How would you organize taxes if you were in charge of writing the tax code. Be as detailed or as vague as you wish.
I favor something based on 1) fairness (subjective, I know) and 2) resistant to futzing with after the fact.
I could advocate a flat tax or a fair tax. But one ingredient I want in any new tax plan is that it affects everyone. So, if there is a need to raise taxes for whatever reason, one huge dial gets turned up a hair or two. If everyone is affected, people will have a tendency to keep taxes, (spending) as low as is practical. If we need to raise money to pay for war, infrastructure, entitlements, national defense, whatever, everyone feels the increase.
Theoretically, I could even support a progressive tax that had that feature, where the scale was immutable. Again, so everyone would feel the pain. But I think it wold be near impossible for people to agree what the different rates should be. A flat tax and a fair tax gets away form that.
I think our current tax system is flawed only in execution. Loop holes, capital gains, deductions, losses… lots of stuff needs to be fixed, but in the grand scheme of things those are relatively minor problems. The progressive tier system works very well in my opinion. Additionally, I think in the last 20 years we have developed a middle ground between “attack dog” and “passive” for the IRS; they play hard ball, but they also compromise quite a bit (at least if you have an attorney they do. I don’t really know how often they settle with unrepresented folks).
Really, if I could do anything to taxes I would make it harder for Congress to mess with the rates (for both up and down).
First we have to agree what the problem is. If it’s that rich people pay too much tax and poor people don’t pay enough, then magellan01 is right on target.
Since I don’t think that is the problem, I’d like to all income treated the same and have two rates: one at something like 5% that applies to the first $50,000 or so and the other at whatever it takes to pay for the current budget and pay down the debt over 10 years. I’d get rid of mortgage deductions and deductions for children (you want em, you pay for em) but add deductions for tuition and job training. I wouldn’t mind indexing capital gains so you are taxed on actual earnings rather than phantom gain, but right now that is not much of an issue with inflation so low.
I’d also fund SS and medicare out of the general revenue rather than have it be a separate, capped tax.
Is there a debate here?
I’d like to debate why conservatives whine about high taxes then advocate plans that would raise taxes on 85% of taxpayers.
0%
(and I say that as 25 year old not making a huge deal. I can’t imagine how it must feel when you’re making a shit load but I can’t imagine it makes you like tax more!)
I would eliminate the carried interest loophole. There’s no reason why Goldman Sachs and Bain executives should earn more than those at General Electric, Microsoft or Google.
Tax bad things, like pollution, booze or cigs. You need to raise the revenue somehow. Better to tax bad things than good things like labor or savings.
The preceding involves a tax on consumption, which hits the poor harder than the middle class and the middle class harder than the 1%. So I would have a progressive income tax, probably capping off at 50% – below the levels that existed during the growth era 1945-1973.
I would treat dividends as ordinary income, but apply lower tax rates to corporations. I wouldn’t set the corporate tax rate at zero though - that would encourage abusive tax shelters.
I would phase out loopholes, the largest ones being for oil companies and interest on mortgages.
I would try to work out ways to limit loophole accretion in the future. That’s hard. One method might be to convert all deductions into 15% tax credits. That would be fairer and reduce the incentive to chase such goodies. I would create a special committee in charge of tax deductions and require that all deductions pass through them after passing through another committee and having all their hearings open ones. In other words, create more hurdles.
I would ID recalcitrant congressmen and fire them. I would run my ideas by the best tax experts, including Joel Slemrod.
Tax consumption, not income. No exceptions. Make it progressive, by taxing luxury items and services more than basic items and services. For example, a vehicle purchased for $20,000 would be taxed at a lower rate than a vehicle purchased for $200,000. Tax a first-class ticket at a higher rate than a coach ticket.
I’d also consider a tax on net worth over a certain amount, to encourage people to spend money instead of sitting on it. It would function the same way as a property tax, but count all your assets instead of just property.
Um, those paragraphs seem to have some conflict. The first seems to want to encourage savings, while the 2nd seems to want to discourage savings.
I agree with Magellan01’s Big Wheel. If you want something enough, then let everyone feel the pain somehow.
Corporate, Personal, Capital Gains and Dividends would all be counted the same - income. The Social Security and FICA stuff would be bundled in together as well into the tax rate, instead of being separate. No arguments about payroll vs. income taxes. There just is a single rate.
A simple deduction based on the poverty line, indexed to inflation, would be fine.
My first foray into tax policy is when I met Alvin Rabushka and read this book (which is now a free .pdf):
The first is not to encourage savings, it’s meant to be simple and enforceable without an easy way to manipulate it.
A consequence of that would be that people stop spending money. That’s a bad thing, so the second “wealth tax” could be added as a possible way discourage money hoarding.
Whatever worked to create jobs and a functioning economy as well as funding the public sector. Aside from that, a system that utilizes the resources available (poor people have fewer resources than the well off).
What would it take to do that? I don’t know. Maybe a value added tax, or higher taxes on the wealthy or corporations if they do not reinvest in production. But I’m not an economist.
In my view it is because US conservatism has been overtaken by authoritarianism which is based on adulation for the strong and contempt for the weak. Most of us (esp the poor) are weak.
The real question is why do so many people not seem to understand what the GOP really stands for as opposed to what they say they stand for on deficits and taxes.
Paul Ryan’s plan will increase taxes on the bottom 95% and make the deficit worse by trillions. Tell that to his supporters though.
Incidentally, the flat tax proposal is highly conservative but is written by 2 serious economists, Robert Hall and Alvin Rabushka. It’s several cuts above the usual Heritage stuff. Separately, I’ll note that the working poor currently get hit with sales tax, FICA, import taxes, etc., so it’s not like everyone doesn’t feel the pain under the status quo.
Ok. Outside of recession though, money hoarding isn’t a big problem. It’s called “Savings” and it provides a pool for investment or purchases of plant and equipment. During a recession though, reduced demand can lead to economic contraction unless the government applies sufficient fiscal and monetary stimulus. But though we have that problem now, usually we don’t.
There might be other justifications for a wealth tax though. They have one in Pennsylvania and it’s a PITA but only because it’s something on top of the income tax rather than a substitute for it.
I pay 0%. People who piss me off pay 100%. Everyone else is somewhere in between.
It’s probably a good thing I’m not in charge.
I honestly don’t care about tax levels. I think in general lower is better, but I would be fine with them significantly higher than they are today.
The big problem is consistency. Taxes are a political football they play with multiple times per election cycle. Every year there are new credits and taxes on my return. I can only imagine how it is for a big corporation. Businesses and taxpayers would be better off with one, predictable, mostly unchanging, tax policy that applied to everyone.
Maybe we could have a rule where tax policy can be changed, but only goes into effect 8 years after the legislation has passed. That would discourage superficial fiddling with taxes, and give people and businesses a long warning when they must change. It also minimizes the economy-destabilizing influence of the football game congress likes to play with our taxes every year.
INCOME TAX:
I treat all income the same regardless of source, no special treatment for investment income over earned income.
I would implement a progressive system consistent with principles of marginal utility.
I would employ a Haig Simons definition of income, which implies a mark to market regime. I would provide a deferral mechanism that would allow you to defer taxes on your mark to market gains until you actaully recognized thsoe gains but you would be charged interest on the net deferral. This would get rid of almost every tax shelter in existence.
Ideally, we wouldn’t have ANY tax incentives built into the tax code and congress would have to use direct spending to create market incentives. For example, if you want to promote purchase of municipal bonds, then we should not make municipal bond interest tax exempt, we should instead appropriate money to the municipalities a block payment equal to their interest expense times the top marginal tax rate (see build america bonds). If you want to incentivize home ownership then you appropriate money to homeowners so they can get a rebate equal to their interest expense times some percentage.
ESTATE TAX:
Market to market upon death (using zero basis where basis cannot be reasonably verified), treat all amounts over some threshhold amount received by beneficiaries as ordinary income (maybe spread over 4 or 5 years).
SOCIAL SECURITY:
Get rid of the cap + push back retirement age by one year = problem solved.
MEDICARE:
No fucking clue but during the health care debate, there were dozens of white papers floating around town and everyone seemed to agree that universal medicare was the most cost efficient especially if there was a vibrant supplemental medicare market. Most of the objection to this approach is that it would make government so big, not necessarily intrusive but really really BIG.
STATES:
States can do what they want but i have long held that tax competition between nations has turned into a race to the bottom and tax competition ebtween states is largely cannibalism.
I agree, with one modification - the cost basis for capital gains would be indexed so you are only taxed on the real gain.
Totally agree.
By referencing “beneficiaries”, are you converting this to an inheritance tax? Or taxing both the estate and the heirs? I would replace the estate tax with an inheritance tax with, as you say, mark to market upon death, but (as with capital gains) would index the cost basis.
I would merge SS and income tax into one tax, but with a defined portion being allocated to SS. Everyone with income above a very small threshold would pay this combined tax. There would be progressive brackets, e.g. 5%, 10%, 20%, 30%, 40% Whatever your tax bracket, a portion of that (say 30%) goes to SS. So, for example, Someone in the 10% bracket will be paying 3% SS and 7% income tax.
This makes SS progressive, but also ensures that the vast majority of people are paying something towards Federal expenditure. I think it is unhealthy to have of the order of half the population not contributing to the Federal budget. By reducing their SS contribution, they can pay both SS and Federal income tax without increasing their overall tax bill.
Their SS benefits would not be decreased compared with today’s system. Lower income people would pay less for the same benefits as now, higher income people would pay more.
Flat tax rate because it entails a minimum of administration freeing up hundred of thousands of useless tax experts, lawyers, judges, and similar parasites to become productive citizens. Also it has a minimum of loopholes which the rich with expensive lawyers can abuse. Only two or three deductions. One personal deduction; one deduction per child under the age of 18; perhaps a job-deduction. Also a flat business tax. No deductions. Vat if necessary. One rate across the board. No exceptions.