Entries Tagged as 'taxation'

There is Nothing Simple About Perry’s Tax Plan

October 25th, 2011 at 3:04 pm 31 Comments

Rick Perry’s proposal to make his flat-rate tax plan optional seems like a political master-stroke: it lets him propose the type of flat-rate, broad-based tax plan that most economists like while simultaneously promising that nobody will need to pay more.

Nice as this sounds, however, it actually undermines the simplification that is supposed to come from a flat tax.

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The Fair Tax: It’s Back

August 23rd, 2011 at 4:24 pm 23 Comments

Rick Perry is getting a lot of scrutiny for comments in his book Fed Up! where he argues that making income tax constitutional through the Sixteenth Amendment has lead America on a “road to serfdom“. He writes that the income tax could be replaced by a Fair Tax:

Another option would be to repeal the Sixteenth Amendment to the Constitution (providing the power for the income tax) altogether, and then pursue an alternative model of taxation such as a national sales tax or the Fair Tax. The time has come to stop talking about fixing the broken and burdensome tax code and to take bold action to replace it with one that is not a burden for the taxpayer and that provides only the modest revenue needed to perform the basic constitutional functions of the federal government.

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Conservative Economists: Raise Revenue

August 11th, 2011 at 12:52 am 60 Comments

One of the sticking points during the debt ceiling standoff was the refusal of many Republicans to accept a deal that increased revenues. The idea that “Washington has a spending problem, not a taxing problem” has become a common GOP refrain.

However, FrumForum spoke to several right-leaning economists about this position, and their verdict was clear – they were willing to accept higher revenues as part of a debt-reduction plan.

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How Progressive Taxation Punishes Hard Work

David Frum April 2nd, 2011 at 1:04 pm 47 Comments

My friend Kip Hagopian has a very thought-provoking article in the current issue of Policy Review on the (in)equity of the progressive income tax.

Here is a core point:

The progressive taxation of income from work effort is inequitable. Income is derived primarily from a combination of aptitude and work effort. All things being equal, people with high-value aptitudes earn more than those with low-value aptitudes. Each tier of aptitude (whether there be 100 or 10,000 such tiers) comprises a “mini-society” in which differentials in income between the members are derived almost solely from work effort. Under a progressive tax system, workers whose work effort is above the median in their aptitude tier will pay higher average taxes per hour than those below the median. As a result, at any one point in time, an unacceptably large percentage of the total work force will earn less average, after-tax income per hour than their peers, simply because they worked harder. This is inequitable on its face.

Policy Review does not invite comments, but Kip Hagopian has established his own site, KipHagopian.com, where he invites and welcomes thought and discussion.

Fighting the Deficit with Tax Reform

February 28th, 2011 at 12:36 pm 12 Comments

Congress is once again considering revamping the tax code, starting with corporate taxes.  It may be heresy to say, but there was never a worse time to be considering corporate tax reform. Ditto for individual tax reform. With annual deficits, national debt, state debt, employment and the entire array of ‘entitlements’ all pointed in the wrong direction, addressing real tax reform without a reasonable federal and state business plan borders on silliness.

Add to the overall picture that the President is making tax proposals regarding the oil industry which would drive the price of oil up and enacting drilling restrictions which could only drive the availability of American petroleum resources down.

In this arena, trying to achieve real tax reform is far from priority number one, two or frankly, fourteen.

As with all things, if one does not know where they are going, any road will get them there. If the Congress and the President need a national financial crisis that will make the mortgage crisis look like a game for the “B” team, the game currently being played will get them there, sooner rather than later. Everyone who wants to know accepts that the current federal and state borrowing game will end with the inability to borrow or with federal and state governmental entities finally taking action on entitlements, reducing spending and enacting government pension reform. It is not all that complicated.

If we must first act through the Internal Revenue Code, the easiest place to start is with the individual income tax. There are a few easy, yet politically painful first steps that could be taken.

a) Step one is an income tax hike with entitlement reform built into a few changes to the taxation of Social Security. Changes to the taxation of Social Security payments have been made before and would not be a unique change to the system.

Unlike other pension plans, the investment return on the amounts invested (Social Security taxes paid by the employee) in Social Security are not taxed. The investment return on all other pension plans is taxed. The investment return on Social Security payments should be taxed to level the playing field with all other pension payments. The taxation methodology could be achieved in a manner identical to the taxation of other life annuities.

For tax preparation purposes, the taxable amount of Social Security payments could be determined by the Social Security Administration and withholdings could be made from the monthly payments to insure ultimate payment. Of course, the adoption of such a plan could be phased in and as a side benefit, the mind boggling calculations of partial taxation of Social Security included in the Internal Revenue Code could be eliminated from the law.

This idea would be politically very painful, but with graduated tax rates, the wealthy would bare a higher tax rate on their Social Security receipts and this should ease some of that political pain.

b) Step two is the elimination of the state tax deduction, the lowering of the overall Federal individual tax rate and the accompanying reduction of the number of alternative minimum taxpayers to virtually none. This is one of the great no-brainers available in individual tax reform.  This would reduce the brain damage of planning and calculating the alternative minimum tax and eliminate the indirect subsidy that low income tax states pay high income tax states through the deduction of state taxes.

c) Step three is withholding on taxpayers with student loans. This will create increased revenues to the federal government without increasing anyone’s taxes. It would merely create an organized and effective way to collect student loans which were made in good faith and should be repaid in good faith.

Will any of these reforms make a material impact on the deficit? Actually, they probably would make a good first dent. The change to Social Security taxation would produce serious money and the repayment of student loans certainly should produce billions over the next decade. The elimination of the alternative minimum tax for ninety percent of the current payers should produce a significant number of smiles and such a move in the interest of intelligent taxation alone is worth the effort.

As to the initial question: a few solid policies moving the deficit and total debt in the right direction would bring our country a great deal closer to a return to prosperity than rearranging the deckchairs of corporate taxation.

And no matter what happens on the revenue side, governmental spending and involvement in our lives needs to be dramatically reduced.