2008 Tax Return Conundrum: With Funding Dropping, How Will Feds Pick up the Slack?

2008 tax return numbers just aren’t looking good for the government. Year over year revenue has dropped catastrophically, even as spending is up. So how are they making up the shortfall? There’s been some tentative talk of cost-cutting and income tax hikes, but there are some unusual plans that are also in the works:

Getting information from Swiss banks: even when they aren’t in Switzerland, these banks are feeling the heat. It may be the single best way to make up for a weak 2008 tax return: collect unpaid taxes on money earned during the good years, instead!

Legalizing in order to tax: The Washington Post recently published an editorial calling for legalizing and taxing drugs. For a paper that values its connections to the political mainstream, that’s a significant step. Among other things, they argue that it’s a dollars-and-cents issue:

Having fought the war on drugs, we know that ending the drug war is the right thing to do — for all of us, especially taxpayers. While the financial benefits of drug legalization are not our main concern, they are substantial. In a July referendum, Oakland, Calif., voted to tax drug sales by a 4-to-1 margin. Harvard economist Jeffrey Miron estimates that ending the drug war would save $44 billion annually, with taxes bringing in an additional $33 billion.

Finding new things to illegalize and fine: High-Frequency Trading is a fiendishly complex subject which is only partly understood, even by PhDs and industry experts. Fortunately, the qualifications for having an opinion on it are a bit lower. One new proposal is a tax on every trade as a way to partly ban high-frequency trading.

So that’s the plan: tax money overseas, legalize drugs, and create a fine for something nobody really understands.

How much of this will really happen? The answer is, likely, almost none of it: overseas banks have always had to assume that there could be a crackdown, so they’ve taken precautions to make it hard to get money out. While drug legalization is getting more popular, it’s hard to beat the status quo. And a trading tax is not likely to get passed any time soon—if Wall Streeters are already paying income taxes, why kill the golden goose by cutting their incomes in order to tax them a different way?

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This entry was posted on Tuesday, August 18th, 2009 at 10:32 pm and is filed under Tax Trivia.

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