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Crafty_Dog
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« Reply #200 on: August 07, 2011, 12:56:07 PM »



"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands." --Thomas Jefferson, letter to James Madison, 1784


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DougMacG
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« Reply #201 on: August 07, 2011, 01:28:58 PM »

Federal taxes of 1794 would be great.  How about a return to the fundamentals that FDR started with social security, a 1% old age insurance tax with the payout age set 7 years beyond worker life expectancy.  These days he would be called a tea party terrorist, though he was far more extreme.
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JDN
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« Reply #202 on: August 07, 2011, 01:51:48 PM »

Federal taxes of 1794 would be great.  How about a return to the fundamentals that FDR started with social security, a 1% old age insurance tax with the payout age set 7 years beyond worker life expectancy.  These days he would be called a tea party terrorist, though he was far more extreme.

I'm confused.  It seems to me FDR started the age 65 payout date. 

Also, how can you set a payout date 7 years BEYOND worker's life expectancy?  Only a few, the few who lived more than 7 years beyond their life expectancy,
would collect any money.  This is rather extreme.   huh

http://www.ssa.gov/history/35actii.html
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DougMacG
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« Reply #203 on: August 07, 2011, 02:49:43 PM »

I can't tell if you are disagreeing with my characterization or his policy.

I took that from the SSA life expectancy page;the majority of workers were men at that time.  I'm sure there are plenty of other ways to look at it, like yesterday's revelation that oral surgeons clean teeth.  Life expectancy of your teeth, BTW, in the 1930s was less than 58 years.  Do you disagree with the 1% tax too?  Is there any difference in terms of productive disincentives between that (1%) and now, a self employment tax of 15.3% ? http://www.irs.gov/businesses/small/article/0,,id=98846,00.html   When you are done quibbling, the point remains that we are nowhere near the insure-against-outliving-your-ability-to-work vision that FDR first articulated.  People retire very often early, healthy and generally far wealthier than the younger workers who labor to help support them, instead of investing in their own challenges and opportunities.  It is a Ponzi scheme, not a lockbox, an insurance policy, or a savings plan.

Life Expectancy for Social Security

If we look at life expectancy statistics from the 1930s we might come to the conclusion that the Social Security program was designed in such a way that people would work for many years paying in taxes, but would not live long enough to collect benefits. Life expectancy at birth in 1930 was indeed only 58 for men and 62 for women, and the retirement age was 65.
http://www.ssa.gov/history/lifeexpect.html
« Last Edit: August 07, 2011, 02:53:54 PM by DougMacG » Logged
G M
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« Reply #204 on: August 07, 2011, 03:08:27 PM »

http://blogs.forbes.com/deanzarras/2011/03/11/why-social-security-is-a-ponzi-scheme/

Why Social Security is a Ponzi Scheme
Mar. 11 2011 - 5:09 pm
By DEAN ZARRAS
Want a recipe for ruckus? Merely suggest that Social Security might be a “Ponzi scheme”.  You might even end up on Drudge Report.  Yet the facts bear out the thesis, as we shall see…

For starters, let’s be clear on what a Ponzi scheme is.


Charles Ponzi -- Image via Wikipedia

Say you’re in a scheming kind of mood and looking to get rich off it.   Say you’re Bernie Madoff!   You start by convincing a small group of people, say five of them, to each give you some money, say $1,000, with the promise that each month thereafter, you’re going to give them $50 back.   That works out to $600 over the year, or a 60% rate of return.   Not too shabby!   These people are a little skeptical at first, but the promised 60% rate of return seems worth the risk.     So you collect $5,000, but pay out $600 to each of these five people, $3,000 in total, leaving you ahead by $2000 at year end.   So far so good — stick with me…

Here’s how you’ll fund the $3,000 you’re going to pay to those five people.

Not long after the first five, you find ten other people to also give you $1000, with the promise that they, too, will get $50 back each month thereafter.  You take in $10,000, and over the course of the year, you pay back the $3,000 to the first group of five people, leaving you with $7,000 from the group of ten, plus the full $5,000 from the group of five, for a total of $12,000.   But you still owe the group of ten $6,000.    That’s OK, because after you pay them, you’re still ahead by $6,000.

You can repeat the same funding mechanism to pay back that group of ten.    Find another ten people, or ideally, more than ten, promise each of them $50 a month, and pay them by using the incoming cash from yet another group of people.  Keep this going for a while and all the people earning 60% a year on their money might even turn you on to their friends.   It almost seems like a virtuous circle.

All the math for this will work out great provided you play by some simple rules.  You absolutely must keep finding more people to pay in.   You might need to start promising a lower return to new “investors”, just to help the math.   Oh, and you’ll want to keep everyone in the dark about what’s really going on.

But eventually there just aren’t enough people in the world to solicit.  And eventually some smart cookies begin to suspect too much of a good thing, and start asking pesky questions.

Now let’s examine Social Security.


Image via Wikipedia

When Social Security was started in 1935, workers paid 2% of their first $3,000 earned, or a maximum of $60.   Of course, only those aged 65 and older could collect anything, and many of those collectors conveniently died not long thereafter.   So even without full participation by every wage earner, the number of people paying in dwarfed those being paid out, and money began to pile up in what became known as the “Social Security Trust Fund”.

As trends (and thankfully, lifespans) have changed, the payer/payee relationship has not stayed constant.   Michael Tanner of the Cato Institute documents some of the demographics as follows:

In 1950, there were 16 workers paying taxes into the system for every retiree who was taking benefits out of it. Today, there are a little more than three. By the time the baby boomers retire, there will be just two workers who will have to pay all the taxes to support every one retiree.

- “Social Security: Follow the Math”, Michael Tanner, 1/14/2005

Think Cato’s some radical right-wing organization?  Ok then, let’s see what the official Social Security Online website has to say in their 2010 summary:


Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084.

So there’s your admission that this scheme has run its course, and even an admission that without legislative changes, people will be getting less than they thought.

Some people say, “There’s no problem here – just raise taxes further until we get the money that we need.”  But what started at 2% has now become 12.4% when both the employee’s and the employer’s portions are considered.    And keep in mind that the half paid by the employer represents monies that by definition can’t be paid to the employees or investors in the form of additional wages and/or returns.    As the saying goes, corporations don’t pay taxes.  People pay taxes.

Furthermore, the idea that we can just raise taxes and hit some projected revenue increase is fatally flawed by static analysis — the idea that people don’t respond to incentives and penalties.  Tax increases routinely fail to yield the originally projected revenue.  Lastly, you have to be willing to legislatively seize a lot of property that just doesn’t belong to you (regardless of what Michael Moore might say).

It’s not as if Franklin D. Roosevelt set out to create a Ponzi scheme.  To this day, the nature of the system is fully disclosed, although now things are so scary that most people don’t want to look.   Even when a few people are asked to look, like the recent commission headed by Alan Simpson and Erskine Bowles,  the very President doing the asking looks away.    In the meantime, people who do know that the scheme is mathematically unsustainable are drafting battle plans against those who might, horrors!, try to give some control over the situation back to individuals.

Like so many government programs, Social Security started off with great intentions, but morphed into something else.  Some people refute the Ponzi scheme comparison largely on the grounds that unlike a traditional Ponzi scheme, Social Security is completely disclosed, was never sold to as a way to make anyone rich, and that it has good intentions rooted in compassion for the poor.

Hold on to your wallets.   Just because a fraud is being perpetuated in full view doesn’t mean it’s not a fraud.   It simply means people are either not paying attention, or don’t understand what they’re looking at.   Regarding not trying to make anyone rich, that’s precisely correct, if only ironically.  The creation of Social Security probably did incalculable damage by disincentivizing saving and investing.  It ratcheted up moral hazard big time, and nudged untold millions of people into looking towards government for solutions, rather than to themselves and the private sector.   And as for good intentions, isn’t that what a certain road to a certain nasty place is paved with?   Or at the minimum, The Road to Serfdom?

What’s that saying about walking and talking like a duck?
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JDN
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« Reply #205 on: August 07, 2011, 03:14:52 PM »

I was merely pointing out that SS started under FDR at age 65.  Further, it is an actuarial fallacy to say "that people would work for many years paying in taxes, but would not live long enough to collect benefits. Life expectancy at birth in 1930 was indeed only 58 for men and 62 for women, and the retirement age was 65." but this is life expectancy at birth, not life expectancy once one has achieved working age.  Frankly, the age differences of people once they have achieved working age (21) compared to today is not that great. Read your own reference source.

What has happened is that SS has been amended and severely expanded over and over.  Wrong or right, I am not sure, but that's why it's a Ponzi scheme. 

However, I do know that without a base Social Security plan many old people would be destitute.  A "voluntary" plan simply won't work.  People always have expenses and will pay bills today rather than save for the future.  But tomorrow does come...

On the other hand, I see nothing wrong with gradually raising the beginning age from 65 to 67, maybe even 70.  We need a bipartisan decision,
otherwise no party unless they are suicidal will cut SS benefits. 
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G M
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« Reply #206 on: August 07, 2011, 03:34:18 PM »

"On the other hand, I see nothing wrong with gradually raising the beginning age from 65 to 67, maybe even 70.  We need a bipartisan decision,
otherwise no party unless they are suicidal will cut SS benefits."


Um, we are beyond broke. There is no magic money tree to create the money needed to pay for the promised SS bennies for the baby boomers. Maybe raising the age to 100 might work....
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G M
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« Reply #207 on: August 07, 2011, 03:35:34 PM »




With a moment of lucidity from Ron Paul, as a bonus!
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JDN
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« Reply #208 on: August 10, 2011, 09:42:32 AM »

New CNN Poll: Majority want tax increase for wealthy and deep spending cuts
   
Washington (CNN) - Most Americans want a special congressional committee tasked with drafting a long-term solution to the nation's mounting federal deficits to include tax hikes for the wealthy and businesses and deep cuts in domestic spending, according to a new national survey.
A CNN/ORC International Poll released Wednesday also indicates that the public doesn't want the super committee to propose major changes to Social Security and Medicare or increase taxes on middle class and lower-income Americans.
Read full results (PDF).

Under the debt ceiling deal passed by Congress and signed by President Barack Obama last week, a panel of 12 legislators - six Democrats and six Republicans, equally divided between the House and Senate - will be created to try to work out $1.5 trillion in deficit reduction after an initial round of more than $900 billion in spending cuts.

If the committee fails to reach agreement or Congress fails to pass whatever package it recommends, a trigger mechanism will enact further across-the-board cuts in government spending, including for the military.
According to the poll, 63 percent say the super committee should call for increased taxes on higher-income Americans and businesses, with 36 percent disagreeing. And by a 57 to 40 percent margin they say the committee's deficit reduction proposal should include major cuts in domestic spending.
But cuts in defense spending get a mixed review: Forty-seven percent would like the committee to include major cuts in military spending, with 53 percent saying no to such cuts.

Nearly two-thirds say no to major changes to Social Security and Medicare. And nearly nine in ten don't want any increase in taxes on middle class and lower income Americans.

"Republicans and Democrats disagree on the need for cuts in domestic and military spending, as well as tax increases for higher-income Americans, but they do agree that the committee should stay away from tax hikes for the middle class and major changes to Social Security and Medicare," says CNN Polling Director Keating Holland.

According to the survey, only a third say that taxes on wealthy people should be kept low because higher-income Americans help create jobs, with 62 percent saying that taxes on the wealthy should be high so the government can use the money for programs to help lower-income Americans.
"That sentiment has changed little since the 1990s," adds Holland.

The CNN poll was conducted by ORC International on August 5-7, with 1,008 adult Americans questioned by telephone. The survey was conducted both before and after Friday night's downgrading of the country's credit rating by Standard and Poor's. The poll's overall sampling error is plus or minus three percentage points.

http://politicalticker.blogs.cnn.com/2011/08/10/new-cnn-poll-majority-want-tax-increase-for-wealthy-and-deep-spending-cuts/?hpt=hp_t1
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Crafty_Dog
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« Reply #209 on: August 10, 2011, 09:53:56 AM »

Even though I don't really trust CNN and thus wonder if the numbers are exaggerated, I can't say that I doubt them being in the right direction.  There is a reason one of the Ten Commandments is about not coveting they neighbor's stuff-- envy and the politics of envy come as easily to human nature as they are destructive.

The Republicans and the Tea Party are going to need to man up on this and frontally attack on the basis of exposing just how dishonest the numbers the Progressives are and just how bad the Truth is and how little even 100% taxes would actually accomplish.  Congressman Ryan is the best I have seen at this.
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JDN
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« Reply #210 on: August 15, 2011, 10:10:30 AM »

 Billionaire investor Warren Buffett, saying he doesn't want to be "coddled" by Congress, says that wealthier Americans should pay higher taxes, and that higher taxes do not dampen job growth.

Buffett, chief executive of Berkshire Hathaway (BRKA, Fortune 500), wrote in an op-ed piece published Monday in The New York Times that taxes should be raised on Americans who make at least $1 million per year.

"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks," wrote Buffett, who has mentioned in past interviews that the rich should pay higher taxes.

The philanthropist said that his 2010 federal tax bill, including income and payroll taxes, was $6,938,744.
"That sounds like a lot of money," wrote the Omaha, Neb.-based billionaire. "But what I paid was only 17.4% of my taxable income - and that's actually a lower percentage than was paid by any of the other 20 people in our office."

He added that some investment managers were taxed only 15% on billions of dollars in income. He compared that to the middle class, with its income tax bracket of up to 25%.

He said that 40 million jobs were created between 1980 and 2000, when the tax rate for the rich was higher than it is now. "You know what's happened since then: lower tax rates and far lower job creation," he wrote.

Buffett proposed that Congress impose a higher tax rate on millionaires, and an even higher tax rate on those making at least $10 million per year.
"My friends and I have been coddled long enough by a billionaire-friendly Congress," he wrote. "It's time for our government to get serious about shared sacrifice."
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G M
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« Reply #211 on: August 15, 2011, 10:13:36 AM »

Dear Warren,

Whip out the checkbook and write out one for 5 billion to the US Treasury.


Until then, STFU.


Thanks!

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G M
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« Reply #212 on: August 15, 2011, 10:19:36 AM »

Dear Warren,

Whip out the checkbook and write out one for 5 billion to the US Treasury.


Until then, STFU.


Thanks!


How do you make a contribution to reduce the debt?

There are two ways for you to make a contribution to reduce the debt:
•You can make a contribution online either by credit card, checking or savings account at Pay.gov
•You can write a check payable to the Bureau of the Public Debt, and in the memo section, notate that it's a Gift to reduce the Debt Held by the Public. Mail your check to:

Attn Dept G
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188
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Crafty_Dog
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« Reply #213 on: August 19, 2011, 09:00:19 PM »



http://www.youtube.com/watch?v=MqoGORXAv2o&feature=player_embedded
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Crafty_Dog
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« Reply #214 on: August 24, 2011, 10:40:24 AM »

By ERNEST S. CHRISTIAN
AND GARY A. ROBBINS
President Obama is now talking about a "balanced approach" to deficit reduction that includes a "revenue component" achieved by "tax reform."

Among the tax reforms getting attention is a value-added tax, or VAT. Similar to a sales tax (more about this below), the value-added tax has become a significant part of the revenue systems of Europe and also has been adopted by over 100 other nations. The VAT is believed to be a magical device that can stuff government coffers with money without untoward economic political consequences. It is no such thing.

In the first place, increasing taxes will reduce economic growth. This is irrational and self-defeating policy. If the point of the current debt-ceiling exercise is to make the American people better off, the smart thing is to restore long-term fiscal integrity and economic growth with a balanced combination of spending reductions and tax cuts.

On the other hand, a VAT is the ideal choice for those whose goal is to refinance government sufficiently to allow it not only to continue "business as usual" but also to expand on a grand scale.

We estimate that each percentage point of a U.S. VAT would provide Washington over 10 years with approximately $981 billion with which to launch new spending. So even a small VAT might help reduce the debt-to-GDP ratio. But by making reforms to entitlement spending less likely, VAT revenues would also lead to a permanent increase in spending to 24% or more of GDP (compared to the historic average of 20%).

View Full Image

Martin Kozlowski
 .Total federal taxes would almost certainly increase to at least 24% of GDP (a 25% rise compared to the historic average). As a result of the drag of taxes on growth, we estimate that long-run output would permanently be nearly 3% lower than currently forecast. And, as has occurred in Europe, the VAT rate and revenues would over time inexorably increase—and so would the damage to private-sector jobs and incomes.

We estimate that each additional $1 trillion of revenue to the government from a VAT would cost the private economy at least $2 trillion, composed of $1 trillion of taxes and $1 trillion of lost GDP. This loss of GDP is less than what other economists (such as Martin Feldstein and Gregory Mankiw) have estimated would be the case for the income tax. A VAT thus appears less damaging at the outset, and some academics suggest that a small VAT be used to "buy" a reduction in the top income tax rate. But it is naïve to believe that the VAT rate would remain low, or that the income tax rate would not shoot back up.

In Europe, the VAT rate started out in the single digits in France in the 1950s. But because the VAT funds Europe's ever-expanding welfare state, the rates now range from a minimum of 15% to a high of 25%, and they are heading upward.

In Europe, the VAT on top of the income tax is a crushing burden. In France, where the VAT rate is 19.6%, total tax as a percentage of GDP is 46%, versus 30% in the United States. Britain now has a 20% VAT in addition to a 50% top rate on its personal income tax, a 26% corporate tax and a host of other taxes. Even if a U.S. VAT remained in the midrange of rates compared to Europe, it could easily push the total tax burden up to 40% of GDP.

In addition to its voracious appetite, the value-added tax is a master of disguise. Because it is levied on the sale of a product at each stage of production—whenever value is added—and at the final sale, the VAT is portrayed as a tax on consumption. The French once illustrated the VAT with an example: The farmer passes the tax to the miller, the miller passes it to the baker and the baker includes it in the price of bread. Ever since, the VAT has for political purposes been viewed as a burden on the consumer, thereby providing politicians with an excuse for "compensating" large numbers of favored voters with disproportionately large cash subsidies or exemptions.

Offsetting consumer subsidies would occur in spades in America, where the tax system has traditionally been preoccupied with "progressivity" and used to redistribute income.

The VAT isn't really a consumption tax, however. The truth is that the base of the VAT is the output of labor and capital—and, therefore, the economic burden of the VAT is, like that of the income tax, borne mostly by those who work, invest and produce the most output.

It is disturbing to consider a value-added tax sneaking into our current tax code disguised as tax reform. The outcome will be more spending, a higher combined income tax and VAT tax burden concentrated on a minority of voters, and a spate of special redistributional subsidies and exemptions that would mean higher rates. These higher rates would increase the economic output losses and continue the ongoing transfer of income and capital from the private sector to the government.

If Republicans get sucker-punched by a VAT, America will forever lose the opportunity to reduce spending, cut taxes, grow the private economy, and restore the country's long-term fiscal integrity.

Mr. Christian is co-author of "The Value Added Tax: Orthodoxy and New Thinking" (Kluwer, 1989) and director of the Center for Strategic Tax Ref
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Crafty_Dog
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« Reply #215 on: August 29, 2011, 10:47:24 PM »

WSJ:

For a guy who spends a lot of time advocating for higher taxes, Warren Buffett does a remarkably good job of minimizing his own corporate tax bill. This is all to the good for Mr. Buffett and his fellow Berkshire Hathaway shareholders, who no doubt can invest the money more wisely than the federal government is likely to do.

Mr. Buffett's recent decision to invest in Bank of America represents another tax-avoidance triumph for the Berkshire chief executive. U.S. corporations are subject to a top federal income tax rate of 35%, the second highest in the world. But the Journal's Erik Holm notes that Mr. Buffett and the Berkshire bunch won't pay anything close to that on their investment in BofA preferred shares.

That's because corporations can exclude from taxation 70% of the dividends they receive from an investment in another corporation. This exclusion is intended to prevent double- or even triple-taxation as money is earned by one company, paid to another company and then ultimately paid out to shareholders. The policy makes sense; we only wonder why the exclusion isn't 100%.

With the 70% exclusion for Mr. Buffett and his fellow shareholders, Berkshire will enjoy an effective tax rate of 10.5% on the $300 million in dividends it will receive each year from Bank of America.

We're tempted to suggest that Mr. Buffett should do what he might call the patriotic thing and volunteer Berkshire to pay the full 35% rate as a good corporate citizen. But even if Mr. Buffett won't say it, most Americans know that more jobs will be created if the money is deployed by the Berkshire bunch than by the Beltway boys.

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DougMacG
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« Reply #216 on: September 09, 2011, 12:10:01 PM »

"Lets take that to the Tax thread please." (from 'Glibness')

The mortgage deduction and charitable contributions will be the last two to go.  In theory, I prefer very low rates and no deductions with no social engineering, but the home mortgage deduction was a very long institution of encouraging home ownership, neighborhoods, stability that people have long relied on.  This is not a great time in housing to make things dramatically worse, nor does that save us money, see housing thread.  If we did, a multi-year phase out does less damage.  Don't we already cap and limit the mortgage deduction?

The point is IMO, is get the garbage out of the tax code, get the rates down to what a rich person with options would be willing to pay and you will get more growth and more tax collections.
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Crafty_Dog
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« Reply #217 on: September 13, 2011, 08:39:52 AM »



By ARTHUR LAFFER
Some people actually believe government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs. They call this demand stimulus. To make matters worse, other people think these demand-stimulus ideas warrant a serious response.

Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won't speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don't work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.

I'm beginning to think that Irving Kristol was correct when he wrote, "It takes a Ph.D. in economics not to be able to understand the obvious." It shouldn't surprise anyone why the economy isn't getting better.

If the U.S. wants prosperity, government doesn't need to do something, it needs to undo much of what it already has done. Here is one area where, in the spirit of the late Congressman Jack Kemp, President Obama and I could agree.

African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn't even take into account "discouraged" workers, "involuntary" part-time workers and "underemployed" workers. But even these numbers don't tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.

Enlarge Image

Close...Behind these numbers are millions of lives discouraged and despondent. People who've lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he's living on handouts from Uncle Sam. We as a nation can't wait until 2013 to address this issue.

Whether President Obama's base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.

Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:

A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer's portion of the payroll tax. The locus of employment does have to be in the enterprise zone.

Don't for a moment think that this will be a budget buster. Right now there aren't many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won't need welfare. The best form of welfare is still a good job.

B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren't worth hiring. That is why they are unemployed.

Enlarge Image

CloseAssociated Press
 
A job seeker fills out an application with Coca-Cola at a jobs fair hosted by the Congressional Black Caucus in Miami.
.Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones.

C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don't unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like.

When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I'll bet they're even worse now.

D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders.

Businesses don't move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It's as simple as that.

I guarantee Mr. Obama that he will receive the support necessary to carry the day in Congress. And once he sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country.

Mr. Laffer, chairman of Laffer Associates, is co-author, with Stephen Moore, of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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DougMacG
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« Reply #218 on: September 13, 2011, 10:02:21 AM »

Art Laffer is perhaps my favorite on policy but on enterprise zones I think he is half right.

He ends with: "he can then extend enterprise zones to cover the whole country", but that is the whole point.  The USA needs to become one large enterprise zone and entice the able mind and bodied who are unproductive among us to join in.

Our ex-Gov. here (Pawlenty) had a program like this, and as Laffer is suggesting, it is a way of letting a little freedom out of the gate in a leftist-run electorate.  But it still extends and validates the piecemeal, left-Dem strategy of targeting this and targeting that instead of applying all laws evenly to everyone.

He is right about these dysfunctional inner city zones in America where enterprise is dead and gone.  In local political arguments I challenge liberals to name one profit seeking competitive enterprise who has started, relocated, expanded, hired, built anything that is unsubsidized in left ruled North Minneapolis and the same could be said for the south side of Chicago, east L.A., most of Detroit etc.  Why can't these locations produce and compete?  The question is complicated but waiving all rules and all taxes is just a better form of selective subsidy and unequal treatment that plagues our tax code already.

Laffer's idea is what Obama as a liberal should have chosen instead of more tax and spend.  Our side should be designing and articulating a realistic and sustainable framework for the entire nation.  And our side should be calling for implementation now, not in 2013, and pin the obstructionism on their side. 

To go from a culture where people don't work and get paid anyway to a culture where people work but don't have to pay in what the rest of us do is a continuation of what is fundamentally wrong IMHO.

It reminds me of a similar error made by Pres. Reagan.  His tax cuts were not only across the board but would remove million of taxpayers off the rolls altogether, he bragged.  That helped to sell his program to the Dem votes he needed and I'm glad it passed, but that aspect of it in hindsight was shortsighted.
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DougMacG
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« Reply #219 on: September 13, 2011, 08:59:57 PM »

It turns out that the super secret jobs program that waited for the vacation but couldn't that couldn't wait until Thursday or until the second part was written, that we have to pass and was only half introduced at the over-hyped session, to be paid for later, was tax increases on job creators that already failed in congress and spread the wealth measures to Democrat core constituent groups.  This WSJ Editorial recognizes that the incentive measures are temporary and the tax hikes are permanent.  Who knew?

Obviously, this whole thing is a congress trap.  President Obama has no intention of getting this snake oil passed.  Just looking for an issue and a scapegoat.
---------
http://online.wsj.com/article/SB10001424053111904353504576567460396287134.html?mod=WSJ_Opinion_LEADTop
    * SEPTEMBER 14, 2011,  Review and Outlook

The 2013 Tax Cliff
Business had better enjoy the next 16 months.

President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.

Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.

What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let's call the expensive roll:

• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.

• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama's new jobs program. This would mean a tax hit of $240 billion on small business and workers. That's the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.

So even if the White House is right that its latest stimulus plan will create "millions of jobs" through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.

• January 2013 is also the same month that Mr. Obama wants the Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress's Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.

The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.

• Also starting in 2013 are two of ObamaCare's biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.

The White House's economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.

Cato Institute economist Dan Mitchell on President Obama's proposed tax hikes and the increase in the poverty rate.

The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.

All of this assumes that American business owners aren't smart enough to look beyond the next few months. They can surely see the new burdens they'll face in 2013, and they aren't about to load up on new employees or take new large risks if they aren't sure what their costs will be in 16 months. They can also reasonably wonder whether Mr. Obama's tax hike will hurt the overall economy in 2013—another reason to be cautious now.

For the White House, the policy calendar is dictated above all by the political necessities of the 2012 election. Mr. Obama will take his chances on 2013 if he can cajole the private economy to create enough new jobs over the next year to win re-election, even if those jobs and growth are temporary. Business owners and workers who would prefer to prosper beyond Election Day aren't likely to share Mr. Obama's enthusiasm once they see the great tax cliff approaching. Look out below.
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G M
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« Reply #220 on: September 13, 2011, 09:06:43 PM »

Tax the job creators to create jobs.



Brilliant.
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« Reply #221 on: September 15, 2011, 08:23:22 AM »

http://online.wsj.com/article/SB10001424053111904353504576567460396287134.html?mod=djemEditorialPage_h

President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.

 Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.

What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let's call the expensive roll:

• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.

• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama's new jobs program. This would mean a tax hit of $240 billion on small business and workers. That's the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.

So even if the White House is right that its latest stimulus plan will create "millions of jobs" through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.

• January 2013 is also the same month that Mr. Obama wants the

Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress's Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.

The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.

• Also starting in 2013 are two of ObamaCare's biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.

The White House's economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.

Related Video
 
WSJ Editorial board member Steve Moore on President Obama's plan to pay for temporary tax cuts by hiking income and business taxes over the long haul.
..
The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.

All of this assumes that American business owners aren't smart enough to look beyond the next few months. They can surely see the new burdens they'll face in 2013, and they aren't about to load up on new employees or take new large risks if they aren't sure what their costs will be in 16 months. They can also reasonably wonder whether Mr. Obama's tax hike will hurt the overall economy in 2013—another reason to be cautious now.
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Crafty_Dog
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« Reply #222 on: September 22, 2011, 07:12:03 AM »

The final three sentences contain some highly objectionable hyperbole, but the content of the piece is most worthy of attention.
==========================

The Attack on Accidental Americans
by Wendy McElroy on September 21, 2011

When Julie Veilleux discovered she was American, she went to the nearest US embassy to renounce her citizenship. Having lived in Canada since she was a young child, the 48-year-old had no idea she carried the burden of dual citizenship. But the renunciation will not clear away the past ten years of penalties with the Internal Revenue Service (IRS).[1]

Born to American parents living in Canada, Kerry Knoll's two teenaged daughters had no clue they became dual citizens at birth. (An American parent confers such status on Canadian-born children.[2] ) Now the IRS wants to grab at money they earned in Canada from summer jobs; the girls had hoped to use their RESPs (registered education savings plans) for college.[3]

The IRS is making a worldwide push to squeeze money from Americans living abroad and from anyone who holds dual citizenship, whether they know it or not. It doesn't matter if the "duals" want US status, have never set foot on US soil, or never conducted business with an American. It doesn't matter if those targeted owe a single cent to the IRS. Unlike almost every other nation in the world, the United States requires citizens living abroad to file tax forms on the money they do not owe as well as to report foreign bank accounts or holdings such as stocks or RSSPs. The possible penalty for not reporting is $10,000 per "disclosed asset" per year.

Thus, Americans and dual citizens living in Canada (or elsewhere) who do not disclose their local checking account — now labeled by the IRS as "an illegal offshore account" — are liable for fines that stretch back ten years and might amount to $100,000. A family, like the Knolls, in which there are two American parents and two dual-citizen children, might be collectively liable for $400,000.

Approximately 7 million Americans live abroad. According to the IRS, they received upwards of 400,000 tax returns from expatriates last year — a compliance rate of approximately 6 percent. Presumably the compliance of dual-citizen children is far lower. Customs and Immigration is now sharing information with the IRS and, should any of 94 percent expats or their accidentally American offspring set foot on US soil, they are vulnerable to arrest.

Why Now?
As of 8:30 a.m. EST, September 20, the US National debt was $14,744,278,404,668. That is over $47,000 per American citizen, over $131,000 per taxpayer. America is bankrupt and desperate to grab at any loose dollar within its reach. Having reaped the easy pickings within its own borders, America is extending its reach.

So far, the IRS push into foreign territory has been a rousing success by their own standards. In 2009, the IRS offered "amnesty" — that is, lessened but still hefty penalties — to whoever stepped forward to disclose foreign bank accounts. According to FOX Business News, the 2009 program netted

the government $2.2 billion in tax revenues … and $500 million in interest from the 2011 program, for a total of $2.7 billion.… Moreover, the IRS says it has yet to reap penalties from these evaders, which could rake in hundreds of millions more.

IRS Commissioner Doug Shulman stated,

we are in the middle of an unprecedented period for our global international tax enforcement efforts. We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.[4]

Going after the college money earned by children born and raised in Canada (or elsewhere) is just one part of the international enforcement effort. The entire package is called the Foreign Account Tax Compliance Act or FATCA; it was a revenue-raising provision that was slipped into one of Obama's disastrous stimulus bills. Starting in 2013 — or 2014 if an exemption is granted — every bank in the world will be required to report to the IRS all accounts held by current and former US citizens. If account holders refuse to provide verification of their non-US citizenship, the banks will be required to impose a 30 percent tax of all payments or transfers to the account on behalf of the IRS. Banks that do not comply will "face withholding on U.S.-source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments."[5]

Australia and Japan have already declared their refusal to comply. Canada's Finance Minister Jim Flaherty has publicly stated that the proposed American legislation "has far-reaching extraterritorial implications. It would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians."[6]

According to the Financial Post,

Toronto-Dominion Bank is putting up a fight against a new U.S. regulation that would compel foreign banks to sort through billions of dollars of deposits to find U.S. citizens who might be hiding money.… TD has complained that the proposed IRS rule is unreasonable because it would require the bank to make US$100-million investment in new software and staff. Other lenders resisting the effort include Allianz SE of Germany, Aegon NV of the Netherlands and Commonwealth Bank of Australia.… Now the Canadian Bankers association has joined the fray. In an emailed statement the CBA called the requirement "highly complex" and "very difficult and costly for Canadian banks to comply with."[7]

The Financial Times reports,

  • ne of Asia's largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? Their motive has nothing to do with the outlook for the dollar.… Instead, what is worrying this particular Asian financial group is tax. In January 2013, the US will implement a new law called the Foreign Account Tax Compliance Act.… [T]he new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore.… mplementing these measures is likely to be costly; in jurisdictions such as Singapore or Hong Kong, the IRS rules appear to contravene local privacy laws.… Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. "This is complete madness for the US — America needs global investors to buy its bonds," fumes one bank manager. "But not holding US assets might turn out to be the easiest thing for us to do."[8]

Meanwhile, banking will become more difficult within the United States. FATCA will hold banks liable for any "improper" transfer of money to outside the United States. The Wealth Report, a financial analysis site, states,

US banks will be desperately trying to cover their liability by checking the exact purpose of the payment, to make sure it doesn't come within the scope of the legislation. The burden of proof will naturally pass to the account holder who is trying to transfer money, to demonstrate that the transaction is not subject to the new withholding tax. If the sending bank in the USA has any doubt at all about the purpose of the transaction, they will be forced to deduct 30 percent tax. Net result? It is going to be darned difficult for anyone to transfer money out of the USA. If that isn't a form of currency control, then I don't know what is! (emphasis original)

Returning to the Little Guy and Gal
Expat Americans and children — a.k.a. dual citizens — will be caught in the indiscriminate steel net that the IRS wants to throw around the globe. Their innocence or ignorance will not matter. The IRS wants money. If expats and duals do not owe money from their earnings, then the IRS will pursue obscure reporting requirements and apply them to people who did not even know they were American. It will try to yank their college funds and drain their parents' retirement savings.

They can renounce their American citizenship but that is an imperfect solution. For one thing, it does not immunize them from the past ten years of nonreporting. For another, following the United States' "exit" sign takes many people directly through the Treasury Department where they may be required to pay a brutal one-time exit tax. Basically, for those with more than $2 million dollars in assets, the tax comes to $600,000.

Moreover, renunciation is a difficult process. The Globe and Mail is one of many Canadian newspapers now explaining to readers how they can renounce American citizenship. G&M states,

Renouncing your U.S. citizenship starts with a hefty fee — $450 (U.S.), just for the chance to appear in front of a consular official. Need it done in a hurry? Forget about it. It can take about two years to get an appointment.[9]


$25.00 $18.00
The true hope lies in a worldwide refusal to comply. The only power strong enough to rein in the United States is the world itself. There is hope that this will happen. Reutersdeclared,

A U.S. law meant to snuff out billions of dollars in offshore tax evasion has drawn the criticism of the world's banks and business people, who dismiss it as imperialist and "the neutron bomb of the global financial system." … A senior American finance executive at the Hong Kong branch of a major investment house [declared] that FATCA was "America's most imperialist act since it invaded the Philippine Islands in 1899." The regulation … was "engendering a profound and growing anti-American sentiment abroad."[10]

How long can America maintain that people "hate us for our freedom?" People fear and hate America for its totalitarianism. And among those people filled with fear are American citizens.
 
 
 
 
 
 

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Crafty_Dog
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« Reply #223 on: September 22, 2011, 08:34:55 AM »

Please be sure to see the first post of the morning as well:
==============

By ALAN REYNOLDS
The president's "Plan for Economic Growth and Deficit Reduction" mainly hinges on persuading Congress to trade $447 billion in temporary payroll tax cuts and spending increases—the "jobs plan"—for permanent income-tax increases of $150 billion a year. Mr. Obama also calls on the 12-member congressional super committee to undertake "comprehensive tax reform," which he defines in peculiar fashion as trading lower deductions for higher rates.

According to the Sept. 19 White House fact sheet, "The President calls on [the super committee] to undertake comprehensive tax reform, and lays out five principles for it to follow: 1) lower tax rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the deficit by $1.5 trillion; 4) boost job creation and growth; and 5) comport with the "Buffett Rule" that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."

But the administration's tax plan violates these principles. It raises rather than lowers tax rates, shrinks tax deductions to pay for more spending, makes no believable contribution to economic growth, has nothing specific to say about the Buffett Rule, and allocates a third of the proposed $1.5 trillion tax increase over the next decade to such miscellany as the temporary payroll tax break, more subsidies for state and local government jobs, and prolonged unemployment benefits.

Enlarge Image

CloseCorbis
 .Nearly all of Mr. Obama's new tax increases are identical to those in his failed budgets of 2011 and 2012. But the repackaging of stale ideas is partly concealed by intermingling the phasing-out of deductions and exemptions with allowing the Bush tax rates to expire, thus increasing the top two tax rates to 36% and 39.6% from 33% and 35%. This intermingling gives the false impression that $866 billion in projected additional revenue comes from raising the top tax rates alone.

The Treasury Department's more candid explanation of these same proposals in the 2011 budget estimated that raising the top two tax rates would bring in only an extra $36.4 billion a year from 2011 to 2020, which adds up to little more than $400 billion from 2012 to 2021. The administration's 2011 proposal to raise the tax rate on capital gains and dividends to 20% from 15% on upper incomes was estimated to raise an even punier $10.5 billion a year. But the 3.8% surtax in ObamaCare already raised those tax rates to 18.8% to finance health-insurance subsidies, leaving no meaningful revenue from that source.

In other words, most of that large, $866 billion 10-year tax hike comes from phasing out personal exemptions and deductions. These are not "tax breaks that small businesses and middle-class families don't get," as the president claimed on Monday in his Rose Garden remarks. The phase-outs apply to the same exemptions and deductions enjoyed by those earning less than $250,000, including deductions for mortgage interest, charitable contributions, and state income taxes.

Mr. Obama's second biggest tax increase, supposedly worth $410 billion over 10 years according to the fact sheet, comes from further reducing "the value of itemized deductions and other tax preferences to 28% for those with high income." The phasing out itemized deductions for upper-income taxpayers would shrink those deductions by as much as 80%, so this additional cap would limit any remaining deductions to 28 cents on the dollar. The combination would be severe. Ask any charity.

As for corporate taxes, Mr. Obama said in the Rose Garden that "We can lower the corporate rate if we get rid of all these special deals." But his plan does not include a lower corporate rate. Instead it earmarks the revenue from eliminating any loopholes and "special deals" to pay for the $447 billion jobs bill.

This brings us to the president's puzzling remarks about "the Buffett Plan," which has no clear connection to anything in his own plan. Mr. Obama has said that anyone who thinks "somebody who's making $50 million a year in the financial markets [i.e., Warren Buffett] should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that" should "have to defend that unfairness. . . . They ought to have to answer for it."

Related Video
 Editorial board member Steve Moore on why some Democrats are opposing Obama's deficit plan.
..Warren Buffett's large capital gains (mostly unrealized) and token $100,000 salary are by no means typical. IRS statistics show those earning more than $1 million paid 28.9% in federal income taxes in 2009, compared with 24.6% for those earning from $200,000 to $500,000 and 11.6% for those earning from $50,000 to $75,000.

However, if Mr. Obama is seriously suggesting that marginal tax rates should be the same for the working teacher's salary as for the retired teacher's capital gain, then he may be flirting with a rerun of George McGovern's 1972 presidential campaign theme that, "Money made by money should be taxed at the same rate as money made by men."

Unlike Mr. McGovern, though, Mr. Obama has not yet proposed a capital gains or dividend tax higher than 20%. If the rhetorical Buffett Rule has any meaning at all, it appears to be nothing more than a presidential hint to the congressional super committee that he would like them to propose (as he has not) that incomes above $1 million face a 28% tax on capital gains and dividends.

The trouble is that such a Buffett Rule would quite certainly reduce rather than enlarge federal revenue. That's because we know from experience that a 28% tax on selling stock or property greatly reduces the amount offered for sale. Wealthy people then sit on more unrealized capital gains rather than subjecting themselves to a stiff tax penalty on selling those assets. The 28% tax on long-term capital gains brought in only $36.9 billion a year from 1987 to 1997, according to the Treasury Department, while the 15% tax brought in $96.8 billion a year from 2004 to 2007.

Putting aside the seemingly empty threat of a Buffett Plan tax on capital gains, the president's new-old plan to raise income taxes on families and small businesses earning more than $250,000—to pay for temporary tax gimmicks and extra spending—is just stale wine in a new bottle.

Any plan that would impose permanently higher tax rates on income to pay for temporarily lower tax rates on payrolls is no stimulus or jobs plan under any sort of economics. Neither is a tax-financed extension of unemployment benefits. It's a tax-and-spend plan, and a bad one.

Mr. Reynolds, a senior fellow with the Cato Institute, is the author of "Income and Wealth" (Greenwood, Press 2006).

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Crafty_Dog
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« Reply #224 on: September 23, 2011, 12:08:12 PM »

"There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy, so much as the business of taxation. The man who understands those principles best will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue." --Alexander Hamilton, Federalist No. 35, 1788
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DougMacG
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« Reply #225 on: September 29, 2011, 11:47:53 PM »

Pres. Obama accidentally stepped in it.

Steve Forbes: "You know it ends all this crony capitalism in Washington. From now on, if Obama invites you to the White House, you'd know it's because he really loves you."
------
The Wall Street Journal
OPINION
SEPTEMBER 30, 2011

Flat Is the New Fair
Is President Obama paving the way for GOP tax reform?

By STEPHEN MOORE

'Suddenly, liberal Democrats are making the same argument about the tax code that I've been making for 20 years," laughs former Republican House Majority Leader Dick Armey. "Welcome to the party." Mr. Armey, who along with Steve Forbes has been the torch bearer for the flat tax since the early 1990s, believes that the latest applause line from President Obama that "billionaires should pay the same tax rate as janitors" may be the political gateway to sweeping tax reform.

Mr. Forbes sees an opening here too and says: "The flat tax is the perfect issue for these times. It fixes the economy and doesn't cost a dime." He's right. It's the teed-up GOP response to a jobless recovery and the near-universal sentiment among voters that the tax code is corrupt beyond repair.

That case is inadvertently helped as Mr. Obama and his new best friend, billionaire Warren Buffett, barnstorm the country trashing the tax system for, as the Oracle of Omaha puts it, "coddling the super rich." In truth, the system isn't nearly as skewed in favor of those at the top of the income pyramid as they allege: Today the top 1% pay 38% of the income tax. But in Washington, perception drives policy. The virtue of a flat tax with no deductions is that it provides an ironclad guarantee that the rich pay no lower a tax rate than janitors and secretaries.

This past summer the Senate Budget Committee, which is run by Democrats, reported that 26.5% of all tax deductions and credits are taken by those with incomes in the top 1% on the wealth scale. Cleaning out the attic of decades of these loopholes and using the savings to lower the tax rate ensures that Mr. Buffett, Bill Gates and Lady Gaga pay their fair share.

Mr. Obama complains in his budget that it's not fair that the rich get to deduct 35% for their mansions and charitable receipts, while the middle class deducts only 15% or 20%. But that's the collateral damage from a multitiered tax-rate system.

Democrat Kent Conrad of North Dakota, the chairman of the Senate Budget Committee, says that loopholes are "subsidies, and subsidies are not the type of thing that you want for an efficient market system." He sounds like Milton Friedman there and he proposes to reduce "tax expenditures" by 17%.

Why stop there? Republicans should counter-offer: We see your 17% and raise it to 100%.

Done correctly, the flat tax eliminates all double taxation of saving and investment. But if liberals won't accept a lower tax rate for capital gains and dividends, perhaps the grand deal in Washington could be to tax everything at 16% or 17%.

Democrats have come to a different conclusion: They want to get rid of the deductions and raise tax rates at the same time. When has that ever worked? The near 100-year history of the tax code teaches this inviolable law of politics: The higher the tax rate, the more tax carve-outs there will be for yacht owners. That is why the rich paid a smaller share of the income tax in the early 1960s when the top tax rate was 91%, and in the 1970s with a 70% rate, than they do today with a 35% rate.

That's why the flat tax is the fairest tax of all. The combination of a single tax rate with a family-size allowance—shielding, say, the first $35,000 of income for a family of four—ensures that everyone would pay the same marginal tax rate above that level. A family of four with an income of $70,000 would pay an average tax rate of about 8.5%, whereas the members of the Buffett billionaire club would pay 17%.

Why aren't Republicans in Congress and in the presidential race making this case? Newt Gingrich and Jon Huntsman have tax rate reform proposals that move toward a flatter tax. But the candidate who comes closest to a true flat tax is Herman Cain, the former Godfather's Pizza CEO. His argument for a "9-9-9" plan puts the current income and payroll taxes in the shredder and replaces them with a 9% personal income tax with no deductions, a 9% net business income tax, and a 9% national sales tax.

That would be rocket fuel for the economy, though the combination of a federal sales tax and an income tax is a big worry. But at least Mr. Cain has super-sized solutions to an economy with super-sized problems.

"I keep waiting for a Republican candidate to take the plunge," says a half-frustrated Steve Forbes. Then he adds one more flat tax selling point: "You know it ends all this crony capitalism in Washington. From now on, if Obama invites you to the White House, you'd know it's because he really loves you."
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DougMacG
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« Reply #226 on: October 03, 2011, 10:26:13 AM »

Obama's tax policy:  Take from the millionaires...and give it to the trillionaires.
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DougMacG
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« Reply #227 on: October 06, 2011, 12:26:30 PM »

The Reid proposal to put a 5% surcharge on incomes over a million by will NOT close the deficit by 3% even in a theoretical case where millionaires were stupid and did not adjust their behavior whatsoever to fend off the additional  punishment on achievement and reported income.  http://www.taxfoundation.org/blog/printer/27547.html

Best case is to raise revenues in an between zero to 2% of the current deficit at the expense of a huge percentage, job killing, marginal tax increase.  In the real world, this kind of rate increase will actually DECREASE government revenues.

How long ago was it that our commander in chief just said that everyone knows you don't raise taxes in a recession?
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DougMacG
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« Reply #228 on: October 13, 2011, 11:25:42 PM »

Media idiocy in economics.  Washington Post editorial yesterday denies that changing the income.  They prefers static scoring.  Call dynamic scoring "faith-based" analysis.  Unbelievable.

http://www.washingtonpost.com/opinions/herman-cains-deceptive-and-unfair-tax-plan/2011/10/12/gIQAauGDgL_story.html

Mr. Cain’s argument of revenue-neutrality rests on the sleight of hand of dynamic scoring — taking into account the economic growth to be generated by lower tax rates. This kind of faith-based tax analysis is too dubious a basis on which to rest an economic program.

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Crafty_Dog
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« Reply #229 on: October 14, 2011, 05:50:19 AM »

Art Laffer has endorsed 999 and I heard on the Bret Baier Report that Cong. Paul Ryan has too-- but have not seen reference to this elsewhere.
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DougMacG
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« Reply #230 on: October 14, 2011, 04:35:35 PM »

I am taking the Laffer and Ryan endorsements to be non exclusive; the Cain plan is one good way to move forward out of this mess:

Laffer...said Mr. Cain's principles on taxation are "really sound," and that Mr. Cain himself is a "world-class candidate," but he also praised several other GOP candidates.
http://www.politico.com/news/stories/1011/65958.html

“We need more bold ideas like this because it is specific and credible,” Ryan said
http://thehill.com/blogs/blog-briefing-room/news/187437-paul-ryan-loves-cains-specific-and-credible-9-9-9-plan
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Crafty_Dog
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« Reply #231 on: October 14, 2011, 06:02:02 PM »

Yes.
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« Reply #232 on: October 15, 2011, 07:35:08 AM »

As much as I like Cain, I'm very concerned about 999 and the potential for very bad consequences that may spin out of it.

http://www.freedomworks.org/blog/dean-clancy/herman-cains-999-plan-the-good-the-bad-and-the-ugl
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« Reply #233 on: October 15, 2011, 11:59:54 AM »

GM:

a) Note the exclusion of the poor.
b) The fears of the VAT tax: IMHO this is a matter of F.E.A.R:  False Expectations Appearing Real.  Tax rates are determined by how determinedly we resist increases.  The current structure, where most people pay little or no taxes actually weakens our resistance on the whole.  A system where virtually everyone pays THE SAME RATE will do much to stiffen the spine of we the people should Washington try to increase any of the 9s.

==================
Kudlow

Herman Cain is the only GOP presidential candidate who wants to kill the tax code. That's right. Put a knife in it. Junk the entire system. And people are cheering as he rises in the polls in his quest for the nomination.

Cain's 9-9-9 plan is not perfect. But then again, the good should never be the enemy of the perfect.

Rep. Paul Ryan gives the plan a thumbs-up. Supply-side mentor Art Laffer tells me it would be "far, far better than the current system." And Chris Chocola, president of the free-market Club for Growth, calls it "a truly revolutionary tax reform that would amount to a massive job-creating tax cut on investments, savings and income."

As the world now knows, 9-9-9 translates to a 9 percent income-tax rate, a 9 percent value-added net sales tax rate on business and a 9 percent national sales tax overall. Like many conservatives, I am troubled by the national sales tax piece. It reminds me too much of Europe. It could start low and then build on top of the other taxes. But I totally support the first two nines on personal income and business. In my view, these are vast improvements.

For his part, Cain argues that the sales tax nine would pick up revenue and help to lower the rate for everybody, especially the middle class. His economic adviser Rich Lowrie told me in a CNBC interview that the sales tax is a replacement tax, not an add-on tax like you'd find at the state level. This is a key point. Lowrie said, "All we are doing is pulling out taxes that are invisible. We're cutting the rates. We're putting them back in at lower rates."

Lowrie is referring to the payroll tax, which in the Cain plan will go from 15 to 9 percent. That constitutes a net tax cut and a good deal more transparency regarding costs and prices that are embedded in the current code. I'm not sure I buy into this point entirely, but it's an interesting argument.

Liberals oppose the sales tax because they say its regressivity will hurt middle- and low-income people. But the Cain plan partially deals with this by exempting everybody below the poverty line. Cain also states that sales of existing goods would be exempt. I have no knowledge, however, of the treatment of services, and I am somewhat skeptical about enforcement complexity overall.

Nevertheless, a mammoth drop in marginal tax rates for individuals (35 to 9 percent, or 18 percent including the sales tax) and for businesses (also 35 to 9 percent) would supply an incredibly strong economy-wide growth incentive.

Lowrie argued further that the 9-9-9 plan will add $2 trillion to U.S. gross domestic product, create 6 million jobs, increase business investment by a third and lift wages by 10 percent. "And if you fold all that growth together," said Lowrie, "federal revenues go up by 15 percent."

I'm still a flat-tax guy, and I can't vouch for these numbers. But I can vouch for the proposition that greater marginal incentives will drive economic growth into high gear. I know there are many skeptics on this. But as always, I point to the Harding-Coolidge-Mellon tax cuts of the 1920s, the John F. Kennedy tax cuts of the 1960s and the Ronald Reagan tax cuts of the 1980s.

Remember, too, that the Cain tax plan would eliminate the double-tax on saving and investment by removing capital gains, estates and dividends from the tax code. All this would throw off strong economic incentives.

Given the current economic malaise, which in large part can be traced to the weakened balance sheets and net worths of families suffering from the multi-year slump in stock prices and home values, increasing returns to saving and investment through a much lower marginal tax rate will boost asset values. Just what the doctor ordered.

As for businesses, not only would they get a globally super-competitive 9 percent tax rate, but they'd receive 100 percent expensing for new purchases of capital equipment.

Former Treasury hands Gary and Aldona Robbins priced out the Cain plan on a static basis and discovered it to be revenue neutral. Essentially, they found a $26 trillion tax base yielding $2.3 trillion in revenue for a 9.1 percent overall rate. Hence, 9-9-9.

In essence, the Cain plan combines the flat tax (with its single marginal rate) and the fair tax (which uses the national sales tax). I don't know if this is really possible. But in terms of first principles, throwing out the tax code, lowering marginal tax rates, getting rid of the carve-outs and deductions that make the current code impossible to understand, and providing an economic-growth tonic to heal our current funk, it makes a lot of sense.

That Herman Cain is rising in the polls is no surprise.

« Last Edit: October 15, 2011, 12:06:36 PM by Crafty_Dog » Logged
DougMacG
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« Reply #234 on: October 16, 2011, 12:29:46 PM »

Kudlow is wrong about Cain's 999 excluding people below the poverty line. Kudlow says: "the Cain plan partially deals with this by exempting everybody below the poverty line." That was the FAIR tax that did that, undermining its simplicity.  Cain has only said that people poor or otherwise can avoid this tax by buying used goods.  A fair point except the price of used goods will go up by the same 9% his own valid logic - an embedded tax passed along to the consumer.

Note that Kudlow also writes: "I am troubled by the national sales tax piece. It reminds me too much of Europe. It could start low and then build on top of the other taxes. But I totally support the first two nines on personal income and business....I'm still a flat-tax guy"

Me too.

I posted at length previously as to why I believe the FAIR tax is unworkable politically, such as here is 2007:  http://dogbrothers.com/phpBB2/index.php?topic=1477.msg15510#msg15510  That is the reason Cain moved to the combination plan, but the combination plan precludes the central feature of the FAIR tax, repealing the income tax amendment.  

I agree the Cain plan if implemented exactly as written will achieve an economic jumpstart and optimistic future growth rates similar to what is claimed, but I don't believe income taxes and corporate taxes will then stay flat or low thereafter, but I do believe that a new federal tax will never go down in its top rate or go away.

Cain 9-9-9 requires a 2/3 majority to change the rates?  How so?  That sounds more like a constitutional amendment than a tax bill.  I favor constitutional amendments to cap tax rates and spending.  That is not in the proposal.
-----
I strongly agree with  this part, Crafty wrote: "The current structure, where most people pay little or no taxes actually weakens our resistance on the whole.  A system where virtually everyone pays THE SAME RATE will do much to stiffen the spine of we the people should Washington try to increase any of the 9s."

 
« Last Edit: October 16, 2011, 12:35:38 PM by DougMacG » Logged
G M
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« Reply #235 on: October 16, 2011, 12:31:15 PM »

At least Cain is willing to think outside the box on this topic.
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« Reply #236 on: October 16, 2011, 01:58:50 PM »

I acknowledge that the 2/3 requirement to increase is probably BS.
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« Reply #237 on: October 20, 2011, 12:27:28 PM »

At the link below, Dick Morris succinctly explains why Herman's plan makes perfect sense, despite the attacks on it by the other candidates and the media.  Herman DOES need to do a better job of defending the plan in a debate format, however.  I have no doubt he is working on doing that as we speak:

www.dickmorris.com/blog/defending-999-dick-morris-tv-lunch-alert/
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DougMacG
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« Reply #238 on: October 24, 2011, 09:09:32 AM »

http://online.wsj.com/article/SB10001424052970204002304576629481571778262.html?mod=WSJ_Opinion_LEADTop

The Tax Reform Evidence From 1986

By MARTIN FELDSTEIN

Congress's Joint Select Committee on Deficit Reduction is struggling to find $1.5 trillion in cuts over the next 10 years. This is a unique opportunity to use tax reform to reduce future budget deficits while lowering individual tax rates.

The Tax Reform Act of 1986, enacted 25 years ago last Friday, showed how a tax reform that includes lower rates can change incentives in a way that grows the tax base and produces extra revenue. The 1986 agreement between President Ronald Reagan and House Speaker Tip O'Neill reduced the top marginal tax rate to 28% from 50%. A conservative Republican and a liberal Democrat could agree to a dramatic reduction in top rates because the legislation also eliminated a wide variety of tax loopholes.

A traditional "static" analysis that ignores the response of taxpayers to lower tax rates indicated that those combined tax changes would leave total revenue unchanged at each income level. But the actual experience after 1986 showed an enormous rise in the taxes paid, particularly by those who experienced the greatest reductions in marginal tax rates.

To measure that response, I studied a sample of individual tax returns (stripped of all identifying information) for more than 4,000 taxpayers provided by the U.S. Treasury Department. Because the sample contained the tax return of each individual for the years 1985 through 1988, I could compare the taxable income of individuals in 1985 with their taxable incomes in 1988, two years after their rates were lowered.

Taxpayers who faced a marginal tax rate of 50% in 1985 had a marginal tax rate of just 28% after 1986, implying that their marginal net-of-tax share rose to 72% from 50%, an increase of 44%. For this group, the average taxable income rose between 1985 and 1988 by 45%, suggesting that each 1% rise in the marginal net-of-tax rate led to about a 1% rise in taxable income.

This dramatic increase in taxable income reflected three favorable effects of the lower marginal tax rates. The greater net reward for extra effort and extra risk-taking led to increases in earnings, in entrepreneurial activity, in the expansion of small businesses, etc. Lower marginal tax rates also caused individuals to shift some of their compensation from untaxed fringe benefits and other perquisites to taxable earnings. Taxpayers also reduced spending on tax-deductible forms of consumption.

A similar picture emerged for the group of taxpayers who faced slightly lower marginal tax rates of 42% and 45%. The reduction to 28% raised the marginal net-of-tax share of this group by 25% and their taxable incomes rose by 20%, suggesting that each 1% rise in the marginal net-of-tax share raised taxable incomes by 0.8%, quite similar to the estimate for the group with the highest marginal tax rate.

The substantial sensitivity of taxable income to the taxpayer's marginal net-of-tax share has important implications for the effect of tax-rate reductions on total tax revenue. For a 10% across-the-board reduction in all tax rates, a traditional "static" analysis implies that revenue would fall to 90% of its previous level. But reducing a current 40% marginal tax rate by 10% to 36% raises the net-of-tax share to 64% from 60%, a rise of 6.7%. If that causes the taxable income of those at that tax level to rise by 6.7%, their taxable income would fall to only 96% of what it had been. In short, the behavioral response of taxpayers in this highest bracket would offset 60% of the static revenue loss.

The effect of taxpayer behavior on revenue is smaller in lower tax brackets. Calculations using the National Bureau of Economic Research's TAXSIM model, which calculates federal and state income tax liabilities from survey data, indicate that a 10% across-the-board reduction in all federal tax rates would reduce revenue by about 60% of what a static analysis would imply—i.e., that the behavioral response of taxable income to the lower marginal tax rates would offset about 40% of the static revenue loss.

These calculations have important implications for today's deficit-reduction debate. Broadening the tax base by limiting the use of tax expenditures (the special tax rules that substitute for direct government spending as a way to subsidize health insurance, mortgage borrowing and other things) could raise substantial revenue. Doing so doesn't require eliminating any of those tax expenditures. In a study of recent Treasury data, Daniel Feenberg, Maya MacGuineas and I found that limiting each individual's tax reduction from the use of tax expenditures to 5% of that individual's adjusted gross income would raise revenue equal to about 10% of current personal tax revenue.

Combining that base broadening with a 10% cut in all tax rates would be revenue neutral in a traditional static analysis. But the experience after the 1986 tax reform implies that the combination of base broadening and rate reduction would raise revenue equal to about 4% of existing tax revenue. With personal income-tax revenue in 2011 of about $1 trillion, that 4% increase in net revenue would be $40 billion at the current level of taxable income, or more than $500 billion over the next 10 years.

The Joint Select Committee should insist on counting that revenue as the starting point for a serious deficit reduction plan.

Mr. Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, is a professor at Harvard and a member of The Wall Street Journal's board of contributors.
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Crafty_Dog
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« Reply #239 on: October 25, 2011, 07:42:06 AM »

Sent by an internet friend:
=======================


An EXCELLENT little 8-minute talk from Neal Boortz on The Fair Tax and why some people just can't embrace it (video quality is terrible, but just listen.)  BTW - this is what HERMAN CAIN ultimately wants to implement.  His 9-9-9 plan is simply a transitional step, since he knows people have to be educated on the Fair Tax and have a President who supports it in order for it to get passed.  Herman has supported this thing for YEARS along with Neal, and continues to believe (as do I) that it would be the biggest transfer of power back to the people since the Revolutionary War.  It would also super-charge our economy.  You would have to be either unable or unwilling to work to be unemployed - there would be such an abundance of jobs available:

www.boortz.com/weblogs/nealz-nuze/2011/oct/21/recording-video-today/
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ccp
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« Reply #240 on: October 25, 2011, 09:14:37 AM »

All taxes at all levels are way too high.  As far as I am concerned federal tax of 5% should more than enough.

Perry's plan of 20% doesn't do it for me.

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DougMacG
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« Reply #241 on: October 25, 2011, 11:12:09 AM »

Crafty, With all respect it would be nice if Neal Boortz would address the objections raised instead of name calling critics like me - 'sniper', 'Stockholm Syndrome'. I raised 11 objections on the board to the Fair tax that in my view have not been answered.  I would be happy to update them and re-post.

Obamites must love the in-fighting among their opposition.  The tea party gained steam at least here I think when it switched from a 'tax cut rally' to a cut-spending-first movement.  Cain has articulated that better than almost anyone - it is about the role of government.  Yet we are unable so far to make 'cuts' below a 5% increase.  Going to an all consumption based tax makes sense to me if we were given the luxury of starting over or if we were somehow able to now reduce the federal tax and spend burden to roughly single digits.  We aren't close to getting even 40-50% of the people, much less 75% of the people (rough numbers to get a constitutional amendment) to agree to permanently ending all taxation on income.  Meanwhile we have a country to rescue.

Fair tax is not on the ballot, the 9-9-9 is.  I know that Cain favored the FAIR tax when he was running for nothing or gaining no traction when he did, but I don't know why, Crafty, you think he is still aiming there.  He made his own calculation that it isn't politically do-able and that is when his candidacy leaped forward. 

CCP,  Your 5% number for federal tax burden...hmmm, I'm with you and maybe 2 other people but try having your congressman and senators propose those specific cuts and see how far it goes.  Gingrich offers a 15% optional flat tax rate.  The reason I predicted 20% for Perry is that people want to keep the mortgage deduction, the property tax deduction and the charitable contributions deduction.  20% is the marginal rate AFTER $50,000 is free and clear for a family of 4. That is pretty low considering that Obama is at twice that with a 39.6% rate not counting the removal of FICA caps and new taxes including 'stimulus' deals and Obamacare surcharges.

Cain with a retailing background knows the magic of nines, making his rates sound low.  Problem is that we don't need to sell the producers on producing when they are allowed to keep 90% of what they make, we need to sell independent voters on the idea that that is a high enough rate to raise revenues, we can have a smooth transition, a speedy recovery AND long term robust growth.  We can't afford further disruption, even in just the short run.

A 30% transaction tax on housing in an economy crippled in a housing crisis isn't going to make for a smooth transition no matter what the long term holds.  A 30% tax on government purchases doesn't raise revenues at all.  Prebates don't work for people who can't manage money, have these guys ever met poor people? That isn't Stockholm syndrome to point that out. 

I like the Perry plan.  I'm not endorsing Perry now because of the dope I saw at the debates and because of some policies of his I adamantly oppose - the crony capitalist fund?!  I disagree with all of them starting with Pawlenty about the idea that capital gains taxes can be entirely eliminated (even though that would be ideal for me).  Low rates bring in revenues, and that is the purpose.  Zero tax on capital gains doesn't sound politically astute in a deeply divided electorate.  Long term gains mostly need to be indexed to inflation and taxed at rates low enough to get capital moving.  Perry says no tax on qualified capital gains.  I'm guessing he means gains that were already taxed at the 20% corporate rate, but we will see.

Cain can respond with his final offer and Romney better wake up soon and smell coffee.  Then we choose a candidate.  Either we all get on board with one or we will lose to the snake oil salesman with yet another and another tax and spend stimulus.  Good luck America.
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« Reply #242 on: October 25, 2011, 11:32:06 AM »


I confess I took a shortcut this morning (I had a phone interview scheduled) and have not yet listened to the Boortz talk.  It was sent by someone who usually sends good stuff, and I posted it not as an advocate, but as an offering describing the FAIR Tax case,
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« Reply #243 on: October 25, 2011, 04:07:11 PM »

CCP,  Your 5% number for federal tax burden...hmmm, I'm with you and maybe 2 other people but try having your congressman and senators propose those specific cuts and see how far it goes.

Don't you think it would be closer to 50% - those of us who are already footing all the bills?

No deductions - 5 earned income, dividends, gains (short and long), estate period. 

The legislators would not do it because they couldn't turn around and corrupt the system for their gain by tax manipulation.  That is what I think. The DC cans are not much better than the crats in this regard.

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DougMacG
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« Reply #244 on: October 25, 2011, 11:31:14 PM »

Some rough math: A 5% on all personal income ($12trillion) raises 600 billion, but spending is 3.6 trillion.  We need about twice that plus the payroll tax, corporate etc just to get to current revenues.  If we have to exempt the lowest incomes, in Perry's terms that means 12,500 x 300 million people, almost 4 trillion of untaxed income, or a 15% rate required.  Revenues lost to mortgage interest, property taxes and charitable deductions is how the flat rate with those exclusions needs to be close to 20%.  No proposal will pass unless it gets us on a static analysis basis at least to current revenues.  Then the growth it unleashes can start to close off the 40% gap with current spending. 

Voters won't trust Republicans 10 seconds to make anything including the deficit worse.

This is the tax thread, but a big part of the new confidence, new hiring and new economic growth needs to come out of a comprehensive regulatory overhaul as well.
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Cranewings
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« Reply #245 on: November 09, 2011, 12:58:08 PM »

Reposted here as requested:

Quote
Maybe someone here could educate me on this because its getting thrown around some right now.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213

So in the 50's we had a tax rate of 90% for the wealthiest and a < 5% unemployment. On the surface it looks like we should bring back the 90%, though it even says on that link they had less they had to actually pay the 90% on. So what was the rate then in terms of the rate now, if that makes any sense?
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« Reply #246 on: November 10, 2011, 11:40:33 AM »

CW:  

Thank you for your question.

I think it was Cong. Dirk Evertson or Cong Wilbur Mills (1960s?) who said "Don't tax you.  Don't tax me.  Tax that fellow behind the tree."

My knowledge in this area is given a boost by the fact that my step father made a goodly amount of money syndicating real estate tax shelters in the 1960s and 1970s.  His business model was destroyed by the Reagan tax rate cuts  of 1980-82.

The politician says to the poor ”Vote for me and I will tax the rich.”

To the rich he says “Don’t worry, it is all a charade.  Give me money and support and I will provide shelters and loopholes for you.”

To the special interests he says “Give me money and support and I will funnel rich people’s money into your hands.”


I will use the 90% rate from 1950s that you cite.  (President JFK proved the Laffer Curve before it had a name by increasing revenues by cutting the rate from 90 to 70%.  Reagan took it down from there.)

The numbers are greatly simplified so as to clarify the concepts involved.

The first thing to understand, is that at a 90% tax rate, the income earner keeps 10 cents.  

The next thing to understand is the concept of “non-cash expenses”-- for example, depreciation on a building.  It requires no outlay of money, but is considered a cost.   Thus under a 90% tax rate regime, a dollar of depreciation puts 90 cents of TAX FREE CASH into the hand of the taxpayer.   Reflect upon this.

With this in mind, lets run through a hypothetical.

Lets say normally a building is given by the tax code 20 years to depreciate.  Thus for a $10M building the depreciation (on a “straight line basis”)  is $500K per year.  If rents equal costs (mortgages, insurance, electricity, upkeep, employees, etc.) i.e. if the building is cash flow breakeven, for the 90% bracket taxpayer the building yields $450 per year because the building is counted as a “loss” of $500k..   (.90 X $500K=$450K).  With me so far?  If the taxpayer has bought the building with $1M (i.e. 10% down) he is out of pocket $100M (remember the IRS would have gotten $900k of the $1M) and he is getting to keep $450K tax free!  Minus the $100K investment, in the first year he has $350K.  In subsequent years, this goes up to $450 because he only had to make the down payment on the building one time.

Pretty bitchin’, yes?  Isn’t it great sockin’ it to the 1%?

Now Congress gets into the act and says “We need to create more housing for the poor!  Vote for us!  Give us money!”   Then they create ACCELERATED DEPRECIATION for projects that meet the specified criteria.  Naturally the criteria tend to be strongly influenced by who is donating money to them.

AD came in various forms such as “double declining balance”, “sum of the years” digits, etc.  Basically this means more depreciation in the early years, less depreciation in the later years.

For simplicity sake, let us assume that the early years yield double the depreciation of straight line depreciation (and this was roughly the case).   Thus in the first year, the “loss”  (remember, this is a non-cash loss) would be $1M and thus instead of $350K more, the taxpayer has $750K more cash in his pocket! ($350+$450=$750K).  However due to the depreciation formula this $750 goes down a bit each year.

So what happens next?

Why he sells his building to someone else and buys another building and starts all over again in the sweet spot of the accelerated depreciation curve!!!  The person who sold him the building does likewise!!!

But that’s not all!!!  If it makes sense for them to do so (and this will be a function of the capital gains rate in relation to the income tax rate) they get to defer the gain on the sale of the building through Section 1031 (reduction of basis in the new building by the amount of the deferred gain)!!!

Isn’t taxing the rich to pay their fair share fun?

But “Wait!” you say “We must stop this!”

Best to batten down the hatches for the squalls of how mean and cold-hearted you are for opposing public-private partnerships on behalf of the poor (for whom the housing in question was “built”.

Don’t tax you.  Don’t tax me.  Tax that fellow behind the tree.




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« Reply #247 on: November 10, 2011, 04:41:26 PM »

Very nice. Thank you sir.
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« Reply #248 on: November 10, 2011, 05:04:54 PM »

You are welcome CW.

I see I should add one more key point.  The lower the tax rates, the less sense it makes to invest in tax shelters.

For example, during the 70% pre-Reagan era, it made sense for Hillary Clinton to play "commodity straddles".  These were an entirely different concept where the trader bought a futures contract (usually on margin) on each side of the fence.

"Why bother then?" you may ask "The winning trade cancels out the losing trade."  The answer is that, for example, you take the loss in December, but the gain in January.  Thus for example a loss in 12/77 neutralizes taxes paid in 4/78, (four months later) but the gain taken in 1/78 is not paid until 15 months later-- in 4/79.  The value of this is the time value of having the money to play with for the extra 11 months (15-4=11). 

Even better is when you cheat, as Hillary did, you have the largest employer in the state of Arkansas, Tyson Foods, advising you on grains futures in 30 day or less contracts (which have virtually no reporting requirements) in the brokerage house used by Tyson Foods while your husband is running for Governor where the brokerage firm in question asigns winning and losing trades at the end of the day!  Doing this, you can turn $2k into $97K in a few months!   Awesome!    A $95K payoff to the governor that is completely laundered!  Isn't this great?!?

But I digress , , ,

Returning to the original point, when tax rates go down, so too does the logic of tax shelters and high bracket earners begin to allow their income to be exposed to taxes.   Whereas investing at a 70% rate only means 30% out of pocket, at a 30% rate it means the reverse—70% out of pocket.

And so it was with the Reagan tax RATE cuts.   

Remember the squalling I spoke about?  When, as always, it was to be found – for the increase in the concentration of wealth that the data showed!

And the Adventure continues , , ,
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DougMacG
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« Reply #249 on: November 11, 2011, 01:58:53 PM »

First, I must say 2 thumbs up for the 2 part answer from Crafty about why things aren't better with high tax rates.  This explanation needs to be copied and saved over to the economic highlights film hall of fame thread.  grin

I would add that beside screwing up the allocation of money and investment, the tax avoidance industry steers too many of our very best and brightest people into the standing still industries of dealing with these complexities instead of inventing, innovating, building, hiring, marketing and selling real goods and services.  The loss to our economy is immeasurable.
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Justice Pitney in Coppage v. Kansas, “it is from the nature of things impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.”

I find this piece below on income inequality to be a nice follow up to Crafty's post; Prof. Epstein is answering against the call for using the tax code to make up for income inequalities, also a good example of the economic coverage asked of Newt that is missing or inaccurate today.  I don't know why it is so hard to explain that income inequality is a good thing.  It is a natural and necessary phenomenon that happens when people live in a free society and make free choices.  We are so lucky to live in a time and a place where most people can and do move freely between all or at least 3 or 4 of the income quintiles in their lifetime.  Income inequality is the ladder.  If all incomes were the same (which means low), how would you climb up?  "inequalities in wealth pay for themselves by the vast increases in wealth" 

Throughout this piece Epstein makes the distinction of income legitimately earned.  Accepting inequality is not an arguement for theft or unfair advantage in our laws or enforcement.  In a free society people will make choices and produce amounts different in value from others and different from what they will make at other points in their own life.  It is a fact, not an issue.

Who makes more, Derek Jeeter or his batboy? Jeeter. Which one is living the American dream?  Both, I hope.

Interesting to note that the Occupy movement began in a down period where income share of the top 1% has actually fallen, and the loss to the public treasury is disproportionately large because of the higher tax rates that apply to that income no longer earned.

Epstein makes many good points but one is that we might not accept the idea of a flat tax, but why does that mean that the exact level of progressivity in the tax code of a failing economy is the right one and must be preserved.  I highly recommend that you read carefully all the way through this.
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http://www.hoover.org/publications/defining-ideas/article/99241

Taxing the top one percent even more means less wealth and fewer jobs for the rest of us.

The 2008 election was supposed to bring to the United States a higher level of civil discourse. Fast-forward three years and exactly the opposite has happened. A stalled economy brings forth harsh recriminations. As recent polling data reveals, the American public is driven by two irreconcilable emotions. The first is a deep distrust of government, which has driven the approval rate for Congress below ten percent. The second is a strong egalitarian impulse that directs its fury to the top one percent of income earners. Thus the same people who want government to get out of their lives also want government to increase taxes on the rich and corporations.  They cannot have it both ways.


I voiced some of my objections to these two points in an interview on PBS, which sparked much controversy. The topic merits much more attention.

What are the origins of inequality? Start with a simple world in which all individuals own their labor. Acting in their self-interest (which includes that of family and friends), they seek to improve their lot in life. They cannot use force to advance their own position. Thus, they are left with two alternatives: individual labor and cooperative voluntary ventures.

Voluntary ventures will normally emerge only when all parties to them entertain expectations of gain from entering into these transactions. In some cases, to be sure, these expectations will be dashed. All risky ventures do not pan out. But on average and over time, the few failures cannot derail the many successes. People will make themselves better off.

The rub is that they need not do so at even rates. The legitimate origin of the inequality of wealth lies in the simple observation that successful actors outperform unsuccessful ones, without violating their rights. As was said long ago by Justice Pitney in Coppage v. Kansas, “it is from the nature of things impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.”

So why uphold this combination of property and contract rights? Not because of atavistic fascination for venerable legal institutions. Rather, it is because voluntary exchanges improve overall social welfare. This works in three stages.

First, these transactions, on average, will make all parties to them better off. The only way the rich succeed is by helping their trading partners along the way.

Second, the successes of the rich afford increased opportunities for gain to other people in the form of new technologies and businesses for others to exploit.

Voluntary exchanges improve overall social welfare.

Third, the initial success of the rich businessman paves the way for competitors to enter the marketplace. This, in turn, spurs the original businessman to make further improvements to his own goods and services.

In this system, the inequalities in wealth pay for themselves by the vast increases in wealth.

Any defense of wealth inequalities through voluntary means is, however, subject to a powerful caveat: The wealth must be acquired by legitimate means, which do not include aid in the form of state subsidies, state protection, or any other special gimmick. The rich who prosper from these policies do not deserve their wealth. Neither does anyone else who resorts to the same tactics.

As an empirical matter, large businesses, labor unions, and agricultural interests that have profited from government protections have drained huge amounts of wealth from the system. Undoing these protections may or may not change the various indices of inequality. But it will increase the overall size of the pie by improving the overall level of system efficiency.

The hard question that remains is this: To what extent will the United States, or any other nation, profit by a concerted effort to redress inequalities of wealth?

Again the answer depends on the choice of means. Voluntary forms of redistribution through major charitable foundations pose no threat to the accumulation of wealth. Indeed, they spur its creation by affording additional reasons to acquire levels of wealth that no rational agent could possibly consume.

Forced transfers of wealth through taxation will have the opposite effect. They will destroy the pools of wealth that are needed to generate new ventures, and they will dull the system-wide incentives to create wealth in the first place. There are many reasons for this system-wide failure.

First, the use of state coercion to remedy inequalities of wealth is not easily done. The most obvious method for doing so is by creating subsidies for people at the bottom, which are offset by high rates of taxation for people at the top. The hope is that high taxes will do little to blunt economic activity at the high end, while the payments will do little to dull initiative at the low end.

But this program is much more difficult to implement than is commonly supposed. The process of income redistribution opens up opportunities for powerful groups to secure transfers of wealth to themselves. This does nothing to redress inequalities of wealth. Even if these political players are constrained, there is still no costless way to transfer wealth up and down the income scale.

The administrative costs of running a progressive income tax system are legion. Unfortunately, that point was missed in a recent op-ed. Writing in the New York Times, Cornell economist Robert H. Frank plumped hard for steeper progressive income tax rates as a way to amend income inequality.

There is no costless way to transfer wealth up and down the income scale.

Yet matters are not nearly as simple as he supposes. In his view, the source of complexity in the current income tax code lies in the plethora of special interest provisions that make it difficult to calculate income by recognized standard economic measures. Thus, he thinks that it is “flatly wrong” to think that the flat tax will result in tax simplification. After all, it is just as easy to read a tax schedule that has progressive rates as one that has a uniform flat rate.

But more than reading tax schedules is at stake. First, one reason why the internal revenue code contains such complexity is its desire to combat the private strategies that people, especially those in the top one percent, use to avoid high levels of taxation. Anyone who has spent time in dealing with family trusts and partnerships, with income averaging, with the use of real estate shelters, and with foreign investments, knows just how hard it is to protect the progressive rate schedule against manipulation.

Second, the creation of these large tax loopholes is not some act of nature. Frank, like so many defenders of progressive taxation, fails to realize that progressive rates generate huge pressures to create new tax shelters. Lower the overall tax rates and the pressure to create tax gimmicks with real economic costs diminishes. Overall social output is higher with a flat tax than it is with a progressive one.

Third, the dangers posed by the use of progressive taxation are not confined to these serious administrative issues. There are also larger questions of political economy at stake. The initial question is just how steep the progressive tax ought to be.

Keep it too shallow, and it does little to generate additional public revenues to justify the added cost of administration. Make it too steep, and it will reduce the incentives to create wealth that are always unambiguously stronger under a flat tax system. But since no one knows the optimal level of progressivity, vast quantities of wealth are dissipated in fighting over these levels. The flat tax removes that dimension of political intrigue.

Fourth, sooner or later—and probably sooner—high tax rates will kill growth. Progressives like Frank operate on the assumption that high taxation rates have little effect on investment by asking whether anyone would quit a cushy job just to save a few tax dollars. But the situation is in reality far more complex. One key to success in the United States lies in its ability to attract foreign labor and foreign capital to our shores. In this we are in competition with other nations whose tax policies are far more favorable to new investment than ours. The loss of foreign people and foreign capital is not easy to observe because we cannot identify with certainty most of the individuals who decide to go elsewhere. But we should at the very least note that there is the risk of a brain drain as the best and brightest foreign workers who came to the United States in search of economic opportunity ultimately may return home. They will likely not want to brave the hostile business climate that they see in the United States.

Fifth, sophisticated forms of tax avoidance are not limited to foreign laborers. Rich people have a choice of tax-free and taxable investments. They can increase transfers to family members in order to reduce the incidence of high progressive taxation. They can retire a year sooner, or go part-time to reduce their tax burdens. And of course, they can fight the incidence of higher taxation by using their not inconsiderable influence in the tax arenas.

The incentives to create wealth are stronger under a flat tax system.

Sixth, the inefficiencies created by a wide range of tax and business initiatives reduces the wealth earned by people in that top one percent, and thus the tax base on which the entire redistributive state depends. Defenders of progressive taxation, like Frank, cite the recent report of the Congressional Budget Office, which shows huge increases of wealth in the top one percent from 1979 to 2007. The top one percent increased its wealth by 275 percent in those years. The rest of the income distribution lagged far behind.

Unfortunately, the CBO report was out of date the day it was published. We now have tax data available that runs through 2009, which shows the folly of seeking to rely on heavier rates of taxation on the top one percent. The Tax Foundation’s October 24, 2011 report, contains this solemn reminder of the risks of soaking the rich in bad times:

    In 2009, the top 1 percent of tax returns paid 36.7 percent of all federal individual income taxes and earned 16.9 percent of adjusted gross income (AGI), compared to 2008 when those figures were 38.0 percent and 20.0 percent, respectively. Both of those figures—share of income and share of taxes paid—were their lowest since 2003 when the top 1 percent earned 16.7 percent of adjusted gross income and paid 34.3 percent of federal individual income taxes.

It is worth adding that the income of the top one percent also dropped 20 percent between 2007 and 2008, with a concomitant loss in tax revenues.

There are several disturbing implications that flow from this report. The first is that these figures explain the vulnerability in bad times of our strong dependence on high-income people to fund the transfer system. The current contraction in wealth at the top took place with only few new taxes. The decline in taxable income at the top will only shrink further if tax rates are raised.  A mistake, therefore, in setting tax rate increases could easily wreck the entire system. Indeed, the worst possible outcome would be for high taxation to lower top incomes drastically. Right now, for better or worse, the entire transfer system of the United States is dependent on the continued success of high-income earners whom the egalitarians would like to punish.

Put otherwise, if a person at the middle of the income distribution loses a dollar in income, the federal government loses nothing in income tax revenues. Let a rich person suffer that decline and the revenue loss at the federal level is close to 40 percent, with more losses at the state level. The slow growth policies of the last three years have cost far more in revenue from the top one percent than any increase in progressive taxation could possibly hope to achieve. The more we move toward an equal income policy, the more we shall need tax increases on the middle class to offset the huge revenue losses at the top. Our current political economy makes the bottom 99 percent hostage to the continued success of the rich.

The dangers of the current obsession with income inequality should be clear. The rhetorical excesses of people like Robert Frank make it ever easier to champion a combination of high taxation schemes coupled with ever more stringent regulations of labor and capital markets. Together, these schemes spell the end of the huge paydays of the top one percent. Those earners depend heavily on a growth in asset value, which is just not happening today.

But what about the flat tax? Frank and others are right to note that a return to the flat tax will result in an enormous redistribution of income to the top one percent from everyone else. But why assume that the current level of progressivity sets the legitimate baseline, especially in light of the current anemic levels of economic growth? What theory justifies progressive taxation in the first place? The current system presupposes that this nation can continue to fund the aspirations of 99 percent out of the wealth of the one percent. That will prove to be unsustainable. A return to a flatter tax (ideally a flat) tax will have just the short-term consequences that Frank fears.   It will undo today’s massively redistributivist policies. But it will also go a long way toward unleashing growth in our heavily regulated and taxed economy.   

The United States is now in the midst of killing the goose that lays the golden eggs. That current strategy is failing in the face of economic stagnation, even with no increase in tax rates. It will quickly crumble if tax increases are used to feed the current coalition of unions and farmers who will receive much of the revenue, while the employment prospects of ordinary people languish for want of the major capital investments that often depend on the wealth of the privileged one percent of the population.

The clarion call for more income equality puts short-term transfers ahead of long-term growth. Notwithstanding the temper of the times, that siren call should be stoutly resisted. Enterprise and growth, not envy and stagnation, are the keys to economic revival.

Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law, New York University Law School, and a senior lecturer at the University of Chicago. His areas of expertise include constitutional law, intellectual property, and property rights. His most recent books are The Case against the Employee Free Choice Act (Hoover Press, 2009) and Supreme Neglect: How to Revive the Constitutional Protection for Private Property (Oxford Press, 2008).
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