might be a bust.  Conceivably, the desperation that attends the use of payday loans might not be extinguished by another round of levies.  If that was true, then the policy would merely transfer resources from the poorest individuals into state coffers.  That would be very unfortunate policy.

That said, it might force a new parsimony upon the industry.