There seems to be word on the street that the White House is demanding big tax hikes from the Republicans as part of a budget deal.
I would like to put my case for increased taxes. Let us increase the number of taxpayers.
As we know, the percentage of taxes paid by the top 1% and top 10% of taxpayers has been going up for the last two decades. For those in the 25% to 50% grouping paying taxes the percentage paid has been going down. At some level that is OK with me. The outcome is that the top 10% of taxpayers pay about 70% of the taxes. Given that we have a progressive income tax, that may not be unfair.
What I am worried about is that about half the potential taxpayers don't. I would think that for our system to work, near everyone who votes should be paying some visible tax, even if it is just 1% or even 0.1% of income. If you make $20,000 pa, could you not pay a tax of $200 or even $20 every year? That way you are a full participant in a system that decides how much money will be spent and in which ways.
One of the reasons I am strongly against a VAT (Value Added Tax) is its invisibility. The value added tax too easily recedes into the background of the economic noise and people soon don't "feel it" the way they do paying their income tax by the 15 April deadline after filling out the appropriate paperwork.
I am not for dropping the Earned Income Tax Credit. While it is extra paperwork for the taxpayer, the fact that they see at the bottom of their 1098 that they have paid an income tax to Uncle Sam is what I am looking for. Such a move will not bring in a lot of money, but it will cause the 535 folks on Capitol Hill (536 including the VP) to think about the fact that even more voters now see themselves as taxpayers and that those new taxpayers will see the folks on Capitol Hill as guardians of their (the taxpayer's) money.
Regards — Cliff
In my opinion, the first portion of your rhetoric is unsupportable, to the point that it borders on offensive. The taxes paid by the top 1% of taxpayers have gone way DOWN over the past decades, not up, and slight up-tick of the recent past hardly justifies your implication. If you compare the burden on the top 1% at the last peak, after WWII, it has become many times lower than it was, though should be. Likewise, the burden on the "10-25% folks" has gone up, not down, since the 50's.
ReplyDeleteThe suggestion that the bottom 50%, who own hardly any of the national wealth, and make only a small portion of the national income, be asked to pay some nominal amount is fair enough. But let's be serious--the people of astronomical means have largely escaped having to pay for the national infrastructure that enables and defends their wealth, even while they used to be required to pay their way back in the "good old days" that conservatives are always suggestion to which we should return. (To say nothing of the costs in lives for propping up their estates). And, seriously, if we mean to collect meaningful amounts of money, we need to collect it from where meaningful amounts of money are to be found.
I also find your objection to VAT's "invisibility" quite disingenuous. It's strength is it's fairness, (everybody creating wealth along the supply chain has to pay their fair share of the freight), which is so fair that it crosses into "invisible" territory for you. If it's 15%, or 16%, or whatever, it's the same for everyone, and it's the cost for enjoying national defense, clean air and water, job safety regulations and inspections, etc. etc. etc. "Feeling" taxes should never be the point. Businesses right now escape paying taxes all too frequenly, and a VAT assessment would correct that flaw immediately. Otherwise, tax lawyers and accountants will continue to find ways to declare losses here, and income in jurisdictions where no (or limited) tax is due. I personally should not have to pay more taxes than GE. I shouldn't.
My preference is to eliminate all deductions, loopholes and dodges for everyone. Entirely. Without exception. No mortgage credits. No alimony deductions. Nothing. Then, we should determine the baseline income for which no tax is required, and then tax everything above that amount at a single, flat rate. (Likely around 15% if some figuring is to be believed, but certainly not higher than that). There would no longer be any tax lawyers or other collection inefficiencies, and we would also acquire a streamlined IRS that requires no fancy-pants analysts to do enforcement. You earn, you give the government their cut in return for national defense, etc. etc. etc. and everybody pays on the same scale.
I am sorry you are offended, but I stand by it.
ReplyDeleteFurther, the VAT is NEVER paid by the businessman, unless he fails to sell his product. If the product sells the tax is ALWAYS, at the end of the day, paid by the consumer and thus is a regressive tax.
That said, I like your flat tax idea and the idea of eliminating those thousands and thousands of pages of tax law and tax regulations and ruling by judges which is more than us mere mortals can comprehend. I just wonder if folks are ready to see the mortgage deduction go away, and if it does, in one fell swoop, what it would do to the already sick housing market.
Regards — Cliff
It is not just the tax that should be included in the discussion, but income. Let's look at the income rise of the top 1% compared to the rest.
ReplyDeletehttp://www.huffingtonpost.com/2009/08/14/income-inequality-is-at-a_n_259516.html
So it should be no wonder that their taxes should be going up faster than those who have no income growth.
Higher marginal tax rates and fewer loopholes for the super-rich could discourage this maldistribution of income and lead to a better economy.
Can anyone really justify the 15% tax rate paid by fund managers who are raking in over $1B per year based on investing other people's money?
And as for VAT (or national sales tax), that could be an effective job creator, or at least it would stop the bleeding of jobs to other countries who turn around and sell their wares in the US.
ReplyDeleteBut to eliminate its regressive nature, it would have to be one part of a hybrid tax system that basically eliminated itemized deductions, but had a large standard deduction (more than most people's income) and progressive tax rates above that point.
I agree with JoeS that the 1% is experiencing relatively more income than the rest of us, but not enough to heal our Federal Deficit.
ReplyDeleteAs for the VAT, I do not see how it would, by itself or in combination, bring back jobs from overseas. Are you suggesting that when the product hits Terminal Island we tax it like it had been manufactured in the US, with US wages? What does that do to exports, like the 900 VWs reported last week as being exported from the US VW factory to Korea?
Regards — Cliff
Cliff, you misunderstand VAT if you think it's not chipped in by each successive businessman who is involved in the creation of final goods. Yes, there is the burden present when the final product is conveyed and to which I understand you object and we all pay, but VAT is assessed on "value added", not just on the value ultimately sold, and is thus impossible for middlemen to dodge tax payments based on trumped up business expenses and allocation of income to favorable jurisdictions. If you assemble the steering components to an automobile, you pay the VAT on your assembly before it's shipped down to the manufacturer before the complete car comes off the line. The VAT paid at that point is only for the "value added", not the total. Yes, the purchaser of the car ends up paying to cover those business expenses, but the tremendous difference is that all commercial contributors have kicked in for their fair share along the way, and the retailer isn't the one holding the complete bag, sales tax being purely punitive upon the end consumer and the business who "last had it".
ReplyDeleteLet's face it--business taxes are always born by end consumers. The advantage of VAT over sales tax is exactly that it is transparent, and spread fairly along the supply chain.
First we must recognize we are operating at about $500B trade deficit each year, although there are pluses and minuses within that accounting.
ReplyDeleteHowever, to the degree that a VAT can replace other business expenses (I vote for substituting that revenue for what is now paid by business for health care of its employees and its contribution to their social security benefits) it would make US business relatively more competitive.
To the degree that a VAT is regressive, it can be compensated by a rebate threshold (along the lines that a standard deduction softens the low end of an income tax).
And the very large standard deduction applied to the income tax element of this hybrid tax system offsets the VAT tax for middle income earners to make the net tax progressive.
But without the many tax exclusions that benefit primarily the high income earners, the net revenue for the whole system should be sufficient to mathc the current income tax revenue while providing sufficient funds to compensate for the "lost" revenue from eliminating the business cost of health care and social security.
Alone the top 1%/10% won't heal the problem. But it is a start and should be part of a package. The package should inlcude closing the loop holes, reducing the subsides and fundamental restructuring of entitlements. But the fundamental logic on the top 1%/10% was a little flawed the way it was stated.
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