A tax proposal to piss off everyone - Tilted Forum Project Discussion Community

loquitur · 04-15-2008, 07:09 AM

Interesting set of principles, designed to retain progressivity while minimizing economic distortions and increase everyone's sense of civil obligation. The post is here.

I can almost predict who is going to say what about which parts of the package, but what the hell, let me toss this out and see what comes back. It struck me as notable mainly for focussing on what tax systems actually do rather than on what they are aimed at doing. I'm a homeowner who gives a fair amount of money to charity, so this plan will slam me, but I still think it's a pretty good concept.

Quote:

1) Get rid of all our poverty programs, except those aimed at the disabled, and temporary unemployment assistance, and institute the negative income tax. That is to say, the system should be continuously progressive, from a steep negative rate of up to 100% on very low earners, gradually declining until it zeroes out around $28,000 a year, and then rising gradually until it maxes out around 35% on the top brackets.

2) Eliminate FICA and pay for Social Security and Medicare out of general revenue. It's time to stop pretending it's a pension system, when there are no assets in the "trust fund"

3) Eliminate the corporate income tax

4) Eliminate the special treatment for capital gains. All income should be taxed at the same level, regardless of its source.

5) Eliminate all deductions. Period, end of statement. No mortgage, student, child, etc. All causes are equally worthy in the eyes of the person who possesses the deduction; it is a waste of our time as a nation to sit around arguing about who deserves what.

6) Just say no to the Value Added Tax. In theory, it's a good tax. In practice, because it is extremely hard to tell what proportion of the price of anything represents the tax, it removes the good and natural pressure upon tax rates.

7) Get rid of the estate tax, and tax the capital gains on whatever is sold.

So why these particular features?

Well, the negative income tax does two things: encourages work by removing the disincentives created by potential loss of benefits; and means that the entire country, poorest to richest, faces a marginal tax increase if they want more spending: the poor have to give back some of their rebate, while the rich have to pay higher rates. For many on the left, that may of course be a bug, not a feature, as it forces the electorate to think much harder about whether or not they want new spending.

The arguments between conservatives and liberals often go like this:

C: The rich pay all the taxes
L: That's not true -- what about FICA?

Both have points. But the central issue that the conservatives are trying to get at is that the majority of the electorate does not face a marginal tax increase when they agitate for new spending. FICA may indeed be regressive, but its rates are unaffected by the level of spending in government. So a majority is prone to agitate for higher taxes, because they will not be paying those taxes.

I don't think it's a healthy situation for the electorate when a large majority is voting for spending that costs them nothing. To the minds of someone who pays no income tax, there's no cost/benefit analysis to be made; they're getting stuff for free. Even something of trivial benefit to them is thus better than not raising taxes. So we end up spending money on a lot of crap, because most of the voters don't care -- it's not their money.

On the other hand, liberals have a point about fairness. It isn't fair to say that some guy who brings home $20K should pay the same quarter of his income as Warren Buffett. The decrease in Joe Schmoe's standard of living represented by that 25% is much greater than the decrease in Warren Buffett's SOL from taking a quarter of his loot.

A negative income tax increases fairness, removes perverse incentives from the current benefit system, and makes sure that everyone has to think about whether they really want that new spending they're voting for -- enough to give up some of their cash.

Killing FICA increases fairness while removing some of the obstacles to reform by eliminating the fiction of an insurance program.

Eliminating the corporate income tax while equalizing treatment between capital gains does a number of things. It mitigates the current bias towards (tax deductible) debt financing. It ends all the ridiculous distortionary crap that corporations do to get around taxes. It ends the bias towards retained earnings that helped produce such interesting results in the stock market. It takes away a large chunk of the ability of the rich to avoid taxes by deferring their income in capital gains. It ends the tax preference for stock options that helped make the start of the new millenium so lively. Under this plan, income is income is income, no matter where it comes from. Thus we can stop the multi-billion dollar industry in shifting income from tax-disadvantaged to tax-advantaged forms.

If you just end the corporate tax without changing capital gains, you keep much of the distortion and shelter for the rich. If you eliminate special capital gains treatment without eliminating the corporate tax, you bias the economy away from investment, because now income is taxed at a high level twice -- once when its made by the company, and a second time when its distributed to the company's owners. This way, we tax it once, when it hits a real person.

We eliminate deductions for two reasons. First of all, they're distortionary. If it makes economic sense for adults to go to school, they will go to school. Giving a tax credit for it just encourages marginal activity that wouldn't pay for itself without a subsidy. Try thinking of it not as a tax credit, but as you giving someone else money to follow their dream of learning Old Church Slavonic, and you see what I mean.

Second of all, deductions are the way that the rich make sure that they pay a lot less taxes than the upper middle class. There is a reason that Barbra Streisand thinks that income taxes should be raised; she isn't going to pay much more tax. Most of her money is in assets, earning more money. It's the guy who owns the gas station down the street who's going to get it in the teeth. If we want to tax the rich, let's tax them, not give umpteen zillion deductions so they have the same marginal rate as your average bike messenger.

That's fine, I hear you say, but why all the deductions? Why not just the bad ones?

Because, as we've found since Reagan's simplification, there's no such thing as just one deduction. If you want the mortgage tax credit, you're going to need to give someone else the land-use abatement, and then there's the guy with his Urban Empowerment Zone Qualified Small Business, and next thing you know, we haven't gotten anywhere. The only way to get a clean code is to get rid of all of them. This won't be fun for many people. Housing prices will drop, for starters. On the other hand, so will tax rates. And come on -- why should an apartment renter be paying more taxes so you can frolic in the greenery?

Why get rid of the estate tax? Because the revenues raised are trivial, and people spend an enormous amount of time and money structuring their estates to get around them. Again, a disproportionate share of the tax is paid not by the super rich, but by the poor schmucks with one or two big assets they can't structure to get around the tax. On the other hand, when it's sold the inheritors should pay all the capital gains -- if you get rid of the estate tax, you should get rid of the stepped-up basis as well.

host · 04-15-2008, 07:58 AM

Quote:

Originally Posted by loquitur

Interesting set of principles, designed to retain progressivity while minimizing economic distortions and increase everyone's sense of civil obligation. The post is here.

I can almost predict who is going to say what about which parts of the package, but what the hell, let me toss this out and see what comes back. It struck me as notable mainly for focussing on what tax systems actually do rather than on what they are aimed at doing. I'm a homeowner who gives a fair amount of money to charity, so this plan will slam me, but I still think it's a pretty good concept.

My objections are that housing valuations are distressed enough without removing the tax incentives in place to promote home buying.....and

2) Eliminate FICA and pay for Social Security and Medicare out of general revenue. It's time to stop pretending it's a pension system, when there are no assets in the "trust fund"

Quote:

http://www.signonsandiego.com/uniont...1n6socsec.html
Bush portrays Social Security fund as worthless paper

KNIGHT RIDDER NEWS SERVICE

April 6, 2005

WASHINGTON – Using a government filing cabinet as a prop, President Bush yesterday played to fears that the Social Security Trust Fund is little more than a stack of worthless IOUs.

But if the IOUs are worthless, so is the "full faith and credit" of the federal government, independent financial analysts said. The reality is a little more complicated than Bush acknowledged, and it goes to the heart of the debate over Social Security's future.

Experts say both sides in the debate over Social Security mischaracterize the trust fund's worth to make the case that the retirement system is essentially sound, as many Democrats contend, or that it's on the verge of crisis, which is Bush's message.

Bush visited the Bureau of Public Debt in Parkersburg, W.Va., yesterday to highlight the fact that there's no actual cash in the trust fund, even though Social Security has piled <h3>up a $1.7 trillion surplus</h3> since it was created in the late 1930s. Payroll taxes collected from workers have exceeded benefits paid to retirees every year since 1984.

Instead of socking the surplus away, the government spent it on other programs and promised to repay it later, with interest. The IOUs are in the form of special-issue Treasury bonds that are stored in an off-white, four-drawer filing cabinet in West Virginia.

"There is no trust fund, just IOUs that I saw firsthand, that future generations will pay," Bush said after inspecting the storage site. "Imagine – the retirement security for future generations is sitting in a filing cabinet."

The Social Security Administration has tried for years to downplay fears that the IOUs are an empty promise. The agency's Web site addresses the question, "Is there really a Social Security Trust Fund?"

The SSA's answer: "Yes."

Another SSA Web section address concerns that the bonds are of little value.

"Far from being 'worthless IOUs,' the investments held by the trust funds are backed by the full faith and credit of the U.S. Government. The government has always repaid Social Security, with interest," the agency says. "The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the federal government." ....

Under Bush's, "leadership", since the above article was written, exactly 3 years ago, the federal government has borrowed an addtional $500 billion from the SSA trust fund, and instead of the $1.7 trillion surplus....at the end of 2007, the surplus was <a href="http://www.ssa.gov/OACT/STATS/table4a3.html">$2.238 trillion</a>. SSA has been issued US Treasury bonds for that amount, in exchange for the government taking the actual $2.238 trillion and spending it. At the end of the year 2000, the government only owed the SSA trust fund $1.049 trillion.

7) Get rid of the estate tax, and tax the capital gains on whatever is sold.

Quote:

http://www.cbpp.org/3-16-05tax.htm
March 16, 2005

ESTATE TAX REFORM COULD RAISE MUCH-NEEDED REVENUE:
Some Reform Options With Low Tax Rates Raise Very Little Revenue
By Joel Friedman and Ruth Carlitz

Related Report:
Estate Tax "Compromise" May Differ Little From Permanent Repeal

View Additional Reports

Under current law, the estate tax will be repealed in 2010, and then will be reinstated in 2011. This strange sequence of events will occur because the tax cuts enacted in 2001, including those related to the estate tax, expire after 2010, restoring the law that was in effect prior to 2001. The Administration has called for making the repeal of the estate tax permanent after 2010. The Joint Committee on Taxation estimates that this would reduce revenues by $290 billion through 2015, including $72 billion in 2015 alone. But this estimate essentially captures only the cost of four additional years of estate tax repeal; the revenues losses associated with 10 more years of repeal — for the period 2012 through 2021 — are much higher, about $745 billion. And when the associated $225 billion in higher interest payments on the debt are taken into account, the total cost of repealing the estate tax for a decade would be nearly $1 trillion.....

Before Mr. Bush took office, there was an estate tax, other taxes were at a higher level on higher incomes, and the national debt only increased $18 billion in the fiscal year ending 9/30/00. Spending was under control, and there were real reductions in non-defense related federal employment. Contrast that with the end of this fiscal year, on 9/30/08.....the national debt will have increased $700 billion, just in the current fiscal year....12 months....that's a rate of borrowing of nearly $60 billion per month.

What changed since 9/30/00? New federal government management, temporary elimnination of the estate tax, and income tax cuts that overwhelmingly benefited the wealthiest, and the expense of long, long, war.
War that comes with an expense that is arguably higher than the cost of the potential damage it claims to keep us from.

IMO this "reform" would accomplish nothing that returning tax levels back to their pre-2001 levels, and sound management of the federal government and it's budget would not accomplish, as it did before the Bush era.

Social Security is sound, it is privately financed....it is the federal government that is a fucking mess. The government borrowed all of the surplus from the privately funded SSA trust fund, and issued bonds to "cover" the debt it owed. It was the height of fiscal and moral irresponsibility to cut taxes, go to war, while advocating further, permanent tax cuts, and at the same time borrowing $1.3 trillion from the SSA trust fund to cover the gap created by increased spending and reduced taxation.

loquitur · 04-15-2008, 08:43 AM

host, why did you make this about Bush? It's not about Bush, it's about the concept of how to reform our tax system. The issues that post addresses predate Bush, they predate Clinton, they predate Bush I, they predate Reagan, etc etc etc............

You clearly understand some of these issues, and you're a smart guy - show me where she's wrong, if you think she's wrong.

Willravel · 04-15-2008, 08:57 AM

Quote:

1) Get rid of all our poverty programs, except those aimed at the disabled, and temporary unemployment assistance, and institute the negative income tax. That is to say, the system should be continuously progressive, from a steep negative rate of up to 100% on very low earners, gradually declining until it zeroes out around $28,000 a year, and then rising gradually until it maxes out around 35% on the top brackets.

Someone forgot employment and training services for high wage occupations, increasing literacy and basic skill levels of low-income parents (including GED services) and a myriad of other programs that are necessary to address the issue of poverty directly. The negative income tax is kinda interesting, though.

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2) Eliminate FICA and pay for Social Security and Medicare out of general revenue. It's time to stop pretending it's a pension system, when there are no assets in the "trust fund"

Sounds good.

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3) Eliminate the corporate income tax

No way, Jose. Those who earn more should pay more. It's a simple concept.

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4) Eliminate the special treatment for capital gains. All income should be taxed at the same level, regardless of its source.

Capital gain refers to investments that grow themselves, so of course they should be taxed a bit more.

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5) Eliminate all deductions. Period, end of statement. No mortgage, student, child, etc. All causes are equally worthy in the eyes of the person who possesses the deduction; it is a waste of our time as a nation to sit around arguing about who deserves what.

Okay, sounds good.

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6) Just say no to the Value Added Tax. In theory, it's a good tax. In practice, because it is extremely hard to tell what proportion of the price of anything represents the tax, it removes the good and natural pressure upon tax rates.

I could care less about this one, actually.

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7) Get rid of the estate tax, and tax the capital gains on whatever is sold.

My brain hurts. Actually I think this is a good idea, too.

loquitur · 04-15-2008, 09:02 AM

Quote:

Someone forgot employment and training services for high wage occupations, increasing literacy and basic skill levels of low-income parents (including GED services) and a myriad of other programs that are necessary to address the issue of poverty directly. The negative income tax is kinda interesting, though.

Why is that the govt's responsibility? People should use their money (including negative income tax payments) as they see fit.

On the corp income tax, the point is that it's distortionary and that corporations don't exist. People exist. Tax the people who get the income. Taxing corporations leads to nonproductive allocation of resources to tax-favored rather than tax-disadvantaged uses. For example (and this is the clearest one) there is no necessary reason to prefer leverage to equity, but if the govt is picking up part of the cost of capital, which it does through the deductability of interest expenses, then there is a reason for the preference. My own view is that some transactions would benefit from equity and some from debt, and that it makes no sense to thumb the scale. Companies can get into trouble from too much debt, and the tax system shouldn't be encouraging them. And no, eliminating the deductibility of expenses isn't the answer either, because that also is distortionary and will bring its own set of problems, like creating incentives for issuing preferred stock rather than common.

ottopilot · 04-15-2008, 09:07 AM

Quote:

Originally Posted by loquitur

Interesting set of principles, designed to retain progressivity while minimizing economic distortions and increase everyone's sense of civil obligation. The post is here.

I can almost predict who is going to say what about which parts of the package, but what the hell, let me toss this out and see what comes back. It struck me as notable mainly for focussing on what tax systems actually do rather than on what they are aimed at doing. I'm a homeowner who gives a fair amount of money to charity, so this plan will slam me, but I still think it's a pretty good concept.

At a glance, this looks very reasonable. I've seen similar approaches, but I like focus on simplicity and balance.

On the other hand ... what would it take to gain approval and actually implement something like this without becoming hopelessly diluted? Convincing the public to accept the initial start-up losses and to trust restructuring many significant aspects of commerce and tax law is a battle in of it's self.

I like the idea, but I picture the kickers and screamers clinging tenaciously to deductions, tax shelters, and social welfare programs until the bitter end.

Willravel · 04-15-2008, 09:12 AM

Quote:

Originally Posted by loquitur

Why is that the govt's responsibility? People should use their money (including negative income tax payments) as they see fit.

Why not? The government wouldn't be forcing anyone to do anything, but rather supplying an option for people to dig themselves out of their hole. You're acting like these programs would be mandatory.

loquitur · 04-15-2008, 09:12 AM

yeah, for sure. The biggest special interest being the real estate industry. Followed by the tax shelter packagers and other assorted demagogues. [will, this wasn't addressed to you]

Will, why should the govt choose which programs are available? why should it spend money to help people do stuff when you can just as easily let people have the money themselves and let them help themselves the best way they can, rather than have the govt choose what they should do? All you do by creating govt programs is create a class of entrenched bureaucrats. If someone wants retraining he can get it - there's no reason for the govt to give it to him.

host · 04-15-2008, 09:13 AM

Quote:

Originally Posted by loquitur

host, why did you make this about Bush? It's not about Bush, it's about the concept of how to reform our tax system. The issues that post addresses predate Bush, they predate Clinton, they predate Bush I, they predate Reagan, etc etc etc............

You clearly understand some of these issues, and you're a smart guy - show me where she's wrong, if you think she's wrong.

Your OP article advocates for Bush's most objectionable theme....eliminate the inheritance tax....a tax that impacts only the wealthiest families. This comes after a campaign, financed by the welathiest families political and PR consultants, to demonize the inheritance tax, by renaming it the "death" tax.

Quote:

http://www.60plus.org/deathtax.asp?docID=347

....One significant player in advancing the “death tax” tag was Jim Martin, a longtime activist who founded “60 Plus,” a conservative Washington beltway alternative to the American Association of Retired Persons. <h3>Although mostly concerned with privatizing Social Security, 60 Plus jumped headlong into the crusade against the estate tax.</h3>

Martin has the distinction of having given President George W. Bush his first political job. When Bush was twenty-two years old, Martin hired him to work on the 1968 campaign in Florida to elect Ed Gurney to Congress. The president, distinguished for his unique nicknames of friends and colleagues, calls Martin “Buddha.”9

Martin is credited with having brought the “death tax” coin back into wider circulation in 1993. He gained an ally in political mastermind Frank Luntz. Luntz, who conducted focus groups for conservative caucuses and politicians, understood the importance of language. He even wrote a rhetoric primer for conservative politicians with the Orwellian name “Language for the Twenty-first Century.”....

Show me an example of their core myth.....where is that small business or "family farm", put out of business by the "death" tax?

<h3>The fact is that the system of revenue collection, budgeting, and operation of government worked up until Jan. 20, 2001. It isn't the problem, it doesn't need "reform". </h3>

How can "the need" for these proposals, be separated from Bush.....he's the guy who proclaimed, as the author does, that....

Quote:

It's time to stop pretending it's a pension system, when there are no assets in the "trust fund"....

I clearly supported my points that she got that bullshit from Bush, and that, under his watch, the government took more than half the current stated balance of the SSA trust fund and replaced it with the very Treasury bonds that Bush and your author say are "no assets"....

.....So, why the lecture, loquitur?

<h3>Aren't the author's proposals aligned with Bush's position on permanently eliminating inheritance taxes and the current privately funded social security retirement and disability insurance system?</h3>

Would the author have even been taken seriously, with her talk of "reform", in 2000? The budget, spending, and revenue were in balance in 2000. They aren't now.....and I explained in my last post. what I thought had changed to make that so....

I object to the author "leaning" on the things that Bush himself has said and done, as components of her arguments for "reform". It's a fucking turnoff to read a "reformer" quoting from and advocating for the same sabotage to the system of federal revenue collection and spending that CAUSED the problems we are now confronted with, in the first place?

I know that you don't find it odd or objectionable, since this author's proposals are the core of your OP.....but it is odd....alarming to read.

loquitur · 04-15-2008, 10:14 AM

Host, the OP put forth a bunch of proposals. You object that one of them also was proposed by Bush. That doesn't mean the proposal originated with Bush; it predates him. Some things exist other than by reference to GWB. And some things are true even if GWB says them. This thread isn't about Bush.

I have a number of objections to the way the estate tax is constructed. Don't assume that getting rid of the estate tax will necessarily result in less tax being paid. I can see the logic of AN estate tax, but here is something to ponder. What happens when a person dies is that her heirs get her property. If the dead person bought an asset - a widget - thirty years ago for $1,000 and when she died it was worth $10,000, the heir gets the asset at a $10,000 "basis." So when the heir sells it a couple years later for $15,000, the heir pays tax on the gain of $5,000 (sale proceeds minus basis at date of inheritance), NOT on a gain of $14,000 (sale proceeds minus initial cost). The reason basis "steps up" at the time of death is that the estate tax is deemed to have operated on the dead person's assets, even if the person pays no estate tax. But if you get rid of the estate tax, the heir will pay tax on the entire gain of $14,000.

That's why it's not so cut and dried that eliminating the estate tax will result in less tax revenue. I suspect it will result in more tax revenue, because most estates DON'T pay any tax, but the basis nevertheless steps up because the estate is SUBJECT to tax even if it's not actually LIABLE for the tax. (They don't pay tax because they are not big enough to be hit with the tax; the estate tax kicks in for estates above something like three million dollars; I forget the exact number.)

I hope this wasn't too convoluted.

host · 04-15-2008, 10:27 AM

Quote:

Originally Posted by loquitur

Host, the OP put forth a bunch of proposals. You object that one of them also was proposed by Bush. That doesn't mean the proposal originated with Bush; it predates him. Some things exist other than by reference to GWB. And some things are true even if GWB says them. This thread isn't about Bush.

I have a number of objections to the way the estate tax is constructed. Don't assume that getting rid of the estate tax will necessarily result in less tax being paid. I can see the logic of AN estate tax, but here is something to ponder. What happens when a person dies is that her heirs get her property. If the dead person bought an asset - a widget - thirty years ago for $1,000 and when she died it was worth $10,000, the heir gets the asset at a $10,000 "basis." So when the heir sells it a couple years later for $15,000, the heir pays tax on the gain of $5,000 (sale proceeds minus basis at date of inheritance), NOT on a gain of $14,000 (sale proceeds minus initial cost). The reason basis "steps up" at the time of death is that the estate tax is deemed to have operated on the dead person's assets, even if the person pays no estate tax. But if you get rid of the estate tax, the heir will pay tax on the entire gain of $14,000.

That's why it's not so cut and dried that eliminating the estate tax will result in less tax revenue. I suspect it will result in more tax revenue, because most estates DON'T pay any tax, but the basis nevertheless steps up because the estate is SUBJECT to tax even if it's not actually LIABLE for the tax. (They don't pay tax because they are not big enough to be hit with the tax; the estate tax kicks in for estates above something like three million dollars; I forget the exact number.)

I hope this wasn't too convoluted.

There were two Bush themes pushed....doing away with SSA and inheritance taxes.

I'm sure you know more about this than I do....but isn't the principle appreciated asset inherited in the majority of lower value estates, a residential property which, under recent law, is exempted for most capital gains tax on the sale proceeds? If the property are securities, held for the length of time you descibed, hasn't the tax already been lowered to just 15 percent? Except for antiques and jewelry, relatively easy items to misrepresent the appraised value of, and hide the sale of later, isn't your argument left with speculative real property investments as it's principle asset? How many lower value estates hold such property, that the situation you describe shelters the great amounts potentially open to taxation if current inheritance tax law is changed?

loquitur · 04-15-2008, 12:24 PM

it's not just securities, all assets have appreciation taxed at capital gains rates, including speculative real estate. And yes, the basis step-up applies to all of that upon the owner's death. (The one-time home exemption from cap gains is capped at some level, I forget what; I think it's $500,000, certainly enough to shelter most people's appreciation. But I was talking about non-home assets. Surely you're not advocating getting rid of the one-time exemption?)

My argument was that currently some tiny percentage of estates gets hit with estate tax, but all estate beneficiaries get the step-up in basis whether or not the estate they inherited from is taxed. The result is that very large amounts of capital gains don't get taxed -- whereas if you eliminated the estate tax, and with it the step up in basis, the heirs would have to pay capital gains tax on the entire gain. That's a very big deal because chances are the dead person would have decades' worth of appreciation on the assets, whereas the heir upon sale usually wouldn't have held the asset as long before selling it.

dc_dux · 04-15-2008, 01:21 PM

Tax "fairness" proposals like this one make for an interesting discussion but cant be implemented in a vacuum.....without an equally "fair" proposal for government spending.

Without the other side of the equation, annual deficits (and subsequent total debt) would explode and somewhere down the line, sooner, rather than later, someone willl have to pay for it.

loquitur · 04-15-2008, 01:25 PM

I think the point was that this sort of system, which is very difficult to "game," would create pressures to keep spending down, because no one would be able to get out of paying the taxes to support the govt spending increases.

dc_dux · 04-15-2008, 01:31 PM

Quote:

Originally Posted by loquitur

I think the point was that this sort of system, which is very difficult to "game," would create pressures to keep spending down, because no one would be able to get out of paying the taxes to support the govt spending increases.

I would hope so.

With this type of proposal, after spending for entitlements (without FICA taxes), basic defense needs, and paying down the current debt (unless you continue to let it explode), there would be likely be little revenue for much else.

Ustwo · 04-15-2008, 01:41 PM

Quote:

Originally Posted by dc_dux

I would hope so.

With this type of proposal, after spending for entitlements (without FICA taxes), basic defense needs, and paying down the current debt (unless you continue to let it explode), there would be likely be little revenue for much else.

And thats a good thing (well not the entitlements, but its a good start).

dc_dux · 04-15-2008, 01:55 PM

I agree that controlling spending is a good thing...the question is how?

Eliminate FICA taxes (35% of current revenues), corporate income tax (15% of current revenues) and value added (excise) taxes (3% of current revenues) and you eliminate over 50% of the revenue to the federal government....at the same time that over 60% of spending currently pays for entitlements (33% of current outlays) and interest on the debt (10% of current outlays), and defense (20% of current outlays).

Its not really that difficult to "game" the impact of this proposal.

The only solution to make it revenue neutral is to eliminate pretty much everything else! Good luck with that.

loquitur · 04-15-2008, 02:32 PM

If the courts start enforcing the commerce clause you'll see federal spending go WAY down.

dc_dux · 04-15-2008, 02:33 PM

You sound like Ron Paul

loquitur · 04-15-2008, 06:13 PM

Similar to what I said in a different context, some things are true even if Ron Paul says them.

dc_dux · 04-15-2008, 07:15 PM

Yep...context matters.

Thats why discussing this tax proposal by itself is simply an academic exercise and not grounded in reality. You cant take away 50% of the revenue if the remaining 50% can barely cover the cost of entitlements, interest on the debt and a scaled-down defense program and nothing else.

We need tax reform AND spending reform (including entitlements), but in a reasonable and measured way that can be implemented without a complete shock to the sytem.

ASU2003 · 04-15-2008, 07:20 PM

There needs to be something resembling an estate tax, or you will see the Trumps, Hiltons and Waltons still extremely rich 400 years from now (if we make it). They would never have to do anything, but because of the business practices of their parents, grand-parents, great-grandparents..., they cornered the market and made it almost impossible to compete against from a start-up point of view.

I'm not sure I understand the negative income model...Are you saying that people making under 28k/year would get money to make them equal to 28k/year? That can't be right.

I think a balanced-budget amendment (maybe tied to the financing of some war) would be a start. If everyone had to pay the actual tax bill instead of sweeping it under the rug and making people think they have low taxes, when in reality they are just making the next generation pay, it is wrong. That is why we should come up with a plan to pay back the national debt with an estate tax. It is the previous generations debt and they should have to pay it back at some time.

Yakk · 04-15-2008, 08:55 PM

Capital gains are a trivial tax shelter. Deferring taxes is saving taxes. Or do you intend to tax on the value of assets every year? How do you value assets when they aren't being sold?

No corp. income tax allows for easy capital-gains like tax deferment. I make a corporation, give it my income (not that hard), and have it reinvest my money.

Viola -- compounded income growth without being taxed.

What is the difference between a gift and income? Under your proposal, the gift isn't taxed. Or is there a special tax-free gift that you get to give when you die?

Take two situations: one has a 50% chance of losing 10,000$, and a 50% chance of gaining 20,000$, the other has a 100% chance of gaining 9000$.

Under your system, option B is way better, because your tax system kills deductions: while economically A is better.

That is just a handful of quick problems with your proposal. Do you require a deconstruction of all of them, or do you assert that every part of the proposal is sound?

loquitur · 04-16-2008, 04:58 AM

ASU, please see what I wrote up above about how estate tax works. You are making an assumption that isn't necessarily true. I would imagine that eliminating the estate tax (and with it the stepup in basis for assets) would expand dramatically the number of people who have to pay tax on inherited assets, as well as the amount of the tax they would have to pay. I havent done a study, but it makes sense that that would happen.

dksuddeth · 04-16-2008, 09:41 AM

Quote:

1) Get rid of all our poverty programs, except those aimed at the disabled, and temporary unemployment assistance, and institute the negative income tax. That is to say, the system should be continuously progressive, from a steep negative rate of up to 100% on very low earners, gradually declining until it zeroes out around $28,000 a year, and then rising gradually until it maxes out around 35% on the top brackets.

This actually sounds interesting. I'd like to see a broader detailed plan of this idea.

Quote:

2) Eliminate FICA and pay for Social Security and Medicare out of general revenue. It's time to stop pretending it's a pension system, when there are no assets in the "trust fund"

the more covers to pull off, the better.

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3) Eliminate the corporate income tax

corporations don't pay income tax. This is the simple concept. Anyone with any business sense should know that any increased costs or negative impacts on corporate income WILL without a doubt be handed on to the consumer. So corporations don't pay income tax, it only results in a higher priced product for the consumer.

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4) Eliminate the special treatment for capital gains. All income should be taxed at the same level, regardless of its source.

wholeheartedly agree with this. stop penalizing success by higher taxes. It only serves to make politicians richer by lobbyist money to create tax shelters.

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5) Eliminate all deductions. Period, end of statement. No mortgage, student, child, etc. All causes are equally worthy in the eyes of the person who possesses the deduction; it is a waste of our time as a nation to sit around arguing about who deserves what.

6) Just say no to the Value Added Tax. In theory, it's a good tax. In practice, because it is extremely hard to tell what proportion of the price of anything represents the tax, it removes the good and natural pressure upon tax rates.

7) Get rid of the estate tax, and tax the capital gains on whatever is sold

these sound good. I also have to agree with dc_dux on the spending reductions. tax code changes mean nothing without changing the amount our government lavishly spends.

flstf · 04-17-2008, 07:30 AM

Quote:

Originally Posted by dksuddeth

corporations don't pay income tax. This is the simple concept. Anyone with any business sense should know that any increased costs or negative impacts on corporate income WILL without a doubt be handed on to the consumer. So corporations don't pay income tax, it only results in a higher priced product for the consumer.

I'm not sure of many of the tax proposals in the OP but the reverse income tax may be a way to level the playing field so that the poor and middle class do not continue to pay a higher percentage of their income to support our government than the wealthy.

I sometimes think that I must be missing something but it seems to me that much of the taxes waged on corporations and wealthy wind up being paid by consumers via higher prices for goods and services. Isn't it obvious that those who have the ability to pass their expenses on to others will do so? Why is it that polititians who advocate increasing taxes on oil companies for example aren't slammed by consumers since they will most liikely have to ultimately pay them?

loquitur · 04-17-2008, 10:45 AM

uh, because they either have the economic sense of a slug or else prefer to demagogue the issue?

dc_dux · 04-17-2008, 11:50 AM

Quote:

Originally Posted by loquitur

uh, because they either have the economic sense of a slug or else prefer to demagogue the issue?

loquitor.....forget Ron Paul....now you sound like Grover Norquist

loquitur · 04-17-2008, 07:09 PM

golly, I really wish I just sounded like myself. I don't have an axe to grind, I just have my own views (that to me seem like common sense, though YMMV), and I toss 'em out there.

Willravel · 04-17-2008, 07:15 PM

Quote:

Originally Posted by dc_dux

loquitor.....forget Ron Paul....now you sound like Grover Norquist

I always thought Norquist sounded like Liq.

Quote:

4) Eliminate the special treatment for capital gains. All income should be taxed at the same level, regardless of its source.

Did these people write the questions for the Dem debate last night? Badum bum.

Yakk · 04-18-2008, 05:08 AM

Quote:

Originally Posted by flstf

I'm not sure of many of the tax proposals in the OP but the reverse income tax may be a way to level the playing field so that the poor and middle class do not continue to pay a higher percentage of their income to support our government than the wealthy.

I sometimes think that I must be missing something but it seems to me that much of the taxes waged on corporations and wealthy wind up being paid by consumers via higher prices for goods and services. Isn't it obvious that those who have the ability to pass their expenses on to others will do so? Why is it that polititians who advocate increasing taxes on oil companies for example aren't slammed by consumers since they will most liikely have to ultimately pay them?

I know! I mean, don't the rich know that if they are taxed 50% of their assets every year, which is then distributed to the poor, that they will just get it back by setting prices higher?

That kind of change has next to no effect!

...

Wait, that's wrong.

loquitur · 04-18-2008, 05:49 AM

Quote:

Originally Posted by willravel

I always thought Norquist sounded like Liq.

You meant "Loq," right?
I'm much better looking than Norquist. And a better speaker. To say nothing of my encyclopedic omniscient wisdom.

On the capital gains issue: there was a chart in the WSJ today that showed capital gains (and taxes paid on them) consistently increasing whenever there was a cut in the capital gains rate. I know what the WSJ was trying to say, namely, that we should cut the rate to stimulate more sales and generate tax revenue.

Bunkum. What that chart shows is that people are gaming the system. Remember, capital gains aren't like normal income -- the person getting the gains chooses when to have the gain; if s/he doesn't want gain, s/he won't sell the assets. Peolpe know capital gains rates are a political football, so they hold back on selling assets until an advantageous time -- with the "advantage" being dictated almost entirely by politically-motivated changes in the tax rates for capital gains. That is economically distortionary. Assets should be sold at a time when it makes economic sense to sell them, not when it seems strategically wise from a tax perspective.

What this suggests to me is that whatever the capital gains rate is, it should not be continually adjusted. Some sort of rate should get set and then sit for 10 years and then get re-examined. The decision about when to take capital gains (and thus when to pay capital gains taxes) shouldn't be tax-driven -- it should be economics driven.

04-15-2008, 09:12 AM	#8 (permalink)
loquitur Junkie Location: NYC	yeah, for sure. The biggest special interest being the real estate industry. Followed by the tax shelter packagers and other assorted demagogues. [will, this wasn't addressed to you] Will, why should the govt choose which programs are available? why should it spend money to help people do stuff when you can just as easily let people have the money themselves and let them help themselves the best way they can, rather than have the govt choose what they should do? All you do by creating govt programs is create a class of entrenched bureaucrats. If someone wants retraining he can get it - there's no reason for the govt to give it to him. Last edited by loquitur; 04-15-2008 at 12:37 PM..

04-15-2008, 01:21 PM	#13 (permalink)
dc_dux Location: Washington DC	Tax "fairness" proposals like this one make for an interesting discussion but cant be implemented in a vacuum.....without an equally "fair" proposal for government spending. Without the other side of the equation, annual deficits (and subsequent total debt) would explode and somewhere down the line, sooner, rather than later, someone willl have to pay for it. __________________ "The perfect is the enemy of the good." ~ Voltaire

04-15-2008, 01:55 PM	#17 (permalink)
dc_dux Location: Washington DC	I agree that controlling spending is a good thing...the question is how? Eliminate FICA taxes (35% of current revenues), corporate income tax (15% of current revenues) and value added (excise) taxes (3% of current revenues) and you eliminate over 50% of the revenue to the federal government....at the same time that over 60% of spending currently pays for entitlements (33% of current outlays) and interest on the debt (10% of current outlays), and defense (20% of current outlays). Its not really that difficult to "game" the impact of this proposal. The only solution to make it revenue neutral is to eliminate pretty much everything else! Good luck with that. __________________ "The perfect is the enemy of the good." ~ Voltaire Last edited by dc_dux; 04-15-2008 at 02:32 PM..

04-15-2008, 02:33 PM	#19 (permalink)
dc_dux Location: Washington DC	You sound like Ron Paul __________________ "The perfect is the enemy of the good." ~ Voltaire

04-15-2008, 07:15 PM	#21 (permalink)
dc_dux Location: Washington DC	Yep...context matters. Thats why discussing this tax proposal by itself is simply an academic exercise and not grounded in reality. You cant take away 50% of the revenue if the remaining 50% can barely cover the cost of entitlements, interest on the debt and a scaled-down defense program and nothing else. We need tax reform AND spending reform (including entitlements), but in a reasonable and measured way that can be implemented without a complete shock to the sytem. __________________ "The perfect is the enemy of the good." ~ Voltaire Last edited by dc_dux; 04-15-2008 at 07:31 PM..

04-15-2008, 08:43 AM	#3 (permalink)
loquitur Junkie Location: NYC	host, why did you make this about Bush? It's not about Bush, it's about the concept of how to reform our tax system. The issues that post addresses predate Bush, they predate Clinton, they predate Bush I, they predate Reagan, etc etc etc............ You clearly understand some of these issues, and you're a smart guy - show me where she's wrong, if you think she's wrong.

04-15-2008, 10:14 AM	#10 (permalink)
loquitur Junkie Location: NYC	Host, the OP put forth a bunch of proposals. You object that one of them also was proposed by Bush. That doesn't mean the proposal originated with Bush; it predates him. Some things exist other than by reference to GWB. And some things are true even if GWB says them. This thread isn't about Bush. I have a number of objections to the way the estate tax is constructed. Don't assume that getting rid of the estate tax will necessarily result in less tax being paid. I can see the logic of AN estate tax, but here is something to ponder. What happens when a person dies is that her heirs get her property. If the dead person bought an asset - a widget - thirty years ago for $1,000 and when she died it was worth $10,000, the heir gets the asset at a $10,000 "basis." So when the heir sells it a couple years later for $15,000, the heir pays tax on the gain of $5,000 (sale proceeds minus basis at date of inheritance), NOT on a gain of $14,000 (sale proceeds minus initial cost). The reason basis "steps up" at the time of death is that the estate tax is deemed to have operated on the dead person's assets, even if the person pays no estate tax. But if you get rid of the estate tax, the heir will pay tax on the entire gain of $14,000. That's why it's not so cut and dried that eliminating the estate tax will result in less tax revenue. I suspect it will result in more tax revenue, because most estates DON'T pay any tax, but the basis nevertheless steps up because the estate is SUBJECT to tax even if it's not actually LIABLE for the tax. (They don't pay tax because they are not big enough to be hit with the tax; the estate tax kicks in for estates above something like three million dollars; I forget the exact number.) I hope this wasn't too convoluted.

04-15-2008, 12:24 PM	#12 (permalink)
loquitur Junkie Location: NYC	it's not just securities, all assets have appreciation taxed at capital gains rates, including speculative real estate. And yes, the basis step-up applies to all of that upon the owner's death. (The one-time home exemption from cap gains is capped at some level, I forget what; I think it's $500,000, certainly enough to shelter most people's appreciation. But I was talking about non-home assets. Surely you're not advocating getting rid of the one-time exemption?) My argument was that currently some tiny percentage of estates gets hit with estate tax, but all estate beneficiaries get the step-up in basis whether or not the estate they inherited from is taxed. The result is that very large amounts of capital gains don't get taxed -- whereas if you eliminated the estate tax, and with it the step up in basis, the heirs would have to pay capital gains tax on the entire gain. That's a very big deal because chances are the dead person would have decades' worth of appreciation on the assets, whereas the heir upon sale usually wouldn't have held the asset as long before selling it.

04-15-2008, 01:25 PM	#14 (permalink)
loquitur Junkie Location: NYC	I think the point was that this sort of system, which is very difficult to "game," would create pressures to keep spending down, because no one would be able to get out of paying the taxes to support the govt spending increases.

04-15-2008, 02:32 PM	#18 (permalink)
loquitur Junkie Location: NYC	If the courts start enforcing the commerce clause you'll see federal spending go WAY down.

04-15-2008, 06:13 PM	#20 (permalink)
loquitur Junkie Location: NYC	Similar to what I said in a different context, some things are true even if Ron Paul says them.

04-15-2008, 07:20 PM	#22 (permalink)
ASU2003 immoral minority Location: Back in Ohio	There needs to be something resembling an estate tax, or you will see the Trumps, Hiltons and Waltons still extremely rich 400 years from now (if we make it). They would never have to do anything, but because of the business practices of their parents, grand-parents, great-grandparents..., they cornered the market and made it almost impossible to compete against from a start-up point of view. I'm not sure I understand the negative income model...Are you saying that people making under 28k/year would get money to make them equal to 28k/year? That can't be right. I think a balanced-budget amendment (maybe tied to the financing of some war) would be a start. If everyone had to pay the actual tax bill instead of sweeping it under the rug and making people think they have low taxes, when in reality they are just making the next generation pay, it is wrong. That is why we should come up with a plan to pay back the national debt with an estate tax. It is the previous generations debt and they should have to pay it back at some time.

04-15-2008, 08:55 PM	#23 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	Capital gains are a trivial tax shelter. Deferring taxes is saving taxes. Or do you intend to tax on the value of assets every year? How do you value assets when they aren't being sold? No corp. income tax allows for easy capital-gains like tax deferment. I make a corporation, give it my income (not that hard), and have it reinvest my money. Viola -- compounded income growth without being taxed. What is the difference between a gift and income? Under your proposal, the gift isn't taxed. Or is there a special tax-free gift that you get to give when you die? Take two situations: one has a 50% chance of losing 10,000$, and a 50% chance of gaining 20,000$, the other has a 100% chance of gaining 9000$. Under your system, option B is way better, because your tax system kills deductions: while economically A is better. That is just a handful of quick problems with your proposal. Do you require a deconstruction of all of them, or do you assert that every part of the proposal is sound? __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

04-16-2008, 04:58 AM	#24 (permalink)
loquitur Junkie Location: NYC	ASU, please see what I wrote up above about how estate tax works. You are making an assumption that isn't necessarily true. I would imagine that eliminating the estate tax (and with it the stepup in basis for assets) would expand dramatically the number of people who have to pay tax on inherited assets, as well as the amount of the tax they would have to pay. I havent done a study, but it makes sense that that would happen.

04-17-2008, 10:45 AM	#27 (permalink)
loquitur Junkie Location: NYC	uh, because they either have the economic sense of a slug or else prefer to demagogue the issue?

04-17-2008, 07:09 PM	#29 (permalink)
loquitur Junkie Location: NYC	golly, I really wish I just sounded like myself. I don't have an axe to grind, I just have my own views (that to me seem like common sense, though YMMV), and I toss 'em out there.