1) We need to greatly simplify the tax code (corporate and personal). Income needs to be income needs to be income. If I get skinned 40% on a lucky slot pull in Las Vegas, a day trader who lucked out and bought low and sold high should likewise fork out 40%. Gambling is gambling. No more tax loopholes for corporations. No more mortgage income tax credit. No deductions for hedge fund managers or corporate jets. You make income, you pay tax. If we did that, I'm betting we could probably lower marginal rates significantly.
The only credits I would maintain or establish would be the per-child credit, and an exemption of the first $5000 of interest and investment income for individuals on top of the existing base exemption of income. I would also maintain the option for tax-deferred retirement accounts--indeed, I would probably lift all ceilings on how much money workers could contribute.
I would also establish a 5% national sales tax for all goods and services except unprepared food, medicine, and rent. This would broaden the tax base.
I'm not fully convinced that income taxes are the best way to go, but I could agree with this on principle. One idea I've been playing with is changing the income tax into a sales tax, and just taxing some things lower and some things higher. However, this would require heavy tweaking and I have no real idea how to do that. It's just a theory of mine that I'd love to see someone war game.
We also need to decide, for once and for all, what Social Security is. Social Security kind of straddles the murky line between transfer payment scheme and forced savings account. That line is redrawn by politicians based on the expediencies of the moment, and that needs to stop. I would opt to declare it a transfer scheme. Note that doesn't mean Social Security is bad; one can make a very cogent argument for some kind of reasonable transfer payment scheme from workers to the elderly. Moreover, we can then eliminate the (rather regressive) Social Security payroll tax scheme and fold it into the (much more progressive) general income tax and the new sales tax. We can then more rigorously means-test Social Security and make sure that it flows to the poor elderly and not the well-heeled who don't need it.
Social Security is a flat 6% of income, right? That means that people who make more have to pay more into it. I'm not sure if I agree with the means-testing concept that people who have been paying into it all their lives don't actually get it, even if they don't need it. However, this is one of the things where I think people will have to agree to disagree.
If my system seems skewed to reward savings and punish consumption, that's kind of the point. The current system doesn't sufficiently encourage thrift.
I posit that if you encourage means-testing, then you are likewise rewarding consumption and punishing thrift.
Case in point: health savings accounts. When I used to work 9 to 5, I saw that option and it looked groovy...until I read the fine print that said that any unspent money in the fund at the end of the year would be forfeit. Forfeited to who, and why? Talk about a disincentive to save! I would rewrite the law to say that retirement accounts could be borrowed from at zero interest to cover health care costs.
Yeah, these kinds of problems definitely need to go. There's many of them.
I am honestly not too concerned because this system doesn't have the 'hustling backwards" effect that makes the current welfare system so crappy. In the current system, if you get a job, you lose your benefits and often those benefits are stripped away faster than the new job can replace those benefits with income. This encourages people to stay locked within the welfare system.
Whereas with the negative income tax, there is no reason not to work. Sure you could live a VERY spartan existence on 10k a year, but that would be pretty rough and more of an exception and not the rule. Or so I would hope, I personally can't imagine living on that little especially seeing as I want to live in a major city and live a middle class life.
True, although I'd expect that three or four people could get together, share an apartment or house and be able to split $30,000 or $40,000 fairly nicely. I realize that "two can live as cheaply as one" isn't fully accurate, but there's some degree of truth.
Usually property taxes are the most reliable, hardest to cheat system of taxation, but I am not sure how that would work with a negative income tax. To get 10k for each citizen, that would need 3.1 trillion in income to break even on such a system. That's unless we just aren't going to include children under 14 whick cuts it down to about 2.7 trillion.
I don't see how you could include children unless you allow children to work, which is a maddening can of worms. Most likely, the children would get some sort of compromise account that's less than $10,000 and more than zero. Ideally, I'd think one could figure out how much two live as cheaply as, factor that in for the cost of a child and deal with that.
It's possible to argue that the parents should pay for the children, and I don't even know how I'd lean or debate in such a matter, though.
The key word there being 'Income'. Much of the rest of our tax policy is regressive.
For a certain range of incomes. Poorer people pay more in sales and property taxes (I paid 13% of my income in sales tax for a time). Richer people pay more in capital gains. But capital gains is flat.
Billionaires don't make income? That's news to me.
Any cash wealth they have decreases at the rate of inflation. Any income they earn is taxed accordingly. For raw stocks, the corporation's income is taxed. They have more buffers against a loss of wealth - but that's one of those privileges that obscene wealth buys.
Perhaps I should have clarified that my entire point for this section was that simply raising the income tax will not soak the rich. You hear a lot about how Warren Buffett pays less in a percentage of his total net earnings than his secretary, but most people simply argue to raise income tax as a result. Even the suggestion of a Buffett tax is just to add a further income bracket to millionaires, and if most of Buffett's money is actually coming from capital gains, it wouldn't affect him.
This part was more just trying to get people to say more about actual methods and less about simply raising taxes.
If it costs $9 to make a widget, that means you're selling 100,000 widgets. If you sell 20,000 at $20, you are in fact now making $220,000.
However, if you raise the price to $20, you won't sell as many. Supply and demand.
By the same token, if you raise taxes to 50%, then you won't have the rich investing money unless they think they can get at least a 51% investment on their money.
The same trick works in the stock market in that if I think I can get a 9% earnings on my money, but 10% of my earnings would go to my broker in fees, I won't make the attempt. I'd just lose money on the deal.
Tax policy needs to be structured such that it encourages GDP growth.
That is, you structure your taxes (all of them, sales tax included) such that the people whose money moves within the economy the fastest gets taxed the least. If someone is essentially living month to month, then taxing them directly impacts GDP growth. On the other hand, if someone has a rainy day fund, taxing them won't impact the economy as much, and so you can start taxing them a bit. You still want to let people collect savings! Savings are an insurance against downturns in an economy. It's just a statement that, at whatever income bracket you see meaningful savings start, you can begin taxation without heavily impacting the economy.
I think I understand the theory here but would need to see it in action.
Awhile ago I did some math regarding the 'inflection point' of where a person's savings started to actually be a drain on the economy, it was around $80k a year or so.
Please explain this one to me. It seems like that if the money is in a bank and is therefore being loaned out by that bank, it wouldn't provide much of a drain. Instead, it would make sure that the money is going out to people who need loans, whether for houses, starting businesses or whatever, and encourage growth.
Likewise, you tax people whose money tends to sit and rot or otherwise move out of the country the most. This encourages internal reinvestment, because if you make $10 million a year, you can avoid the onerous taxes by reinvesting 90% of it locally. This means that, either that $9 million goes straight to taxes, which means about ~$13 million added to GDP, or that $9 million goes straight to employing local workers, which means about ~$24 million added to GDP. Now, said person making $10 million a year, doing that on his own, won't see much benefit from that. But add up everyone else making $10 million a year doing the same thing (or having the same result), and suddenly, the economy is booming again. Even the government adding $13 million to GDP is better than nothing at all, however, if the rich guy just sticks it under his mattress, or in a bank that refuses to invest it (as is the case now).
Seems to me as though a simple and obvious solution would be tairiffs. If we put a tax on imported goods, would this solve the issue?
Note that, there's some four trillion sitting in banks at this point. They certainly want to see this money invested, but they want a stronger economy in order to see the confidence in doing so. You've probably seen me bitch, repeatedly, about Obama playing politics with the economy, and it's largely centered around this concept - he argued for rather little in the amount of economic recovery packages so that it would take awhile before the economy started getting its gears going again. At first I thought it was just incompetence, but a part of me thinks it's intentional.
I don't know whether Obama is incompetent or doing this intentionally either, but I honestly don't believe that it'll improve until he's gone. However, I don't want this debate to get sidetracked, so I politely request we don't bring in current government officials unless very necessary.
No, the lie is that when you raise capital gains, the government makes less money. It doesn't matter who says it.
That probably came off as crude from me, and I apologize if so.
Here's a chart that I've found comparing national gains taxes to the actualizations (meaning the money that they actually take in). It seems to show that when you raise the rate, the revenue drops as a result, and vice versa.
If this chart is innacurate, please give me an accurate one.
Now play nice. I'm going though to post an example of the problem lets say you give people the $10,000 in some places that would be a big boost in an income, here is an example.
I can point out also counties where people are destitute and rural where this would be a huge boost in income if you have two adults with two adult children filing seperately thats $40k coming into a home, suddenly it makes living on that alot easier. Heck in some places $40k could buy a nice basic house and with that money a family could afford a home, car and live pretty well if they wanted to.
Lets use this example the average working income in that area using dated numbers is $15k for a man and $12k for a woman, many are on government support. So your talking this could have a positive benefit allowing more income into a community but in some ways it would also be abusive if one gets creative. Noting if you have people filing in a household eighteen or older, who opt not to work and take the money. You may not be able to get by on that but if its allowing them not to work and drudge away and your already living in a cheap to live place you could see an issue with the plan.
I think I get what you're saying. Different places have different levels of the living standard, so it makes little sense to have the same amount of $10,000 no matter where in the U.S. you live, right?
[Edit: I had one too many Quote tag. Fixed.]