This’ll be fun…
So let’s talk taxes. Discussions about economics always seem to lead to discussions about taxes, which in itself says something. Seems like taxes should be “invisible” — in that people don’t really spend too much time dwelling on them. Even though people will never be *happy* about paying taxes, it seems just about everyone thinks the tax code is royally screwing them (or people they know). Of course, money in general carries with it the power to make everyone inherently dissatisfied (especially in our consumer culture). Just about everyone, no matter how much they have, always wants more, because no amount of money can ever be enough. Contentment does not come from what you have, it’s an inside thing.
All that being said, a number of comments have been posted to the blog on the topic of taxes. I thought I’d share my vision on taxes with the world, and see what kind of (lively) responses I get.
- If the tax code cannot be written on the front and back of a single 8.5×11 sheet of paper, then it’s too long and should be rewritten. The concept that entire industries and shelf fulls of software packages exist just to help the average American navigate the tax code is beyond ridiculous through commical to just plain sad.
- Here’s what I’d put on the 8.5×11…
- Income tax is far more flat. Two buckets. A poverty line is developed and adjusted for inflation every year. Income below that line means that I pay NO income tax. Above that line, I pay a fixed percentage of my income to the government, similar to the way we do now. Three variables — the poverty line, the poverty line adjustment rate, and the income tax percentage. Say maybe $20k/yr, 3% and 20%. Thus people are much more fairly taxed on what they earn.
- Sales tax is federalized and works just like income tax. Below the poverty line, you are treated like a non-profit organization — you have the card in hand, so you pay no sales tax. Everyone else pays a fixed (probably much higher than today) sales tax. Say maybe 20% as well. Thus people are now taxed on what they spend, moreso than what they make. You aren’t penalized nearly as much for success, and “poor” people are exempt from taxes. Obviously the rub is for the guy making $21k/yr, but there will *ALWAYS* be some kind of line(s) at which things get hard. Adding 50,000 pages of tax code hasn’t made that go away, and I submit adding exceptions and exemptions and rebates and more tiers, etc never will. A fixed PERCENTAGE is fair.
- Property tax stays in play, as do corporate taxes. Can’t get around it as much as I hate it. One change here, though, is that I’d make it illegal for cities to bargain tax breaks with businesses to get them into town. That just royally screws the home owners; no way around it. Those businesses have an obligation to fund local infrastructure, such as schools, etc.
- I’m far less familiar with business tax code, so I can speak less to it. However, a couple things that I would do… This code should be dramatically simplified as well, hopefully similar to above. In addition, above a certain threshold of “harmfulness” (which I think should be determined by referendum — pure democratic vote — at the federal level, so that the concept can’t be hijacked by career politicians), I would have businesses pay extra taxes if they produce products harmful to the community. Smoking, drinking, gambling, porn, etc would have heavy taxes leveled against it, then these “vice revenues” would be used to fund schools, local assistance programs, community development programs, shelters, etc. It’s the least these companies (and the people who buy these products to make the companies viable) can do to help society deal with the crap they’re spewing out.
- No estate tax … at all. It’s totally unfair. Pretty fascist actually. I’m no fan of 2nd generation wealth, but that doesn’t give the government the right to come take half of what I’m trying to leave my children when I die. It’s grave robbing. And on top of that, this is the stuff I’ve managed to accumulate AFTER I paid taxes all my life. It’s taxing my income and all my stuff AGAIN. It’s just wrong, and we need to learn how to live without it. I just don’t believe in punishing people (actually, it’s not even them, it’s their children) for accumulating. Under the old estate tax laws (before Bush raised the limits), my father’s (blue collar worker all his life — two jobs for most of it) farm would have to be liquidated to cover the tax burden of his death. So, his prize possession — dreamed about since he was a kid, works on every day, loves — my brother and I would have to sell it to cover the estate tax. How is that right?
- So, state tax would be transparent, in that we’d just pay it and not have to file anything to the state. Property and business tax processes would continue similar to today. Federal tax would be payed on a website once a year, maybe once a quarter, and take an hour at most. The IRS should have about 25 employees, instead 115,000 (what it has today). If you figures these folks make $10/hr (ha!), then that’s a savings of $1M / hr (or $2.4B/yr) right off the top.
What would happen under the Jeff plan?
- Start with the easy stuff. The IRS. The actual IRS budget for FY 2005was $10.7B. We could stop throwing most of that money away. Yes, we have the fallout from these folks no longer having a job, but they could compete in the private sector then. Better for everyone. Maybe we even take the first year’s $11B savings, and devote it to helping them change careers. That’d be the least we could do for them. Also fallout from tax accountants having their industry go up in smoke, but it seems like they could be other kinds of accountants, actuaries, etc. No doubt there’d be an over-supply of math nerds quick, which would have some negative impact. But I think worth it.
- What about federal tax revenues? Federal tax revenue for 2005 was $2.15T (that’s with 12 zeros). If we go to more of a flat model, what would happen? Let’s use my $20k (pretty close to the actual number of $18,244, but let’s keep it round and simple) and 20% numbers above. The average American household makes about $45k. About 13% of the nation is “poor”. The number of households in the US is about 110M. So, it’s just math from there. 14.3M households are poor, and pay nothing. The other 95.7M pay 20% of their average income of $45k. Total federal tax revenue = $4.3T dollars — more than double what we brought in last year under our 66,498 page tax code. If 2005, the average tax burden per household was $20k. Under my plan, the average tax burden per household is $9,000 (20% of the $45k average income).
- What about state taxes? Well, considering that NOBODY pays anywhere close to 20%, I think it’s safe to say revenues would be through the roof there (without my taking the time to spell it out). So, of course my vote would to be dramatically lower the 20% INCOME rate, and put more of the burden on the sales tax side of things. If you combine this with cutting our spending by 25% (which I would absolutely make part of my “comprehensive” approach to taxes), I don’t see why we couldn’t all pay less and have far more money available to the government with far less complexity and a far more fair system.
Guess that’s it (until I think of something else). Either way, I’ve gotta get to real work. What do you think?
Technorati tags: tax, flat tax, fair tax, economics, tax code, estate tax
Breaking Away: Jeff Block's Blog 
JB,
I find the proposed RBTC (Reformed Block Tax Code) intriguing. I have a couple minor tweaks to suggest to the plan and then a bigger potential gotcha. The tweaks:
1. I’d suggest tying your poverty threshold increase to a benchmark like the CPI rather than establishing a fixed %. If you just pick a fixed number, politicians on both sides will endlessly try to increase or decrease that percentage. Conversely, if it’s tied to an inflation measure like CPI, it will automatically follow inflation, thus keeping the purchasing power of “the needy” constant and giving the stuffed shirts less to debate.
2. Re: The lamentable $21,000 dude getting pinched. It doesn’t have to happen that way. Make income below the poverty threshold tax-free for everyone EXACTLY as it is in our “progressive” system today. That makes it impossible to ever reduce your take-home pay by earning more. The $21,000 dude would only be taxed on the $1000 he makes above 20K and not the full $21K, therefore you’ve not encouraged people to hover around the poverty line. I wasn’t sure from your wording if this is what you meant, but I think it’s the way to go. The only challenge then is how not to hose the $21,000 w/ the sales-tax break you’ve tied to income. Have to give that some thought…
Now the potential gotcha, presented as an open question for Jeff or any other readers:
What do you think about the government’s (federal, state, or local) use of taxes to accomplish social goals? Jeff, you must be in favor of it to some degree given your “vice tax” proposal which uses taxes to punish a certain type of behavior (alcohol, porn, gambling, etc in your example). What about using the tax code to ENCOURAGE certain behavior? For example, should tithes still be tax deductible? What about interest on student loans (thus encouraging attainment of higher education)? What about tax breaks for environmental responsibility (purchasing a hybrid vehicle, use of non-oil fuel sources)? What about contributions to 401K’s or IRA’s (thus encouraging responsible saving for later in life rather than relying on a bail-out when it’s too late)? All very good things that we want in society and the government is in a unique position to be able to make them happen by using the tax code. If your code allows for these types of incentive, then you can kiss the single 8.5 x 11 sheet idea goodbye and you effectively lay the groundwork for an ever-growing tax code again. If you don’t allow for this type of incentive in the tax code, then how do you fill the gap and continue to encourage this type of positive behavior?
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Chris Miller is my hero! I love both your suggestions.
Re: your “bigger potential gotcha”… Thanks for raising this question.
At the end of the day, I want to stay clear of *most* of this. Like you said, it becomes an endless game of loopholes and exceptions, and yuck! Here’s what I’d do… Just as I suggested a few extrodinarily bad activities that should be penalized financially in society, I would propose we pick a few extrodinarily good things and reward them financially. I think these kinds of rewards would exist around education, savings and investment, if anything. But I would have some kind of limit. 5 pluses and 5 minuses, for example. If you think something is more worthy of a tax benefit / penalty, great, but that means you have to remove something else from the list. You only get 5 (or whatever low number that allows you to fit the code on an 8.5×11 sheet of paper).
This would then fall under a chapter in the Jeff Block Political Bible that we haven’t covered yet… “Politicians need to learn how to make tough choices.” “You can’t have it all.” “It’s never going to be totally fair for everybody.” Etc.
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JB,
Although philosophically disagree with the idea of a “flat tax”, if I was a current member of Congress, I would actually vote for your tax plan while your Republican buddies would bury the idea long before it reaches a subcommittee. Why? Because it would been the superrich (i.e. campaign donors) would have to pay a lot more in taxes than they are now, and the government would be much better funded than on the current system. The complexity of the tax code benefits mostly the wealthiest of America, and of course bereaucrats, accountants, and lawyers.
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SIDEBAR: I’d like the throw this question out there. JB relents that the fact the whole tax industry exists – the IRS, tax accountants, tax lawyers, tax software, etc. Is the tax industry necessarily a bad thing?
Yes – Money from other segments of society are sucked into an arbitrarlily created industry that doesn’t actually produce anything. (Thus, employing the zero-sum principle)
No – The industry creates high paying, not easliy exported jobs. Look at the Washington D.C. metro – one of the most affluent metropolises in the world – because of the huge concentration of middle class and upper middle class jobs. Wealth is definitely created. The question is…at what expense?
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A few random thoughts and questions about the JB “flat tax”. (Which, oddly enough, is much more progressive that what today’s Republican party is all about.
JB, what do you mean that state taxes are transparent? I didn’t understand what you were doing there. Are you proposing a change to how individual states can collect taxes? Surely, a conservative like you wouldn’t be bucking our 200+ years of federalism by allowing the federal government dictate how a state or local government taxes it’s citizens.
Reducing the IRS down to 25 people is a bit unrealistic. Even under a simplified tax code, you are going to have to have an army of accountants and lawyers at the ready because people will still try to evade taxes.
Eliminating the estate tax, while instating a national sales tax is particularly cruel to the working and middle class. No matter how unjust you believe it is, the estate tax is a great way to fund the government. The people who actually pay estate tax have to be so rich, that no one reading this blog will ever need to be concerned about it. This is money no one is counting on to make ends meet. No one is depending on this money. In fact, even JB abmits that 2nd generation wealth is not a good thing. The mere fact that “I’ve already paid taxes on it” and “I worked really hard to get it” is not a really strong argument. Sales tax, meanwhile is a regressive tax. It hurts the poor and middle class much more than the rich. I think this is something anyone reading this blog would understand, but I would happily explain if needed. JB partially accounts for it by exempting the poor, but it is still regressive. I cannot comprehend eliminating the estate tax while instating a national sales tax.
JB, does the “JBFT” only apply to income or to both income and capital gains? A very important distinction.
Some things to think about before reducing the tax code to an 8×11 paper. The current tax code is designed to allow the government to encourage (and thereby discourage) certain economic behaviors. The current tax code encourages all of these: getting married, having kids, buying a home, going to college, starting a business, exporting jobs to Bangalore, buying a hybrid, setting up offshore tax shelter, etc. Is giving this up something we want to do?
CM, to answer your question on vice taxes – under a Chris Nenn America vice taxes would be everywhere! The government should definitely tax things that are proven to be harmful and costly to society as a whole. People should be free to chose to do some of these things (i.e. porn, drink, gamble, tobacco, Martha Stewart), but it’s only fair that we as a society recover some of the cost of thier “vices”.
Despite many concerns about the JBFT, I still would vote for it under today’s current climate. It’s better than what the Republicans have crafted now. I don’t think the middle class will be better off under a JBFT, or that the rich would be paying an appropriate amount, but it’s a step in the right direction. Plus the government would be more adequately funded. Kudos to Jeff Block for not an entirely bad idea!
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A few more random thoughts to inject:
1. Nenn: The tax prep industry has no immunity to offshoring. There are some sticky issues with shipping confidential information out of the country, so most tax prep firms keep the tax filer identity info in house and just have the faceless number crunching done elsewhere. The net result is still a loss of US professional jobs and it definitely has many US CPA’s worried. (JB – if you’re looking for blog material, let’s hear your thoughts on outsourcing, offshoring, and the global economy. That could be lively.)
2. With regard to sales tax vs. estate tax. I like JB’s original proposal along those lines. I know the Nenns and the Blocks of the world aren’t likely to agree on this point, but here’s my two cents. Taxing income “punishes” earning income. Taxing sales “punishes” spending. One major side effect of taxing spending is to encourage saving, particularly if interest income/capital gains are not taxed or are taxed at a lower rate. It’s the whole opportunity cost argument. If immediate spending becomes relatively unattractive vs. saving, the balance will shift toward saving. Given this generation’s appetite for credit and immediate gratification, some encouragement toward saving would be a good thing.
As for the estate tax, the “I’ve already been taxed on it once” argument may not be strong enough for some people. For me, the “it only affects a small number of people, none of which are me or my friends” argument is also lacking. In my mind, it boils down to a question of justice, not can they afford it. Why is it RIGHT to treat some individuals more harshly than others because “they can afford it”? How is that any different than stealing office supplies from work because “they’re a big corporation and they can afford it”?
3. Regarding vice taxes. I hate to attack one of the major points that the cold-hearted conservative and the bleeding-heart liberal (both affectionate titles, guys) agree on, but vice taxes make me very nervous. What makes something bad enough to be taxed and who gets to make that determination? JB and CN both mention gambling as an example. Why is this a societal vice? How is it hurting society? While you may disagree with it and may choose not to engage in it yourself, does that make it “wrong” for society as a whole? Personally, I believe gambling – if done in moderation, as with all things – can be a legitimate form of entertainment, on par with watching a sports game, going to a movie, or partaking in a strategy game with friends (we need to do another one of those soon, BTW). Yes, it can be addictive, but is that the sole criteria for making it a vice? If you don’t have a grounded set of criteria for labeling something a vice, it becomes a slippery slope. What about fatty foods? Should I have to pay a premium to eat a big mac instead of a salad? Why does the government get to make that determination for me? In my mind, the more you encourage such policies, the more of our liberty we hand over to the government. No thanks.
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I will start by saying that I support estate tax and oppose sales tax (except some vice tax). Most people are ignorant as to the scope of estate tax, JB if your dad’d farm was worth less than $675,000 (2001) or $1.5 mil (2004) you would pay nothing. A good article on the subject http://moneycentral.msn.com/content/Retirementandwills/Planyourestate/P52707.asp As for a right or wrong argument, this money is not being taxed twice. In that argument if you followed a dollar bill for a month it would be taxed dozens of times. Money is not taxed, people are.
I know others will disagree, but I don’t see much difference between earned income, inherited income, and capital gains income (with the exception that the recipient was productive for the earned income).
As for sales tax, I can live with it but would be just as happy to see it go. I also would vote for the JBFT compared to what we have now.
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I must admit that I love “Miller Time!” Thanks Miller for making things interesting, so my bleeding heart has to respond to some of the comments. Although, I must admit my heart rarely bleeds for anyone, and JB is anything but cold-hearted.
1. Miller, you are dead right on the offshoring of accountant jobs. I finished Thomas Friedman’s “The World Is Flat” earlier this summer, and one of the examples of 21st century offshoring was in the field of tax accounting. I do believe that federal jobs and even tax accounting jobs could be easily “held hostage” here in the states by federal laws passed under the guise of “well, it’s just unamerican to hire foreigners to do your taxes. I still contend that this industry is relatively safer from offshoring as opposed to many others. I’d still be interested to hear your thoughts on my intial question. JB, like Miller I’m looking forward to the Globalization blog as well.
2. On the estate vs. sales tax debate, I think the Nenns and the Blocks of the world can come together if we look at this issue pragmatically and determine what’s best for society as a whole.
First of all, let’s look at a 20% blanket sales tax and see how it is regressive. A regressive tax system is the inverse of a progressive tax system whereby the poorer pay a higher percentage of thier income than the rich. I think we can all agree that a regressive tax system is NOT desirable economically, let alone just. The JBFT does address this in that the poor are exempt. However, that still makes just above the poverty line paying the highest percentage of thier income in sales tax.
Some may ask, “Prof. Nenn, how is it that a family making $40K pays a higher percentage of thier income in sales tax than a family making $100K. Surely, the $100K spends more than those $40K slobs.” Well, my young pupil, you are correct that Mr. 100K spends more. However, the 40K slobs must spend a higher percentage of thier income just to survive (housing, food, transportation, health care, etc.) than the $100K family. Because you must provide at least a minimal standard of living, under a nationalized sales tax, the poorer you are, you will have to pay a higher percentage of your income. There is much written about this, and economists agree that sales tax is in fact regressive.
Let’s discuss how the 20% sales tax plays out if it is in effect. What we are looking at is an immediate 20% jump in prices of EVERYTHING. What will this do to our economy? Surely, it will drastically decrease demand for product and services. Is our economy strong enough to handle this? Can we whether this storm? True, all of this will be offset by a decrease in income taxes under the JBFT. But aren’t the rich and the corporations that you Republicans represent hit with a double whammy here? You take away thier tax loopholes and raise thier prices on thier products in one foul swoop. Most of you on the Republican side support free trade, not protectionist tariffs because of the increased price in consumer goods. I strongly doubt many Republicans will stand for a 20% increase in the sales tax.
Now, we get to Miller’s point about encouraging the citizens of this fine country to be saving in lieu of spending. Interesting concept from a Republican. Wasn’t it George Bush who encouraged us to show our patriotism by going to the malls and spend like mad after 9/11? Nevertheless, Miller is right. Government needs to encourage responsible economic behavior (this ties into the vice taxes discussion). I believe there are more economically healthy ways to do this rather than punishing spending with a sales tax. Perhaps we should reward saving by offering tax benefits to the poor and middle class who save and invest thier money. Unfortunately, doing so will not fit in the 8.5×11 JBFT.
Man, I’m still on Miller’s #2 point. On to the estate tax! Miller, I agree that “none of my friends” have to pay it is not a very strong argument for me either. I threw that in there because JB implied that the estate tax applies to many middle and working class people. Incidently, I have no problem with Bush raising the exemption amount. However, I must argue that it is not only a question of justice (although I will get there), but it is in the best interests of our nation economically to fund the government through an estate tax rather than a sales tax. As I have said earlier, sales taxes are regressive and reduce demand. This is quite harmful to the economy. Meanwhile, the estate tax reduces the purchasing power of 2nd genration wealthy people. If you have to get the money to fund the government somewhere, the economy will be stronger funded by the estate tax. Now, you want to talk about justice. Please tell me why you see the sales tax, a tax system where the poor and middle class (who are trying to support thier families)pay a higher percentage of thier income, as more just than taxing dead rich people.
3. Vice City Time! I must defend the vice tax before my right winged friends do. Okay, Miller, you’ve already conceded that you would have government discourage certain undesireable economic behavior in that you would use the tax code to discourage spending. From there, it is no stretch to admit that the government should discourage other negative economic and social behaviors. Note that I said discourage…not forbid. I agree with Miller wholeheartedly that government should always err on the side of liberty.
However, we are not talking about taking anyone’s liberty away here. We are talking about the government encouraging or discouraging certain activities with economic incentives. Also, the government is trying to recoup some of the costs of certain choices it gives the liberty for its citizens to make.
Miller correctly asks how do you determine whether an activity is bad or not? Perhaps he contends that it is all relative and therefore the government shouldn’t even bother with it. I disagree. Lawmakers can reasonably determine using hard data which behaviors are most costly to society. I must admit that I’m not sure where I’d draw the line on what to tax, but I haven’t really studied it. But to say that just because I’m not sure where I’d draw the line to forget the whole vice tax thing completly is ludicrous. If it was something as serious as taking people’s liberty away, yeah I’d side with Miller on this one. However, when we’re only talking about taxes, I think it’s okay that the government moves up and down that old slippery slope. Perhaps a vice tax blog should be set up so we can determine some criteria here.
Incidently, beware of the slippery slope argument. (which Miller totally used appropriately and effectively this time.) A conservative history prof. once told me that the slippery slope argument is only used as a last resort of a dying cause. Once you get to the point where your only argument left is, “if x is allowed (even though I can’t think of any other reason why it shouldn’t be), y might follow” you are screwed!
4. Miller, do you really need me to explain how taxing wealthier people more is different than stealing office supplies?
5. Brad, you rock! Thanks for the website. I do see a difference between taxing money earned by labor(hard work) and taxing capital gains. If we aren’t taking capital gains, the idle rich enjoy our country for free while the 99% of us who work pay thier share. I just wanted to see where JB stands on this.
6. JB, you mention that property tax must stand as it currently is. My question is why do you stop here? Man, go for the gold! Let’s deal with this too. I’d love a discussion on property taxes. I think they are a terrible way to fund local government and schools.
7. Alas, one last question for my Republican friends. Your party has been in complete power for the past 6 years, and I still sense dissatification with the tax code. All must admit the Republicans have been pretty successful in achieving thier goals in the area of federal taxes. Will you continue to vote for them?
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Thanks, Nenn for your – as always – insightful input. This is a cool dialogue. Let me throw in a few responses.
1. I’m a little disturbed seeing capital appreciation and investing equated with “the idle rich”. Investing is a responsible activity that should be undertaken by all Americans, regardless of their income level. I started investing on day #1 of my working life, even though I started at a very modest salary. Doing so meant making some hard decisions and controlling my spending (which “we Republicans” have been COMPLETELY unable to do in Congress during our 6 years of power. Like JB has said, the Republicans have become almost completely indistinguishable from the Democrats these days, much to my frustration – another issue for another time). By delaying gratification and getting in the habit of socking some away, you make your money work for you and pave the way to financial independence. If we’re ever going to get to a world of personal responsibility, we’ve got to kill this notion of investing being only for the rich. EVERYONE should be saving and investing.
Incidently, the stereotypical view that Americans have of “the rich” is flawed. You’d never be able to identify the majority of this nation’s wealthiest people just by looking at them. Most of them aren’t driving a Mercedes and weren’t fed from silver spoons as children. The majority of the wealthiest individuals in the US are small business owners who have learned to live modestly and let their investments grow. These are hard-working individuals who have attained financial independence through smart living. Most of them are more comfortable in Buicks and bluejeans than BMW’s and Armani. (The flipside of that is that most of the people wearing the nice suits and driving the luxury vehicles are not counted among the richest people in this country). I highly recommend the book “The Millionaire Next Door” if you’re interested in the subject.
2. I appreciate your comments about regressive taxes. And I can see that perspective. I would generalize beyond just income level, however. I think a sales tax penalizes ANYONE who spends a large %age of their income. I can understand how part of that high-percentage-spend-group would include those who only make the bare minimum and I applaud measures like JB’s tax exemption for the lowest earners. But it doesn’t stop there. In today’s America, people of all income levels are spending WAY more on amassing stuff for today than putting away for tomorrow. People are living way beyond their means because we’ve made it so easy to do so. A higher sales tax would penalize everyone in THAT category as well and, as I’ve indicated previously, make saving a more attractive opportunity.
3. I absolutely concur with your comments on the slippery slope argument. The bald man paradox is a perfect example of that kind of fallacy (if I remove one hair from a full head of hair, does that make the man bald? No? What about one more hair? No? Then there’s no such thing as a bald man. Wrong conclusion!) With regard to vice taxes, I’m certainly not arguing that because the line is hard to draw, it should never be attempted. What I’m saying is that we shouldn’t set a precident that makes it easy to tax “just one more vice” as such a scenario could spin out of control and get ugly (govt imposed value systems, loss of liberty) fast. I don’t know what the “right” answer here is. I just know that I don’t want Uncle Same having ANY influence on what I eat, what I do for entertainment, etc.
4. I still haven’t seen anyone from the pro-estate-tax crowd tell me how they resolve the question of justice. Yes, my parallel between estate taxes and stealing office supplies is absurd, but it’s that way for a reason. The parallel between the two is legitimate – in both cases you’re talking about justifying a behavior because “they can afford it”. So what if they can afford it? How does that give anyone the right to treat them differently and reallocate their resources for them? Perceived “need” is not a legitimate justification for singling out a group for disparate treatment.
Great conversation folks! I’m learning a lot here – keep it up!
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One more quick point with regard to Nenn’s question about voting Republican…
Yes, the Republicans have cut taxes which I support. And yes, you sense correctly that there is still dissastifaction with the tax code. For me, the dissastifaction goes WAY beyond the tax code though. As Jeff indicated, it’s hard to tell the Republicans from the Democrats anymore because no one will stand up for anything that might be remotely contraversial (this applies to both Congress and the President, in my opinion). As long as they represent 1% more of my views than the other guy, then I have to vote for them even though they come nowhere near representing my overall views. It’s a terribly frustrating situation and I’m not entirely sure what can be done. I will continue to vote for the candidates that best represent my interests regardless of party affiliation.
Actually, I’ve been watching the crucifixion of Lieberman with great interest. While I’m sad to see his party turning on him (because I do respect the man though I disagree with many of his views), I’m encouraged to see the left standing up and saying “you don’t represent my values so out you go.” I would love to see the right make a similar stand with quasi-Republicans like McCain and demand that their representatives truly represent their beliefs. Power to the people!
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“I applaud measures like JB’s tax exemption for the lowest earners.”
“So what if they can afford it? How does that give anyone the right to treat them differently and reallocate their resources for them?”
I think my argument that you are taxing a person and not a dollar is a valid argument for estate tax. When a person recieves money the goverment taxes it.
Chris Miller, you seem to imply that you feel a progressive tax is unfair because you save money that would require you to pay more in taxes than one who spends. I disagree with your argument because of the many, MANY tax shelters a wise person can use while investing. If you are saving and investing purely to buy a private jet in 10 years why shouldn’t your money be taxed just like anyone else?
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Brad,
Thanks for your response. A few quick points in response…
First, I guess I don’t understand your “taxing a person, not a dollar argument.” Can you please elaborate? If you’re taxing the person, how do you justify taxing people differently?
Second, tax shelters are a cop-out. The whole idea behind JB’s post here is to cut through that BS and simplify the tax code to ensure that everyone pays their “fair share”. Defining what each person’s “fair share” is is no easy task, but once defined the system should be simple and leave minimal loopholes. I am absolutely in favor of a system that eliminates such shelters. Beyond eliminated loopholes in our code, enforcement actions should be taken for those who go outside the system. If you earn $ in the US and hide it offshore, you should be hunted down and tossed in prison. I don’t think anyone who’s commented on this blog so far will disagree with the goal of eliminating the shelters, so let’s not rely on them as a justification in the “fair share” debate.
Finally, I have a couple problems with the statement: “If you are saving and investing purely to buy a private jet in 10 years why shouldn’t your money be taxed just like anyone else?” First, you’re erroneously suggesting that the person hasn’t already paid taxes on that money to begin with. When they earned it, they were taxed on it through income taxes. If they were wealthy, they were taxed HEAVILY on it when they earned it (under a “progressive” system like we currently have). Then, when they risked it in a series of investments that (hopefully) paid off, they were taxed on any gains they made there. Now you’re telling me that when they die, their kids should be taxed on it a third time? I’m sorry, but there’s no justice there. That’s just robbing the guy because you think he can afford it.
My other problem with the statement is that you’re passing judgement on what the person is saving for (a private jet, in your example). How is that your judgement call to make? We live in a free society with a mostly-free market economy. No one can tell you how you can and can not spend your hard-earned money. Let’s not change that.
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1. What I am saying is that when a person inherits money, that money starts over. The previous tax that money saw was from a different owner. Therefore we are taxing the person, not the money.
2. 401k is a tax shelter. Not all shelters are bad. 529 is a tax shelter. I support shelters for saving that benefit society (affording your own retirement, college, etc). I believe U.S. tax shelters and hiding money offshore are 2 very different things.
3. I guess you misunderstood my statement, I am only referring to initial income taxes and taxes on gains only. Don’t forget that if you lose money on your investment you get to deduct that from your taxes (the government does try to play a little fair). As for the statement about the injustice of taxing the kid, see 1, and I will add we are not taxing the kid unless dad left him more than $2,000,000 (2006).
I was only passing judgement on what you were saving for to the extent that it would not qualify for a current tax shelter (i.e. retirement, college). And I confirm that I think income should not be exempt from tax if you are saving it to buy a private jet 😉
In this discussion I have realized that I like exemptions, some tax shelters, capital gains tax…..so, sorry Jeff, I guess I support a tax system that will not fit on 8.5 X 11, wait, what font can we use? 🙂
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“If you’re taxing the person, how do you justify taxing people differently?”
Forget to address this. I believe in a minimum standard of living. This standard has a cost to it. Anything above this standard is fair play for tax. Therefore different people will be taxed differently.
Yes, this means wealthier people are taxed higher than poorer people because they can afford it. I don’t view this as treating the rich more harshly, it is more like taking pity on those less fortunate.
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Wow… Trying to catch up…
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RE: “I would actually vote for your tax plan while your Republican buddies would bury the idea long before it reaches a subcommittee.”
Chris, why are they “my Replublican buddies” again? Didn’t I state clearly that I feel the Republicans are NOT doing a good job here? I hope this dialogue can remain more on the level of the ideas themselves than on who identifies more with which party.
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RE: “the government would be much better funded than on the current system”…
Keep in mind that I do NOT want the government to be better funded. I want them to be less funded and use what they have more wisely. I also want people to be more honest, and not steal as much as they do out of the government’s coffers. Note that I would not actually set the income tax percent I mentioned at 20% if it meant that the gov would be flooded with cash. Much lower, baby. I was illustrating the point that for the vast majority of Americans, a flat tax means both more fairness in taxes paid and less money out of their pockets.
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RE: “JB relents that the fact the whole tax industry exists”…
I feel it’s a waste of tax-payer dollars to fund an $11B/year industry that could be replaced by a single secure website. I have nothing against the people or the jobs they do. Miller is right when he says these jobs are NOT shielded from outsourcing, and he makes a good case I don’t need to rehash. Plus, I fundamentally disagree with the concept of having unnecessary jobs exist when they don’t need to exist. That’s the opposite of innovation. Might have been good for eras like the Great Depression, but certainly not now when we’re way far away from that.
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RE: “The estate tax is a great way to fund the government. The people who actually pay estate tax have to be so rich, that no one reading this blog will ever need to be concerned about it.”
You should rethink the math on that statement. Especially if the most recent increases in the estate tax limits were repealed (which is something the Democrats may very well do if they re-take the congress in the fall), then I submit that EVERY person who has commented on this blog would be effected. Even if it is not, I bet most of us will be. Property values in the US have increased on average 11%/yr for the last 20 years. If you purchased a 10 acre field in 1987 and paid $10,000 for it, it’s now worth $22k. Twenty years from now, it’s worth $51k. What about a $100k house in 1987? It’s worth $227k today and $515k in 20 years. Transplant that from averages to the Chicago suburbs, and I have to believe the effect is drmataically exaggerated. My dad’s farm is a lot more than 10 acres (and it’s in the middle of nowhere), the house I’m in cost more than $227k (and I’m WAY far way from the city), etc. Limits like $675k are just not that hard to cross. The 8.2 millionaire households in America qualify for sure, which is more than 7% of the nation. And it’s a lot more than just the value of my house. At my last employer, I had 5x my salary in life insurance. Even at the national average of $45k/yr, that’s another $225k to throw on the pile. I think way more people are effected than you think.
But put all that aside, and my major sticking point is still that it just isn’t right. I very much relate to Miller’s question above… “Why is it RIGHT to treat some individuals more harshly than others because <i>they can afford it</i>? How is that any different than stealing office supplies from work because <i>they’re a big corporation and they can afford it</i>?”
Nenn, can you address this? What would your answer be to these questions?
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RE: “Money is not taxed, people are.”
Interesting point, Brad. You’re technically right. But either way, what I have in my estate is what I have mananged to accumulate after a lifetime of being taxed on everything the government could imagine taxing. I simply find it unfair to then take half of what’s left. Example: I make $10. The government takes $3. Now I have $7. I spend $5, the government takes $0.50 in sales tax. Now I have $1.50. I save/invest it. Over the course of my lifetime, it grows to $20. When I take it out (assuming it wasn’t in a tax sheltered vehicle), the government taxes me again — say $5 on the $18.50 I made. Now I have $15. Then I die. After all that, you’re saying it’s fair and right that they should take $7-8 out of the $15 just because you can point to other people who only have $10 instead of $15? How does that work?
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RE: “Does the JBFT apply to capital gains?”
I think we should classify capital gains as one of the things we want to incent. The opposite of a vice tax. Then we’d tax them at a lower rate. Investment is one of the best things for the economy and the people in it. So, yes, they would be taxed at a lower rate to incent savings and investment.
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RE: “Vice taxes”. Nenn seems to be all for them. I worry his perspective would be too socialist. Miller seems to be very against them. I worry his perspective would be too libertarian. I’m in the middle, and here are two key features of my idea: 1) There is a limit on the number of these exemptions. That way you have to make tough choices for what does and does not go on the list. 2) These can only be radified by popular vote, so that they don’t become the weapons of the representatives. I’m not in favor of purist democracy in all cases, but this seems like a great place for this level of check-and-balance.
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RE: “One major side effect of taxing spending is to encourage saving, particularly if interest income/capital gains are not taxed or are taxed at a lower rate.”
Amen!
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RE: “If we aren’t taxing capital gains, the idle rich enjoy our country for free while the 99% of us who work pay thier share. I just wanted to see where JB stands on this.”
Miller already objected to this statement, and I want to chime in. This is a horrible way to look at it. You’re implying all kinds of negative things…
1) Rich people do nothing all day.
2) Rich people have it easy.
3) Rich people don’t do their fair share of work.
At the end of the day it just sounds like you don’t like people with more than you.
I’ll let you in on something in my life… The more I have, the HARDER I work, not the easier I have it. My father, blue collar, worked 2 jobs most of his life (until us kids were born) to have a bit of a nestegg put away for retirement. I’m curious how much wealth it takes to be “idle rich” in your mind? I have a feeling he and I would both qualify, and that would be really insulting, because I don’t know too many people who work harder than my dad and I do — in completely separate fields.
One of the richest people I know personally owns a $25M (or so) business. He is *very* rich by my standards (as in, compared to me), and could buy pretty much anything he wants at any time he wanted to. But here’s his life… Started a trailer leasing company over 40 years ago from nothing. Was a poor blue collar man at the time. He’s worked > 100 a week for 40 years, his wife divorcing him in the process. Now, he sleeps on a couch in the back of his office and is up every morning at 4:30AM to open the gates for his business, which employs mechanics, drivers, accountants, etc. MANY people depend on him for their livelihood. And he pays more tax than all of us commenting on this blog put together.
To Miller’s point, MANY of the people you’re calling “idle rich” are more like this guy than the tiny handful of movie stars or sports icons or Exxon CEO’s out there. So, my question to you is, define “rich”.
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RE: Property tax.
I’ll save that for another day. We obviously have enough to talk about.
Miller, in your honor, I have queued up a blog entry on outsourcing and globalization. You’re right; that’ll be fun!
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“After all that, you’re saying it’s fair and right that they should take $7-8 out of the $15 just because you can point to other people who only have $10 instead of $15? How does that work?”
I don’t understand where you got that from. I am justifying it because the money is changing ownership. And I supported Bush in raising the limits, which are now at $2 mil. And just because you cross that marker does not mean you immediately go to the %50 bracket. Also, If you inherit a farm you get a $860,000 deduction.
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