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Also, if we're using blog pieces as news, this is my favorite on the whole tax issue --- from Robert Reich, posting on The Christian Science Monitor -
How can you go wrong with jujitsu in the title?
Columbus Underground Messageboard » General Columbus Discussion » Politics
The Hill - Democrats can't agree over killing or saving the Bush-era tax cuts
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hugh59
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Core_Models wrote >>
BG wrote >>
Bristol Bar wrote >>
I'd love to really simplify the tax code; sales tax only. No income tax, no death tax, no real estate tax, nothing.
Think about it; you could capture everyone (drug dealers, hookers, etc...) and encourage saving/reducing consumption all at the same time.
Voilla, problem solved.Here, here Bristol.
Yes, because people with a billion dollars spend about the same percentage of their income as people who make the poverty level on goods and services...so taxing that at a flat rate would clearly be fair and just.
Single mother of 2: Makes 600.00 a week. Spends 300.00 a week on food, diapers, gas, etc. and pays a 10% sales tax on it.
Bill Gates: Makes 4,000,000.00 a week. gimme a break.Actually, most of Bill Gates' wealth is tied up in accumulated capital gain on his Microsoft stock. The frustrating thing for me is that most of this wealth will never be taxed. Capital gains are not taxed until the gain is realized (until Gates sells his stock). Gates never plans on selling most of it. He will leave it to a charitable foundation of his own creation. He avoids the income tax; he avoids the estate and gift tax. He gets to direct how the money will be spent. Great. But you can only pull that kind of thing off if you are extremely wealthy (say, net worth over $100 million).
All those people who want to make the wealthy "pay their fair share" by raising the top federal tax rate are missing the point....the very wealth don't care about income; they care about cash flow. Setting the top rate at 39.6% is not going to affect people like Gates who have massive capital investments. These people don't need income; they just need to sell off enough of their investments every year to pay for their living expenses. So, they sell of some winning investments and they sell off some losing investments. They have the cash they need AND they have a minimal amount of income to report.
If we want to tax the very wealthy, perhaps we should have an individual tax that uses two bases for taxation: net income or net worth. You calculate your tax both ways and you pay the higher figure. Ohio used to do that with its corporate franchise tax; maybe it would work in lieu of the federal income tax.
If we retain the income tax, it needs to be reworked and simplified. Title 26 of the US Code is a mess; Title 57 of the Ohio Code is even worse. There is a great deal of complexity that made sense when the rates were higher that do not make sense now.
Posted 2 years ago # -
DavidF
Elysium Fields
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We may disagree a lot philosophically, but I can always count on Hugh to make his points logically and with some forethought and knowledge. That's the kind of argument that sways me. Not simply parroting the latest talking head.
Two quick points:
1. I agree that the House and Senate are dithering over this for political reasons for political reasons. Is it effective, or even dignified? No. Is it typical for a representative democracy. Certainly.
2. I am always amused by the fact that Republicans throw a couple of small crumbs for the little guy into whichever plan they have to massively entitle the big guy. Then whenever that plan gets attacked, it's an attack on the little guy. (i.e. these ridiculous tax cuts, the "death tax," etc.) Politically, absolutely brilliant. Logically, not so much. Unfortunately, the political trumps the logical most of the time.Posted 2 years ago # -
BG
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hugh59 wrote >>
Core_Models wrote >>
BG wrote >>
Bristol Bar wrote >>
I'd love to really simplify the tax code; sales tax only. No income tax, no death tax, no real estate tax, nothing.
Think about it; you could capture everyone (drug dealers, hookers, etc...) and encourage saving/reducing consumption all at the same time.
Voilla, problem solved.Here, here Bristol.
Yes, because people with a billion dollars spend about the same percentage of their income as people who make the poverty level on goods and services...so taxing that at a flat rate would clearly be fair and just.
Single mother of 2: Makes 600.00 a week. Spends 300.00 a week on food, diapers, gas, etc. and pays a 10% sales tax on it.
Bill Gates: Makes 4,000,000.00 a week. gimme a break.Actually, most of Bill Gates' wealth is tied up in accumulated capital gain on his Microsoft stock. The frustrating thing for me is that most of this wealth will never be taxed. Capital gains are not taxed until the gain is realized (until Gates sells his stock). Gates never plans on selling most of it. He will leave it to a charitable foundation of his own creation. He avoids the income tax; he avoids the estate and gift tax. He gets to direct how the money will be spent. Great. But you can only pull that kind of thing off if you are extremely wealthy (say, net worth over $100 million).
All those people who want to make the wealthy "pay their fair share" by raising the top federal tax rate are missing the point....the very wealth don't care about income; they care about cash flow. Setting the top rate at 39.6% is not going to affect people like Gates who have massive capital investments. These people don't need income; they just need to sell off enough of their investments every year to pay for their living expenses. So, they sell of some winning investments and they sell off some losing investments. They have the cash they need AND they have a minimal amount of income to report.
If we want to tax the very wealthy, perhaps we should have an individual tax that uses two bases for taxation: net income or net worth. You calculate your tax both ways and you pay the higher figure. Ohio used to do that with its corporate franchise tax; maybe it would work in lieu of the federal income tax.
If we retain the income tax, it needs to be reworked and simplified. Title 26 of the US Code is a mess; Title 57 of the Ohio Code is even worse. There is a great deal of complexity that made sense when the rates were higher that do not make sense now.Hugh, nice post.
Was just wondering which tax policy you prefer:
a) Reworking/Simplifying the current income tax structure
b) Junking the current system and intitiating a "flat tax"
c) Consumption Tax (only)Posted 2 years ago # -
hugh59
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Yes. ;-)
I have over 20 years invested in the current system; I would hate to see it go. I guess, just being selfish, I would like to see the current system simplified.
However, the current system evolved out of the Internal Revenue Code of 1954. This was a system with a top rate of 91% and had built in ways to avoid the tax in order to lessen the harshness of that high rate. We probably need to replace it with a different system in order to make certain that all those built-in tax avoidance methods are removed.
I think a good starting point would be to decide just how much revenue we want the new system to raise. Do we want to measure this as a percentage of GDP? Some other measure? Once we know how much we want to raise, we can design a system to get that much revenue out of our economy. If we focus on collecting revenues instead of social engineering, I think we will get a better, more fair system. I also think such a system would be easier to comply with and easier to enforce.
Consumption tax? Flat tax? I really don't know. Those questions might best be asked once we figure out how much revenue we want to raise. A problem with a consumption tax is that people who have saved up money (and paid income taxes on that money before it went into savings) end up getting treated rudely because they will get taxed when they spend those savings...hence they get taxed twice. Maybe that is not a problem for high value taxpayers, but it is going to seem very unfair for people who don't earn a lot.
Flat tax would be fine. But, we need to make certain we get taxes out of high value citizens who don't need to generate income in order to survive. I would want a net worth tax as an alternate basis for computing a person's annual tax bill.
Posted 2 years ago # -
gramarye
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BG wrote >>
Bristol Bar wrote >>
I'd love to really simplify the tax code; sales tax only. No income tax, no death tax, no real estate tax, nothing.
Think about it; you could capture everyone (drug dealers, hookers, etc...) and encourage saving/reducing consumption all at the same time.
Voilla, problem solved.Here, here Bristol.
This proposal has been floated before, as a consumption tax, not as a sales tax. (The difference is, roughly, that consumption also includes services, not just goods.) They found that if the rate were 20%, people were generally supportive. However, to match current revenues, the rate would have to be 30%. To match current expenditures, it would have to be even higher. Keep in mind that this would include purchases including homes, rent, utilities, and other big-ticket items. If you chose to exempt anything, the rate on other purchases would have to go even higher.
Adding 30% to everyone's rent, utilities, and groceries would be a crucifixion for the bottom 50% of the income ladder, who currently pay basically nothing in taxes.
For my own generation, one major unintended consequences would be a sharp exacerbation of trend (already noted as growing even under the status quo) of children living with their parents as long as possible. It would be hard to tax the "rent" children pay their parents, after all, even if it were technically required (like sales taxes at flea markets).
I favor simplification of the tax code, too: get rid of the distinction between capital gains and ordinary income, get rid of about 99% of the credits and deductions out there (including the standard deduction, mortgage interest deduction, and charitable contribution deduction), get rid of the personal exemption (this is one of the few that would fall more heavily on the poor than the rich, but seriously, no one should get an exemption for just existing). I'd leave only the child tax credit, basically.
Posted 2 years ago # -
hugh59
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I think we could do away with the distinction between capital gains and ordinary income if we indexed gains from the sale of property to take into account the effects of inflation. We could probably eliminate 1/3rd of Title 26 if we did away with that distinction.
I also agree that getting rid of most deductions and exemptions would be a good idea. Better to have a lower rate than to try and offset the higher rate with credits or deductions.
A lot of people would do barter transactions or unreported sales in order to evade a consumption tax. You can still audit people and make a determination about how much they spent based on changes in the amount of property they own....but tracking income is easier.
Posted 2 years ago # -
myliftkk
Columbus, OH
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hugh59 wrote >>
Yes. ;-)
I have over 20 years invested in the current system; I would hate to see it go. I guess, just being selfish, I would like to see the current system simplified.
However, the current system evolved out of the Internal Revenue Code of 1954. This was a system with a top rate of 91% and had built in ways to avoid the tax in order to lessen the harshness of that high rate. We probably need to replace it with a different system in order to make certain that all those built-in tax avoidance methods are removed.
I think a good starting point would be to decide just how much revenue we want the new system to raise. Do we want to measure this as a percentage of GDP? Some other measure? Once we know how much we want to raise, we can design a system to get that much revenue out of our economy. If we focus on collecting revenues instead of social engineering, I think we will get a better, more fair system. I also think such a system would be easier to comply with and easier to enforce.
Consumption tax? Flat tax? I really don't know. Those questions might best be asked once we figure out how much revenue we want to raise. A problem with a consumption tax is that people who have saved up money (and paid income taxes on that money before it went into savings) end up getting treated rudely because they will get taxed when they spend those savings...hence they get taxed twice. Maybe that is not a problem for high value taxpayers, but it is going to seem very unfair for people who don't earn a lot.
Flat tax would be fine. But, we need to make certain we get taxes out of high value citizens who don't need to generate income in order to survive. I would want a net worth tax as an alternate basis for computing a person's annual tax bill.You sound like you want technocrats running government, hugh. Besides, social engineering, or what is really the noisy political back and forth over who foots what bills has persisted since the concept of taxes was born, I doubt it will go away in our lifetime.
Taxing net worth is an interesting concept, but probably impossible to police in practice, though adoption of such a new method will certainly create more jobs in the tax planning fields.
Posted 2 years ago # -
BG
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hugh59 wrote >>
I think a good starting point would be to decide just how much revenue we want the new system to raise. Do we want to measure this as a percentage of GDP? Some other measure? Once we know how much we want to raise, we can design a system to get that much revenue out of our economy. If we focus on collecting revenues instead of social engineering, I think we will get a better, more fair system. I also think such a system would be easier to comply with and easier to enforce.Hugh,
There in lies the rub. We have 2 major ideologies that are diametrically opposed to the role of government and what services the government should provide. Getting most conservatives to buy into the further expansion of entitlements is an absolute non-starter. The Left obviously feels the government has a more caretaker role. Bridging this widening gap regarding government's role and how much revenue should be raised to pay for government's expenditures is almost impossible, in my opinion.
Posted 2 years ago # -
hugh59
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myliftkk wrote >>
You sound like you want technocrats running government, hugh. Besides, social engineering, or what is really the noisy political back and forth over who foots what bills has persisted since the concept of taxes was born, I doubt it will go away in our lifetime.
Taxing net worth is an interesting concept, but probably impossible to police in practice, though adoption of such a new method will certainly create more jobs in the tax planning fields.Technocrats running government? I hope not. Technocrats should advise the policy makers and perhaps be some of the policy makers. But they should not be running everything. They know less than they believe they know and eventually would make a mess of things.
I think we agree on something. I think we both want government to be able to collect the revenues that it needs. I also think we both want government to have a tax system that is fair. Let's try and find the best tax system we can. Then we can fight like cats and dogs over policy.
Taxing net worth would be a challenge. But taxing income is a challenge. Some net worth is easy to track: capital transactions and purchases of major assets for example. This is something we should explore. I don't know if it is the ultimate answer. And, while I could make a fortune as a tax planner, I would rather not be a "rent seeker" who enriches himself at the expense of the nation.
There are times when I wish we could track down the wealthiest 500 individuals in the country and see what their annual income tax bills are. We might be suprised to find out that they are not paying as much as people earning much less. You might find that your typical billionaire is paying less income taxes than your typical millionaire. The more we try to get tax dollars from those billionaires, the more we end up getting from those millionaires.
Posted 2 years ago # -
hugh59
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Good point Lake911. You are correct. A person's net worth is the result of the income they have accumulated over time. So a tax on net worth would repeatedly be taxing the same income.
Also, looking at changes in net worth is one of the ways that auditors estimate income when dealing with individuals who are evading taxes.
My suggestion is based on the idea that people should pay some minimum amount of tax. If we have a net worth tax set at a low rate and require that a person pays either the income tax or the net worth tax, we might have a better chance reducing the incentives for aggressive tax planning (which is how the very wealthy avoid paying income taxes).
If your typical millionaire is paying $500,000 per year in federal income taxes and your typical billionaire is paying $300,000 per year, then we have a problem. I suspect that this is happening. Of course, maybe it is that your typical millionaire is paying $500,000 per year and your typical billionaire is paying $750,000 per year. Not as bad a problem, but we still have a situation where the people who are most able to pay are not paying an equal amount.
Posted 2 years ago # -
gramarye
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What happens when one's net worth goes down by a billion or a few hundred million, as happened to several billionaires in 2008-2009? Do we create an analogue to NOL's to carry forward? When your net worth is largely in equities (which the net worth of most high net worth individuals is), your net worth can go up and down and up and down from year to year, not just up.
I think if we just taxed capital gains and dividends as ordinary income, we'd eliminate most of the preferential tax advantages of the truly upper crust, since that's where most of their income comes from. Getting rid of most deductions and credits would eliminate most of the remaining disparity, though some of those are also capped at levels that make them as friendly (or friendlier to the middle class as the wealthy). The flat cap of $16,500 for the 401(k) exclusion is much more useful to someone earning $80,000 than someone earning $1,000,000 plus 25,000 stock options, for example.
The netting trick Hugh notes (selling assets with long-term gains and losses in balance to create cash flow but no taxable income) is benign in my opinion: those losses offset against the capital gain are real losses, and the person selling them is indeed realizing that loss. If the asset later regains its former value, it will be someone else realizing that gain.
Posted 2 years ago # -
jimbach
Your father's Short North
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Bristol Bar wrote >>
I'd love to really simplify the tax code; sales tax only. No income tax, no death tax, no real estate tax, nothing.
Think about it; you could capture everyone (drug dealers, hookers, etc...) and encourage saving/reducing consumption all at the same time.
Voilla, problem solved.About the only good thing that would come of this is that your business would go under in about two months, if that.
Posted 2 years ago # -
Mercurius
First Avenue
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hugh59
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@gramarye: good points. I don't think we would need a parallel for NOLs with a backup net worth tax. Let's say your tax under the net income approach is $500K and your tax under the net worth approach is $1 million. You pay whichever is higher (using the net worth approach in this example). If the economy tanks and your net worth goes down, you would still calculate the tax the same way. If you lost half your net worth, that approach Would result in a tax of about half what it was before.
Your approach is simpler and is a very attractive one. There are a lot of good reasons to support your approach. Using caps is an effective way to limit the use of credits and deductions.
Posted 2 years ago # -
Bear
The woods
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rus wrote >>
Bear wrote >>
rus wrote >>
Which leads into the argument that tax "increases" ( OK, restored to previous levels... but people paying more in taxes would call it an increase, yes? )No. Republicans call them tax increases.
You're kidding me, right? Paying more money in taxes isn't an increase to you?
To me, allowing a tax cut to expire is allowing a tax cut to expire, and introducing a new tax increase is introducing a new tax increase. I'm capable of distinguishing between the two, even if the impact on my wallet is the same.
And referring to a soon-to-expire tax cut as a "tax increase" is just more boring partisan bullshit, because all it does is make it seem as though it's an active choice on the part of the present administration rather than a default policy put in place by the previous one. It's just transparent rhetoric designed to shift the blame, whoring out poor exhausted Truth one more time in exchange for a few votes from the uninformed and the unwary.
Posted 2 years ago # -
gramarye
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I don't think that the "default policy put in place by the previous one" argument carries much weight. Obama and the Democrats have had absolutely no problems ignoring Bush administration policies with which they disagree. This isn't like a courtroom in which case there is a mandated default option (not guilty/not liable) that needs to be overcome. Obama can choose to do nothing and let the tax cuts expire, but that is an affirmative choice to do nothing, not a passive acceptance of a default option left him by the Bush administration and the Congresses of 2001 and 2003.
I don't consider it blame-shifting. The legislature and president who passed the previous, time-limited cuts are gone. Some of the people remain in Congress, but they've all been reelected at least once since then if they're still around. It's blame-shifting to blame current decisions with which you're confronted (that you may not want to make, but which it's your job to make) on people who are no longer around.
Posted 2 years ago # -
Bristol Bar
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@jimbach-
Why would you consider us going under to be a good thing?
And how do you determine this? Just bars? Restaurants too would go under? Retail? All establishments/businesses that sell an item, or just ones you don't care for?
Please elaborate.
Posted 2 years ago #
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