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  1. #1
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    Sensible Taxation in America

    Most of my political views are represented fairly well by at least one of the two major Political Parties in America. As such, with regard to politics, I'm a strong centrist, though left-leaning.

    That said, neither Party, imo, has a very good plan for fixing the tax code. Quite frankly, their plans tend to look terrible. President Obama's plan, while it may be argued to be moving in the right direction by focusing more on deductions in the tax code to do the computing (i.e., looking at the fine print), isn't nearly comprehensive enough to really overhaul the broken tax code.

    Republican plans regarding the tax code, on the other hand, don't seem to even bother with math when they're being concocted. Please see President W. Bush's actions with regard to taxation and Governor Romney's $5 trillion tax cut plan (I'm aware those are complicated discussions, but I'm also aware those were both essentially bad plans).

    Put simply, I think the Democrats like to tax-and-spend and the Republicans like to borrow-and-spend. In practice, both ideologies seem to miss the mark (although it should be admitted that tax-and-spend is generally more economically sound than borrow-and-spend).

    So I'm going to strongly break with both Parties, here. I've got a few ideas regarding the tax code that I think moderates, progressives, and conservatives alike can appreciate. I'll number them for ease of reference.



    1) With regard to FICA taxes (payroll taxes which fund Social Security and Medicare), the employee pays 6.2% (4.2% as of 2011 and 2012, though this payroll tax break isn't permanent) of gross income and 1.45% of gross income for Social Security and Medicare respectively. The employer then pays an additional 6.2% (Republicans killed the American Jobs Act, which would have reduced this to 4.2%) and 1.45% of the employee's *gross income*. I think these taxes should be decoupled from the employer. The employee should be responsible for the entirely of the 12.4% (10.4% until the payroll tax holiday expires). My reasoning for this is that it forces the company to do additional paperwork which would otherwise be unnecessary since the company would simply pass the difference on to the employee by way of wage increases, though I highly doubt this will happen for low-wage workers even close to immediately). Furthermore, keeping taxes as low as possible on businesses, while simultaneously reducing the extent to which they're responsible for paperwork and other such overhead, might incline them to do more hiring. Separating the taxation owed between the employee and the employer reduces wages to the extent that the tax is paid by the employer, which lowers gross pay across the Nation and arguably impacts budget decisions with regard to hiring on a national level (I can only assume it impacts them in a way either negligible or negative for the employee and employer). Finally, the employer-paid portion of these taxes is simply, more or less, reduced from the employees gross wages before taxes by the business which employs them, so it doesn't appear to actually accomplish anything but disincentivize and complicate hiring.

    I also think the payroll tax holiday, after total tax dues are transferred from shared responsibility to an employee-only responsibility, should be reduced by the additional 2% proposed by the American Jobs Act (whether with the rest of the act or in a separate piece of legislation, I don't care which) to a total due of 8.4%. These payroll tax holidays should expire upon the sixth month consecutive month that the America economy has 5.9% unemployment rating or lower (2016 or thereabouts).

    Thereafter, I think payroll taxes (paid entirely by the employee) should increase by 2% (for a total of 14.4%) considering the increasing cost of medical treatment and increasing life expectancies in America. Yeah, I know, everybody hates increasing taxes, but 2% of gross wages payable is easy to miss (almost everyone in America completely failed to notice their 2% reduction in payroll taxes due as of 2011) and the conservatives who hate increasing taxes should also, in theory, hate the concept of a populace which receives medical treatment and Social Security checks without actually paying for them. Currently and especially during the coming decades, Medicare is the single highest Federal expenditure. When you add Social Security to Medicare (which FICA essentially does), you're talking about half of the ~$3.7 trillion budget. It represents a very high portion of current and projected national debt. We have to handle it somehow.

    Finally, regarding payroll taxes, I think the caps should either be substantially increased or abolished altogether. It's already a regressive tax. I don't see how such a cap represents anything but a bow to special interests and again, deficits accrued by the programs created by FICA represent at least half of America's debt problem, a problem which we do have to begin seriously and substantially addressing.

    To my knowledge, all of 1) except for the abolition of the payroll tax cap is an original idea. I've never heard it proposed before (although I have heard similar ideas regarding Social Security, specifically).



    2) I would like to abolish the corporate income tax. To my knowledge, this is another completely original idea, even moreso than 1), so I'm going to ask my reader to be kind to the following explanation; I haven't worked out all of the kinks. It's imperfect and I know it. Please keep in mind while reading 2), I'll explain later why I didn't combine them, but 2) and 3) are related.

    First, America's statutory corporate income tax is the highest in the World. Before anybody says it, Japan lowered theirs last year. That's bad for business.

    To further complicate the matter, the corporate tax code is littered even more profusely with fine print than the individual income tax. To help make that point, I'd like to point out that while many think Governor Romney's effective rate of 14% or thereabouts, was objectionable, General Electric paid absolutely no corporate income taxes in 2011.

    I say we do away with it entirely. The businesses at the bottom are paying the high rate and the highest-grossing businesses with the most powerful lobbies are paying historically low rates, sometimes nothing at all. That disparity is absurd and only hurts small businesses in America.

    Put simply, do away with the corporate income tax entirely and businesses will want to come to America.

    Please note that I am not suggesting that the ensuing revenues would be so great for businesses that it would overcome the wage disparity between a worker in America and a worker in Cambodia. Outsourcing will still occur. That basic economics for ya. That said, more insourcing and less outsourcing would likely occur. I simply don't want to overstate the benefits of this idea, but I don't want to understate the potential benefits, either.

    Please also note, because I will bring it up later, that corporate income tax rates represent ~9% of total Federal revenues.



    3) I would like to replace the abolished corporate income tax with a national consumption tax (in addition to all pre-existing Federal excise taxes, although I would happily consider proposals to combine them for simplicity). I separated this from point 2) because I believe a national consumption tax and the abolition of the corporate income tax should be accomplished by different bits of legislation. I think part of the reason that bad legislation still gets passed is because it gets bunched in with good legislation in a single vote, sometimes in entirely unrelated bills. The process of "tax transition" should be as transparent, easily to understand, and honest as possible.

    Anyway, I'm proposing the national consumption tax as a means to make the abolition of the corporate income tax revenue-neutral. Since Federal corporate income tax represents ~9% of total Federal revenues, a national consumption tax which adds 1-2% spread around 300,000,000 American consumers (or direct receivers of someone else's consumption, such as newborns) should be realistic. Your loaf of bread may now cost $1.09 instead of $1.07 (speaking for myself).

    In addition, unlike the corporate income tax, it would be regressive, and thus fairer. Even if you disagree because with my use of the word "fairer" primarily because it is a regressive tax, there's still something to be said for the gains of simplifying the corporate income tax code (by making it really simple and getting rid of it) by way of increasing employment and making America more competitive in the international market.

    One might argue that this tax would affect consumption habits, but again, it would by its nature be such a small tax that the increase of tax receipts as a result of increasing hiring, even to a small extent, that subsequent consumption and tax receipts would heavily outweigh the likely negligible impact of such a tax.

    I do not know if this consumption tax would be uniform on all products in America or at what stage of sale, but again, we're talking about making up revenues of ~$3,700,000,000 by very mildly taxing purchases by or relating directly to at least $300,000,000 Americans. It's definitely doable, especially depending where along the chain of distribution we decide to "stop" the consumption tax.



    4) Federal income taxes. There are currently five income quintiles. The bottom doesn't pay income taxes. The top is composed of those earning $200,000 ($250,000 jointly) or more.

    The bottom earns such a low paycheck that you can barely charge them payroll taxes before they can't afford sales taxes (and a national consumption tax), so I think their taxes should stay the same, and that includes the deductions they receive. There is not enough money in the bottom income quintile, including deductions, to feasibly address the revenue problem in the United States and protecting the most vulnerable among us has always been an American idea. I'm not proposing welfare or money for education or any of that; I am simply stating that the tax system as it relates to the bottom income quintile should remain exactly as it is right now.

    Most deductions for the middle three income quintiles should remain largely the same in effective rates, but the code as it relates to them should be simplified. Remove most deductions and reduce statutory rates to the extent that deductions have been removed. Child credits should stay. Credits for owning more than one home (claimed by some of those in the second-highest income quintile, for instance), should go. Mortgage credits should stay, at least until unemployment becomes 5.9% or less. Beyond that, I wouldn't mind scratching the rest and reducing the statutory rate a few notches for each income quintile. I know someone is going to find a good subsidy for something that I've forgotten to mention which affects the three middle income quintiles, so feel free to call 'em out. The goal, here, imo, is to make the code as simple as possible without increasing taxes on these income quintiles.

    The last income quintile, imo, is too broad. There is a massive difference between a small business owner who reports his business revenues as individual income making $200,000 a year and a hedge fund manager who makes $7 million a year.

    As such, I believe this income quintile should be divided into two. Income quintile number five should be composed of those making from $200,000-$999,999 a year. All income after the first $1,000,000 should become marginal.

    The current statutory rate on those income quintile five should be reduced to around 25% and most, if not all, credits they receive which are not also received by the middle three income quintiles should expire.

    The current statutory rate on marginal income should fall to the low-30s, if not high 20s, and no deductions should relate to it.

    Finally, capital gains taxes is capped at 15%. I think that should stay the same, but if someone who is earning $1,000,000 a more is able to pay less than a 20% effective taxation rate primarily because of capital gains income, their capital gains taxes and income taxes should be negated and a 20% tax should be levied on gross income before all taxes in place of both capitals gains taxes and income taxes.

    Yeah, I know, I'm such a hardcore rich-people-hating Marxist/Leninist/Stalinist/Maoist/Communist/Fascist/Socialist (somehow), but I already pay around 25% after Federal and State income and payroll taxes and my proposal doesn't reduce my effective taxation rate, so I don't feel bad.



    Well, that's all I got for now. Thank you for reading if you managed to get this far. Let me know what you think!

  2. #2
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    Re: Sensible Taxation in America

    Quote Originally Posted by Mordecai View Post
    President Obama's plan, while it may be argued to be moving in the right direction by focusing more on deductions in the tax code to do the computing (i.e., looking at the fine print), isn't nearly comprehensive enough to really overhaul the broken tax code.
    Obama's "plan" (spend, spend, then spend some more) has caused our national deficit to skyrocket off the charts. Not quite the right direction. It seems to me that the Libertarian Party would be much more aligned with your views on simplifying the tax code and making it fair and efficient.

  3. #3
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    Re: Sensible Taxation in America

    Your proposals hardly are what one would call Marxist or Socialist. Many of these ideas are exactly what Conservative thinkers have been proposing for years. Reducing corporate tax rates, closing loopholes and lowering deductions, even consumption taxes....this is familiar talking points for any Conservative. In fact it was Boehner who just recently raised the issue of closing deduction rather than raising overall rates.

    I think you have excellent proposals, that you would call yourself a "hardcore rich-people-hating Marxist" makes me wonder how much attention you pay to the ideas from the Right as nearly all of these suggestions in one form are exactly what Conservatives propose.
    I typically cite original research papers and reviews that are available only to a personal or institutional subscriptional. If you wish a PDF copy of the papers I cite, send me a request.

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  5. #4
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    Re: Sensible Taxation in America

    "sensible taxes" interesting phrase, why did it immediately make me think of "army intelligence"?

    and its also something that is not going to happen as long as the federal reserve is in charge.

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    Re: Sensible Taxation in America

    Quote Originally Posted by chadn737 View Post
    Your proposals hardly are what one would call Marxist or Socialist. Many of these ideas are exactly what Conservative thinkers have been proposing for years. Reducing corporate tax rates, closing loopholes and lowering deductions, even consumption taxes....this is familiar talking points for any Conservative. In fact it was Boehner who just recently raised the issue of closing deduction rather than raising overall rates.

    I think you have excellent proposals, that you would call yourself a "hardcore rich-people-hating Marxist" makes me wonder how much attention you pay to the ideas from the Right as nearly all of these suggestions in one form are exactly what Conservatives propose.


    Well, I'm not exactly opposed to social spending, either. I'm libertarian in a few ways, but my ideas regarding the military are unacceptably interventionist and my ideas regarding social spending are unacceptably liberal.

    I guess I'm a very-business-friendly progressive, you might say, but I don't, because that sounds stupid.

    Anyway! Thank you for the kind words, Chad, and I'm glad people are receptive to those ideas. The tax code really needs an overhaul!

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    Re: Sensible Taxation in America

    Quote Originally Posted by Mordecai View Post
    In practice, both ideologies seem to miss the mark (although it should be admitted that tax-and-spend is generally more economically sound than borrow-and-spend).
    Economically there is no difference. You either remove the capital during the current period (taxation) or you remove it later plus the amount it would have generated (borrowing).

    I liked your idea of abolishing the corporate income tax and replacing it with a consumption based tax (though to be honest I would personally like to replace the entire tax structure with a consumption based tax system). I would argue however that you would need to make the two bills either legally dependent on each other or joined. The threat otherwise would be that we would likely end up at some point with both a consumption tax and a corporate income tax.

    Out of curiosity have you read the FairTax books?


    I don't see how your income tax proposal really changes the budget. The amount of additional revenue gain would probably be below $500B, even if we assume not behavior changes (which seems incredibly unlikely). Historically, both tax rates and deductions have had little effect on the revenues received from the upper incomes, just on the revenues reported.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
    Also, if you think I've overlooked your post please shoot me a PM, I'm not intentionally ignoring you.


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  9. #7
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    Re: Sensible Taxation in America

    Im going to give this thread more thought and a better reply later....but for now, I would say that I like the abolishment of the corporate income tax (I dont like the idea that corporations are considered people in the eyes of the law BTW) in favor of a consumption tax. I would add, as Squatch said, that I would be in favor of(strongly support in fact) the complete elimination of the income tax as well. Its criminal that the government has the right to have first dibs on the fruits of your labor. It seems to me that it is a de-facto slave state when they can dictate how much of your money you are permitted to keep.

    I will address all of the points raised in the OP later, when I have time.

    Overall, this is a very good post by you, Mordecai. I dont agree with all the points you raised, but I am impressed by the OP none the less. Keep it up.
    I will no longer be replying to any post from a Liberal going forward. I will continue, as normal, to discuss topics and engage in intellectual exchanges with non-leftist

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  11. #8
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    Re: Sensible Taxation in America

    Quote Originally Posted by Squatch347 View Post
    Economically there is no difference. You either remove the capital during the current period (taxation) or you remove it later plus the amount it would have generated (borrowing).


    Long-term end-game looks quite different with those models. That was basically my point.

    Greece versus Denmark, if you will.



    Quote Originally Posted by Squatch347 View Post
    I liked your idea of abolishing the corporate income tax and replacing it with a consumption based tax (though to be honest I would personally like to replace the entire tax structure with a consumption based tax system).


    Your reply made me take a closer look at my math and now I'm not so sure of myself. Thanks for nothin', Squatch!

    If I make a few assumptions using Gallup's data regarding daily spending (averaging over $70 for a few weeks; I used $70 for simplicity and because I prefer conservative estimates) and the number of actual consumers in the United States (I used 150,000,000 based on census data indicating 110,000,000 households in the United States, assuming half of all marriages fail and half don't and there are two direct consumers, no more, no less, in half of America households and one direct consumer, no more, no less, in the other half) for my math, it looks like a conservative estimate of a 2% national consumption tax would generate ~$40 billion a year. I could be more specific if you wanted.

    That means that it wouldn't come anywhere near as close as I was expecting for it to be revenue neutral after the abolition of the corporate income tax (~$250 billion a year in revenues). I'm gonna need to do some thinking...

    Consumption taxes, now that I'm thinking about them, look to be very limited in terms of generating the magnitude of revenue required to address the budgetary deficit. More on the deficit below, but I'm basically saying that I don't see we could get rid of the CIT (corporate income tax) and the IIT (individual income tax) without a very hefty national consumption tax. You're talking about literally 50% of all Federal revenues.

    But! I'd love to hear your plan before I start judging it.



    Quote Originally Posted by Squatch347 View Post
    I would argue however that you would need to make the two bills either legally dependent on each other or joined. The threat otherwise would be that we would likely end up at some point with both a consumption tax and a corporate income tax.


    I see your point, but I'm asserting "perfect world theory" for the purposes of this exercise. I'm sorry I didn't make mention of that in the OP. It's entirely likely that my plan would die in the Congress with or without a few revisions for a host of reasons, so I'm basically assuming that the Congress starts acting maturely.

    I understand the inherent flaw in that supposition.



    Quote Originally Posted by Squatch347 View Post
    Out of curiosity have you read the FairTax books?


    I haven't. Ought I?



    Quote Originally Posted by Squatch347 View Post
    I don't see how your income tax proposal really changes the budget. The amount of additional revenue gain would probably be below $500B, even if we assume not behavior changes (which seems incredibly unlikely). Historically, both tax rates and deductions have had little effect on the revenues received from the upper incomes, just on the revenues reported.


    Which behavioral changes are we assuming?

    If the last sentence is true, than all the hubbub about marginal rates going on in America is absurd. Would you agree or did I misinterpret your comment?

    I agree that $500 billion as a result of my entire plan would probably be too generous, but the 2% payroll tax increase alone, at a conservative estimate, and according to my math, would generate, after 2016, about ~$170 billion in revenues, not including the abolition or increase of payroll tax caps (which would greatly increase that number).

    In addition, I don't have the ability to calculate how much extra IIT revenues would be generated by my plan, since it's basically neutral for all but the highest income quintile and marginal income, but effective Federal tax dues (not including excise and national consumption taxes but including both IIT and payroll taxes) would be closing in on 25-30% by my plan: IIT at minimum of 20% including all earned income and capital gains, plus 12.4% payroll taxes plus my proposed 2% increase on payroll taxes after 2016 or thereabouts plus 2.9% for the Medicare portion of payroll taxes, not including payroll tax caps.

    If Governor Romney's effective taxation rate was around 15%, then I basically just doubled them, more or less, even without the payroll tax caps.

    I need to spend a lot more time working on this plan. My purpose in writing it down was to challenge it and make it better, and you've helped me do that, Squatch. I'd like to hear your comments thus far, but keep in mind I'm already making mental revisions.

    Finally, I'm not talking about spending cuts, but, ideally, spending cuts will occur, hopefully twice as many, give or take, as revenue dollars increased, so if we generate $400 billion in revenues and cut $800 billion in spending, a long call until the post-recessionary aftershocks pass (around 2016 by most estimates), plus increased tax receipts generated by stabilized employment and housing markets, that would make for quite a deficit reduction. I understand how many assumptions are involved in this math. I'm just throwing out ideas, mostly. Please feel free to take as much issue with as much of this as you can. It needs a lot of work.
    Last edited by Mordecai; November 20th, 2012 at 02:06 PM. Reason: Forgot bit about deficit at bottom

  12. #9
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    Re: Sensible Taxation in America

    Quote Originally Posted by Mordecai View Post
    Long-term end-game looks quite different with those models. That was basically my point.

    Greece versus Denmark, if you will.
    I think those are two different stories. Greece didn't pay off the debt when it came do is the problem. Denmark funded current deficits with current taxes. Greece funded current deficits and past debts with future taxes. You can't pay off your debt with debt without economic consequence. In essence Greece's spending was much, much higher than Denmark's, even though they were spending similar levels on current spending.
    http://www.heritage.org/index/visualize

    A quick table to visualize.


    Greece Denmark
    Current Spending X X
    Debt Payment Y 0
    Total X+Y X
    Necessary financing X+Y X

    So you can see that Denmark's financing is steady at current spending, Greece's expands because it finances its debt through more debt, which I think we both agree is a ridiculously stupid policy.


    Quote Originally Posted by Mord
    Your reply made me take a closer look at my math and now I'm not so sure of myself. Thanks for nothin', Squatch!
    I do it out of love.

    Quote Originally Posted by Mord
    But! I'd love to hear your plan before I start judging it.
    It certainly isn't my plan, though I would love to take credit for it. The FairTax (FT) (I hate the name) plan calls for a 23% tax on all final consumption purchases with a 0% income tax rate and is revenue neutral. That revenue doesn't include returned capital from investments overseas, which are likely, and capturing of black market income (even drug dealers buy milk). That 23% tax rate, while seemingly daunting is really just a transfer from the current effective income tax rate of 23%. Since that income tax reduction would come out of either increased pay or reduced prices (probably the latter for competition reasons). It would be in effect a neutral change. People would probably get their pay adjusted to their current take home levels and see prices remain the same or they would see a rise in pay and a corresponding rise in prices.

    There are of course better writers out there and I've also debated the specifics of the plan in depth here.

    Quote Originally Posted by Mord
    I see your point, but I'm asserting "perfect world theory" for the purposes of this exercise. I'm sorry I didn't make mention of that in the OP. It's entirely likely that my plan would die in the Congress with or without a few revisions for a host of reasons, so I'm basically assuming that the Congress starts acting maturely.

    I understand the inherent flaw in that supposition.
    Understood, of course almost any tax reform plan will die because of individual interests. I'm with you, we assume for the purposes of here that they have passed it and some mechanism prevents that event and we can discuss that mechanism later.

    I don't necessarily see the harm in linking the two bills though, are you making that argument simply for political expediency or some economic benefit?

    Quote Originally Posted by Mord
    I haven't. Ought I?
    Indeed, or check out their site or the thread here.

    Quote Originally Posted by Mord
    Which behavioral changes are we assuming?
    I would assume that those with the highest incomes are able and willing to shift that income in such a way as to prevent or limit taxation. Its why we see the same revenue rates today at 30ish percent tax rates as we did when we had 90ish percent tax rates.

    Quote Originally Posted by Mord
    If the last sentence is true, than all the hubbub about marginal rates going on in America is absurd. Would you agree or did I misinterpret your comment?
    It isn't necessarily absurd, it just won't generate more revenue. It will change behavior, perhaps there will be less investment, perhaps incomes will be funneled overseas to non-US corporations, etc. I'm not arguing that it won't have repercussions, just that the first order effects will be minimized by individual action and that we need to consider the second, third, fourth, etc order effects.

    Quote Originally Posted by Mord
    I agree that $500 billion as a result of my entire plan would probably be too generous, but the 2% payroll tax increase alone, at a conservative estimate, and according to my math, would generate, after 2016, about ~$170 billion in revenues, not including the abolition or increase of payroll tax caps (which would greatly increase that number).
    Perhaps, again, I think we should apply a discount to account for people attempting to avoid taxes. Even if we don't though, the estimate is literally an order of magnitude smaller than the deficit so I have a hard time seeing how it will really affect things too much.

    Quote Originally Posted by Mord
    I need to spend a lot more time working on this plan. My purpose in writing it down was to challenge it and make it better, and you've helped me do that, Squatch. I'd like to hear your comments thus far, but keep in mind I'm already making mental revisions.
    I look forward to hearing them, it is definitely an interesting start. If I could propose one thing. Could you start your next post off with the base line assumption/goal you are trying to achieve? For example, you could be seeking revenue maximization, popular sentiment fairness or moral equity. I'm just trying to understand what particular goal is guiding your efforts.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
    Also, if you think I've overlooked your post please shoot me a PM, I'm not intentionally ignoring you.


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  14. #10
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    Re: Sensible Taxation in America

    Base-line goal: Simplification of the American tax code.



    Quote Originally Posted by Squatch347 View Post
    I think those are two different stories. Greece didn't pay off the debt when it came do is the problem. Denmark funded current deficits with current taxes. Greece funded current deficits and past debts with future taxes. You can't pay off your debt with debt without economic consequence. In essence Greece's spending was much, much higher than Denmark's, even though they were spending similar levels on current spending.

    So you can see that Denmark's financing is steady at current spending, Greece's expands because it finances its debt through more debt, which I think we both agree is a ridiculously stupid policy.


    Well, exactly, yeah. The end-game is that although Denmark taxes-and-spends, it is in a much better position than Greece, which borrows-and-spends. I understand the distinction you're drawing between borrowing to spend and borrowing to pay off debt, but the end-game carries us to the same point.

    Put simply, if we had to choose between America taxing-and-spending or America borrowing-and-spending, the choice ought to be clear. The borrowing-and-spending on such a massive scale is going to necessitate either a default, further borrowing to pay off debt, or massive tax increases to off-set the giant deficits.



    Quote Originally Posted by Squatch347 View Post
    It certainly isn't my plan, though I would love to take credit for it. The FairTax (FT) (I hate the name) plan calls for a 23% tax on all final consumption purchases with a 0% income tax rate and is revenue neutral. That revenue doesn't include returned capital from investments overseas, which are likely, and capturing of black market income (even drug dealers buy milk). That 23% tax rate, while seemingly daunting is really just a transfer from the current effective income tax rate of 23%. Since that income tax reduction would come out of either increased pay or reduced prices (probably the latter for competition reasons). It would be in effect a neutral change. People would probably get their pay adjusted to their current take home levels and see prices remain the same or they would see a rise in pay and a corresponding rise in prices.

    There are of course better writers out there and I've also debated the specifics of the plan in depth here.


    I'll do some research, but my problem with consumption tax plans without any "supporting revenues" is that the effective rate is only revenue neutral if 100% of earned income is spent (because 100% of earned income is taxed).

    I'd prefer to "mix it up" a bit. Small taxes have a small affect on economies and large taxes have a large effect on economies. I think we're safer with a series of small taxes and small effects than 1 or 2 large taxes and 1 or 2 large effects. (I'm aware that we're probably going to disagree on what "small taxes" and "large taxes" are, but if we can avoid that semantic for a moment to make a broader point, I think we'll find ourselves nearer to agreement without sacrifice of individual principles.)

    But again, I'll need to do some research before I pretend I'm qualified to fully discuss this. I'd be interested to see a link to one of those explanations if you've got it handy.



    Quote Originally Posted by Squatch347 View Post
    Understood, of course almost any tax reform plan will die because of individual interests. I'm with you, we assume for the purposes of here that they have passed it and some mechanism prevents that event and we can discuss that mechanism later.


    Thank you, Sir.



    Quote Originally Posted by Squatch347 View Post
    I don't necessarily see the harm in linking the two bills though, are you making that argument simply for political expediency or some economic benefit?


    A bit of both. Don't get me wrong; I don't think linking the two bills would be apocalyptic or anything. I just think that it would be easier to have them separate so that if any future changes need to be made, you're only amending one aspect of the tax code instead of having to rearrange what are essentially two bills.

    I.e., let's say we need to adjust consumption tax rates. It'd be easier to make the adjustment if the bill being amended only pertains to consumption taxes. If the bill being amended also pertains to one or two other taxes, the process becomes unnecessarily complicated, imo.

    I also think it would make it easier for everyone to analyze the individual aspects of the tax plan. It's possible for a person to agree with my suggestion regarding a national consumption tax but disagree with eliminating the corporate income tax. I don't want good plans or ideas pigeon-holed out of the Congress by accident.

    Finally, I think it would make it easier for all the lawyers and accountants and other non-value-adding but expensive services, which would keep costs as low as possible on business.

    Long story short, it'd be easier for their lawyers and accountants to analyze two relatively simple bills rather than one complicated bill, which means they'd spend less man hours and the net total charged to the business would be less. I don't mean to exaggerate; it wouldn't be a massive difference in payments, but every dollar counts and I think we should be placing a very active focus on making things as easy as possible for American business (within reason).

    I.e., simple. I think simplicity in the tax code is an admirable goal unto itself.



    Quote Originally Posted by Squatch347 View Post
    Perhaps, again, I think we should apply a discount to account for people attempting to avoid taxes. Even if we don't though, the estimate is literally an order of magnitude smaller than the deficit so I have a hard time seeing how it will really affect things too much.


    I think you're giving my suggestions regarding high-income earners a little too much weight. Personally, I thought it was the most malleable and least important part of my plan.

    The increase in payroll taxes and removal of payroll tax caps and the simplification of the tax code all have potentially enormous benefits for Americans and for American businesses, in addition to addressing the two largest drivers of America's spending (Social Security and Medicare).

    I think a minimum tax of 20% on all high-income earners, no matter how much money gets diverted where, by what means, and through whatever means of income, has the potential to bring in a few million here and there as well. It's simple and it has no reductionary loopholes.

    In addition, my proposal regarding those making between $100,000 and $1,000,000 means that small business owners who record profits as earned income instead of business income won't get hit with taxes that weren't intended for them, which is something the conservatives are justifiably worried about.

    That said, my basic goal is simplification of the tax code. I'm hoping for a few other positive benefits, but a simple tax code is a start. If my plan does that, then I've achieved my base-line goal.



    Quote Originally Posted by Squatch347 View Post
    I look forward to hearing them, it is definitely an interesting start. If I could propose one thing. Could you start your next post off with the base line assumption/goal you are trying to achieve? For example, you could be seeking revenue maximization, popular sentiment fairness or moral equity. I'm just trying to understand what particular goal is guiding your efforts.


    Simplification of the tax code.

    I'm expecting additional revenues, yes, but now that I've analyzed my national consumption tax a little further, it looks like the revenues will be minimal, so to get those additional revenues, I'll need to do more work. But that's not the specific goal, here. That's a bonus.

    I don't care about popular sentiment fairness or moral equity. My moral compass has an incredible wanderlust, so I prefer to leave those deliberations to people better qualified.

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    Re: Sensible Taxation in America

    My thoughts...

    Part 1: I'm not sure it matters if the Employee, or Employer pays X share of the payroll taxes. In the end its more or less the same result, just a matter of how you account it. Of course making the shift would mean that to keep current take homes more or less the same you would shift salaries higher and take more tax out. Otherwise it sort of becomes a company windfall and employee pay cut. But however it gets worked out, I agree that its a good idea to consolidate that to a single visible payment.

    I'm not sure the cost to calculate really goes down. Computers do most of that these days and they don't really care how much work it is or how tricky the formula is. And regardless the work is going to be done by the companies as they do the reporting and accounting. Having individuals take over that accounting probably isn't realistic or helpful. Its simply much easier to get firms to do the paperwork and to audit it.

    I'm fine with the bump and the removing of the caps on them.

    Part 2: I'm OK with removing corporate income tax and instituting a consumption tax but I feel pretty strongly it needs to be a value added style consumption tax rather than a strictly retail one (as many of the fair/flat tax proposals advocate). VATs are trickier to run but they avoid gaming behaviors of various kinds. This has the added benefit of letting us scrap political rights for corporations and so forth since the legal principles supporting those were put into place so we could tax corporate income.

    Part 3: Most of this sounds fine. Ultimately I wouldn't mind a standard rate with a graduated reduction for low income people. I don't even think we need a progressive rate so long as the tax code doesn't shelter large portions of income for the wealthy as we tend to do. Again a move to a consumption tax might even work out though it would have to come with rebates for low income people to avoid strong regressive pressure on those who already can't afford costs of living.

    Of course I have some of my own more radical ideas for taxation, but I'll leave that for another thread.
    Feed me some debate pellets!

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  17. #12
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    Re: Sensible Taxation in America

    Quote Originally Posted by Mordecai View Post
    Base-line goal: Simplification of the American tax code.
    Gotcha. Thanks.

    Quote Originally Posted by Mord
    Well, exactly, yeah. The end-game is that although Denmark taxes-and-spends, it is in a much better position than Greece, which borrows-and-spends. I understand the distinction you're drawing between borrowing to spend and borrowing to pay off debt, but the end-game carries us to the same point.

    Put simply, if we had to choose between America taxing-and-spending or America borrowing-and-spending, the choice ought to be clear. The borrowing-and-spending on such a massive scale is going to necessitate either a default, further borrowing to pay off debt, or massive tax increases to off-set the giant deficits.
    And this isn't exactly clear though assuming we actually compare apples to apples.

    Lets say the Government in T=0 has to spend $100

    It can a) Borrow $100 or b)remove $100 from the economy to spend it.

    In T=1 we can either have:

    a) Current Gov spending X + $100+Interest, which can be borrowed or taxed from the economy (which is now economy from T=0 + interest (growth)).


    or


    b) Current Gov spending X, which can be borrowed or taxed from the economy (which is now (economy from T=0 -$100) + interest (growth)).

    It really makes no economic difference here, I can either remove it from the economy now or I can remove it from the economy later plus everything it produced (interest).


    The problem only comes when you pay off that interest and debt and new spending with new borrowed money. There is no free lunch of course, which I think you are pointing out, so eventually that debt has to get paid.

    Quote Originally Posted by Mord
    I'll do some research, but my problem with consumption tax plans without any "supporting revenues" is that the effective rate is only revenue neutral if 100% of earned income is spent (because 100% of earned income is taxed).
    Thats not exactly accurate. Much less than 100% of earned income is taxed through loopholes, minimum income rates and tax shelters like off shore earnings. The 23% tax rate would be revenue neutral given current levels of consumption, not hypothetical ones (back of the napkin math can show this, 72% of GDP is consumption and 23% of that figure is roughly $2.4T. Government revenue in 2011 was $2.3T.).

    Quote Originally Posted by Mord
    I'd prefer to "mix it up" a bit. Small taxes have a small affect on economies and large taxes have a large effect on economies. I think we're safer with a series of small taxes and small effects than 1 or 2 large taxes and 1 or 2 large effects. (I'm aware that we're probably going to disagree on what "small taxes" and "large taxes" are, but if we can avoid that semantic for a moment to make a broader point, I think we'll find ourselves nearer to agreement without sacrifice of individual principles.)
    I don't think this is necessarily true. There are two effects we need to worry about here. The first is the net effect of all the taxes. Lets assume that both plans are equal. 100 "small" taxes remove the same amount from the economy as one "big" tax. Obviously a larger total tax amount will have more of an effect. Ok, now lets think about compliance costs and uncertainty. If I have one big tax, that is relatively simple. I pay X% of whatever is being taxed, I can plan around that, figure it out, etc. If I have 100 small taxes to think about it will involve much more planning, much more calculating and more uncertainty. Does tax 83 apply here or 85? What about tax 15? That kind of uncertainty and extra work stifles economic development (by increasing the latent risk of new projects and expenditures) and allows the government more wiggle room to adjust taxes up without public attention. Neither of those outcomes are desirable imo.


    As for research. Here is a thread where I discuss the FairTax in depth, including Sig's objection to it as "gameable" which I conclude (not with his agreement) is a weak objection since all taxes are gameable, especially complex ones like a VAT which are uniquely suited to fraud according to the IMF.
    http://www.onlinedebate.net/forums/s...onsumption-Tax

    Here is a white paper from the FairTax people concerning their support for the plan: http://www.fairtax.org/PDF/FairTax-F...cts-070122.pdf


    Quote Originally Posted by Mord
    A bit of both. Don't get me wrong; I don't think linking the two bills would be apocalyptic or anything. I just think that it would be easier to have them separate so that if any future changes need to be made, you're only amending one aspect of the tax code instead of having to rearrange what are essentially two bills.
    That is exactly my concern ;-) They could edit the income rates back up without correspondingly balancing the other taxes.

    Also, I don't think it becomes more complicated with one bill. If you were to adjust the tax rate for the consumptoin tax (lets pretend thats section 3.A.B) you would say, "Section 3.A.B should now read as "blah blah blah."

    Quote Originally Posted by Mord
    Long story short, it'd be easier for their lawyers and accountants to analyze two relatively simple bills rather than one complicated bill, which means they'd spend less man hours and the net total charged to the business would be less. I don't mean to exaggerate; it wouldn't be a massive difference in payments, but every dollar counts and I think we should be placing a very active focus on making things as easy as possible for American business (within reason).
    I'm not sure how less complicated they would be if you had it in one bill. The second bill would just end up being additional paragraphs to the first bill. The only complication would arise if you were to specifically discuss the linking, which I think is absolutely necessary, regardless of it being one bill or two.

    Quote Originally Posted by Mord
    I think you're giving my suggestions regarding high-income earners a little too much weight. Personally, I thought it was the most malleable and least important part of my plan.
    Fair enough, I agree with your earlier point that a simpler plan is, all other things being equal, a better plan. Removal of all these taxes would make it de facto easier to understand.

    Quote Originally Posted by Mord
    I think a minimum tax of 20% on all high-income earners, no matter how much money gets diverted where, by what means, and through whatever means of income, has the potential to bring in a few million here and there as well. It's simple and it has no reductionary loopholes.
    I think you aren't giving them enough credit. A 20% minimum tax on "income" right? There will have to be a legal definition of that term, and I guarantee there will be a way around that. Be it compensation in kind, off shore account income and spending, etc.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
    Also, if you think I've overlooked your post please shoot me a PM, I'm not intentionally ignoring you.


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    Re: Sensible Taxation in America

    Quote Originally Posted by Squatch347 View Post
    The problem only comes when you pay off that interest and debt and new spending with new borrowed money. There is no free lunch of course, which I think you are pointing out, so eventually that debt has to get paid.


    Yes, but I'm taking the point a little further than that.

    Dollar by dollar, what you're saying is entirely correct. I don't mean to patronize you; I want to cement our agreement in our respect.

    I'm simply adding that these taxes and liabilities don't exist in a vaccuum. Given a choice between tax-and-spend and borrow-and-spend, tax-and-spend is the better economic plan. Dollar for dollar, it's the same thing, yes. But there's also a tipping point, and after that tipping point is reached (specifically with regard to liabilities and especially in a debtor nation, as opposed to a creditor nation), the differences between the systems become incredibly obvious, hence my Greece/Denmark example. If you don't reach the tipping point, then you've basically tax-and-spend'd your way out of debt, in which case, yet again, the superiority of that platform becomes obvious. That's not a defense of high taxes, mind you, it's just an extreme example to illustrate the point that we ought to be closing our budgetary deficits even if it means jacking up taxes a notch or two. The specific taxes and what we should do with them we're discussing below.

    The only reason I mentioned that in the first place is because there's always one or two people who enter the conversation with the idea that low taxes solves all problems. I don't mean to mischaracterize anybody's statements, especially since no such statement has been made in this thread, I was just trying to head-off that kind of thinking in the OP before it even got mentioned. I suspect that we're largely agreed on this point, though.



    Quote Originally Posted by Squatch347 View Post
    Thats not exactly accurate. Much less than 100% of earned income is taxed through loopholes, minimum income rates and tax shelters like off shore earnings. The 23% tax rate would be revenue neutral given current levels of consumption, not hypothetical ones (back of the napkin math can show this, 72% of GDP is consumption and 23% of that figure is roughly $2.4T. Government revenue in 2011 was $2.3T.).


    Hm. I have some thoughts, but first may I have a definition of "consumption"? I mean, we both know what it means, but when you use the word, what are you including? Just the final purchase of goods for the purpose of consumption, or is your use more inclusive?



    Quote Originally Posted by Squatch347 View Post
    I don't think this is necessarily true. There are two effects we need to worry about here. The first is the net effect of all the taxes. Lets assume that both plans are equal. 100 "small" taxes remove the same amount from the economy as one "big" tax. Obviously a larger total tax amount will have more of an effect. Ok, now lets think about compliance costs and uncertainty. If I have one big tax, that is relatively simple. I pay X% of whatever is being taxed, I can plan around that, figure it out, etc. If I have 100 small taxes to think about it will involve much more planning, much more calculating and more uncertainty. Does tax 83 apply here or 85? What about tax 15? That kind of uncertainty and extra work stifles economic development (by increasing the latent risk of new projects and expenditures) and allows the government more wiggle room to adjust taxes up without public attention. Neither of those outcomes are desirable imo.


    I see what you're saying, and it certainly applies to our current tax code, but we're working with a bit of fiat'd logic.

    A couple small and simple taxes, i.e., PTs (payroll taxes), IITs, and CTs, would be much simpler for everyone without vastly altering currently spending habits (for the better or for the worse).

    A large CT does have the potential to vastly alter spending habits. While the paychecks received would be the larger, the impact of goods on a paycheck would also be far more obvious. There's a lot of potential for the alteration of spending habits (good or bad, I don't know). At that point, we'd have to start making assumptions. I don't think we need to make too many assumptions about consumer reactions with a 2% CT, an increase in PTs of 2%, and the abolition of the CIT (corporate income tax).

    That said, if we switched to a low CT and it doesn't impact spending at all, then I'd be content to slowly phase out the IIT with a corresponding CT. I'll talk about some math, below, as it relates to an IIT-replacing CT.

    In other words, we're both proposing measures which simplify the tax code. All were debating is who is accomplishing more simplification. Don't get me wrong, it's a debate worth having, but please keep in mind that everybody would have an easier time with my (or your) plan than with the current tax code.


    Quote Originally Posted by Squatch347 View Post
    As for research. Here is a thread where I discuss the FairTax in depth, including Sig's objection to it as "gameable" which I conclude (not with his agreement) is a weak objection since all taxes are gameable, especially complex ones like a VAT...


    I read some of the thread (there's a lot to get to), I went to the link in the OP to that thread, and I have more research to do. 'Just so you know.

    My only issue is that no math got done, to my knowledge, in that thread. A lot of the debate became more philosophical than mathematical. Taxes is just math.

    You didn't object to my use of Gallup's averages regarding daily spending, so I'm going to use them again. I'm also going to again assume 150,000,000 direct American consumers. Please feel free to object to my numbers.

    Revenues in 2011 were $2.3 trillion. Half of them are the result of IITs. A tenth of them are the result of CTs. If we phase out both, we'd have to make up ~$1.38 trillion ($2.3 trillion divided by 2 is $1.15 trillion; 1/10 of $2.3 trillion is $230 billion).

    I used a 25% CT for my math and upped Gallup's daily spending tracking to 100 (from around 85) to give your plan the best possible outcome. I'm just trying to be fair and make the math easier for both of us without drastically playing with the numbers.

    150,000,000 (direct consumers) x 100 (daily dollars to which the CT would apply) = 15,000,000,000
    15,000,000,000 x 365 (days in a year) = 5,475,000,000,000
    5,475,000,000,000 x .25 (CT) = 1,368,750,000,000

    Your plan almost, but not quite, replaces the revenues lost. So far so good. It might work, but I'm still uncomfortable with the massive paradigm shift in such a short time. There's too many reactions we can't predict here with numbers.

    That said, keep in mind that Gallup's daily tracking numbers would presumably include at least a few people who break tax laws to obtain some measure of their income, so my numbers basically include all the black market activity which would be taxed (a valid concern).

    Tell me what you think so far. We'll go from there.



    Quote Originally Posted by Squatch347 View Post
    That is exactly my concern ;-) They could edit the income rates back up without correspondingly balancing the other taxes.


    That's a fair concern.



    Quote Originally Posted by Squatch347 View Post
    Also, I don't think it becomes more complicated with one bill. If you were to adjust the tax rate for the consumptoin tax (lets pretend thats section 3.A.B) you would say, "Section 3.A.B should now read as "blah blah blah."

    I'm not sure how less complicated they would be if you had it in one bill. The second bill would just end up being additional paragraphs to the first bill. The only complication would arise if you were to specifically discuss the linking, which I think is absolutely necessary, regardless of it being one bill or two.


    I'm not sure why, but I really do think it would be simpler if each "kind" of tax was in a separate bill.

    At some point, the plan I'm presenting will have to change. I don't know if that's 10 years from its enactment or 50 years from then, but it will need to change. I just think it'll be easier to change (hopefully for the better) if it's two bills.

    But I'm not married to that point. If I could get my proposal passed as it is except for the bit about it being separate bills, I'd be more than content with that.



    Quote Originally Posted by Squatch347 View Post
    I think you aren't giving them enough credit. A 20% minimum tax on "income" right? There will have to be a legal definition of that term, and I guarantee there will be a way around that. Be it compensation in kind, off shore account income and spending, etc.


    If you made a (marginal) dollar, you give up 20 cents on it. Doesn't matter how you got it.

    I understand your point, though, and it's a solid one. I'll give it some thought, Squatch, thank you. More replies and editing to come, I've been crunching numbers and taking your suggestions into account.

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    Re: Sensible Taxation in America

    Quote Originally Posted by Sigfried View Post
    My thoughts...

    Part 1: I'm not sure it matters if the Employee, or Employer pays X share of the payroll taxes. In the end its more or less the same result, just a matter of how you account it. Of course making the shift would mean that to keep current take homes more or less the same you would shift salaries higher and take more tax out. Otherwise it sort of becomes a company windfall and employee pay cut. But however it gets worked out, I agree that its a good idea to consolidate that to a single visible payment.


    Agreed. Perhaps it would be better if the "balance" of payroll taxes (6.2% for Social Security paid by employee, but currently 4.2% because of extended legislation; 1.45% for Medicare paid by employee; and 6.2% and 1.45% paid by the employer) shifted slowly instead of all at once. The total is 15.3%, or 7.65% paid by both parties. We could shift it 1% every year to the employee to minimize the risk that the employer won't adjust wages to account for the shift of taxation. Or however you'd prefer to phase it.



    Quote Originally Posted by Sigfried View Post
    I'm not sure the cost to calculate really goes down. Computers do most of that these days and they don't really care how much work it is or how tricky the formula is. And regardless the work is going to be done by the companies as they do the reporting and accounting. Having individuals take over that accounting probably isn't realistic or helpful. Its simply much easier to get firms to do the paperwork and to audit it.


    Yes, but you have to pay those firms, primarily for direct labor. Right now, companies do need to be able to explain, on paper, how much they pay in payroll taxes and as a result of which numbers. Not having that responsibility at all decreases the amount of however much labor, processing time, or documentation may be required.

    I don't mean to exaggerate; I don't think shifting the tax burden is going to save companies an enormous amount of money. But it does make doing business in America that much easier and reduces the numbers the company needs computer by that much. However much that is, I don't have the means to compute.



    Quote Originally Posted by Sigfried View Post
    I'm fine with the bump and the removing of the caps on them.


    That's at least one-fifth of the current budgetary deficit, right there (well, it would be in 2016 after which the payroll tax holidays should expire, but not until then).



    Quote Originally Posted by Sigfried View Post
    Part 2: I'm OK with removing corporate income tax and instituting a consumption tax but I feel pretty strongly it needs to be a value added style consumption tax rather than a strictly retail one (as many of the fair/flat tax proposals advocate). VATs are trickier to run but they avoid gaming behaviors of various kinds. This has the added benefit of letting us scrap political rights for corporations and so forth since the legal principles supporting those were put into place so we could tax corporate income.


    Would you explain how you're using VAT? How would you imagine that going? What gaming behaviors? I'm sincerely asking for more information and your opinion.

    I don't really mind "political rights for corporations". I have no problem with corporations spending money to influence American elections. It's not a problem in a democracy unless the electorate is uninformed or lazy. To that end, I think all political donations of all kinds should be disclosed to the public.

    But that's probably for another thread.



    Quote Originally Posted by Sigfried View Post
    Part 3: Most of this sounds fine. Ultimately I wouldn't mind a standard rate with a graduated reduction for low income people. I don't even think we need a progressive rate so long as the tax code doesn't shelter large portions of income for the wealthy as we tend to do. Again a move to a consumption tax might even work out though it would have to come with rebates for low income people to avoid strong regressive pressure on those who already can't afford costs of living.


    It's 2%. It's just not big enough to be noticed except in the few States that don't have a sales tax, and even then, it's not much.

    My problem with rebates is that we're basically writing deductions back into the tax code. We've just started the cycle back over.

    If we're going to target and eliminate wide-scale poverty, we're going to need to do better than lowering their taxes or keeping them as low as possible.



    Quote Originally Posted by Sigfried View Post
    Of course I have some of my own more radical ideas for taxation, but I'll leave that for another thread.


    Please don't, Sir. This plan could be improved by them.

  20. #15
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    Re: Sensible Taxation in America

    Quote Originally Posted by Mordecai View Post
    Yes, but you have to pay those firms, primarily for direct labor. Right now, companies do need to be able to explain, on paper, how much they pay in payroll taxes and as a result of which numbers. Not having that responsibility at all decreases the amount of however much labor, processing time, or documentation may be required.
    The problem is if you put this on individuals, your collection rates are going to go down and your enforcement costs are going to go up, and overall the cost of processing them are going to rise. Companies can have a computer make the calculation, make the deposits and be done with it. Individuals will have to collect receipts, calculate obligations, ensure they save money etc...

    Perhaps the most efficient solution is the most scary. If the state (or a very trusted contractor) maintained a centralized database/account, all employers would make wage payments there, then the taxes would be accounted, and money transferred to employees. (or for checks, payment made to this account and checks made to draft from it). Cash payments would have to be tracked more or less as they are now but you could limit those to very small businesses.

    The real problem here is this then becomes essentially a government run consumer bank of sorts, which can lead to all kinds of both potential up sides and down sides. But it does make tax collection and accounting incredibly simple and cheap.

    I don't mean to exaggerate; I don't think shifting the tax burden is going to save companies an enormous amount of money. But it does make doing business in America that much easier and reduces the numbers the company needs computer by that much. However much that is, I don't have the means to compute.
    It could help, but the thing is here, were talking like in another thread about helping business on the backs of workers. Workers and business are both essential elements and there are far more workers than capital holders so your overall impact on the economy (not just the part measured with dollars) may well be larger. Ideally accounting should not be shifted one way or another except that it should be done in the way that is most efficient overall, not just the most beneficial for any one player in the system. Asking some worker to do all the work formerly done by professional accountants is not exactly what I would call efficient.

    That's at least one-fifth of the current budgetary deficit, right there (well, it would be in 2016 after which the payroll tax holidays should expire, but not until then).
    Yep. The problem is that we have this psudo wall between entitlements and regular budget items. The entitlements are supposed to be sort of self paying, and you kind of sort of get what you put into them. Its supposed to be kind of like insurance for the working class or poor so you pay in X amount max because you aren't ever likely to get more, though you may get quite a bit less. It was likely helpful in selling these programs as it seems more "fair."

    But I favor changing our thinking and looking at them more as what they are, programs to shore up low income people to a baseline standard of living and to help poor planners plan for retirement. And that involves taxing for them in the usual way, and paying them out in a mostly needs based way. Capitalism is great and all but it makes winners and losers and you have to live in the same country with the losers so it pays not to let them loose too much that they become desperate. You trade some dynamism for stability. Its like society insurance if you will.

    Would you explain how you're using VAT? How would you imagine that going? What gaming behaviors? I'm sincerely asking for more information and your opinion.
    Sure. What bothers me about consumer only taxes is it leads to squirreling away income inside of the structure of business. This means anyone who owns a business has huge advantages over anyone who doesn't. The gaming comes in taking best advantage of that. For a simple example you have the business lunch. The smart business man finds a way to make every lunch a business lunch so it can be had tax free, where the worker never has this option. Same goes for transportation, office supplies, and so on. A VAT ensures that no matter how the money is spent or what its for, a fair share is paid out. Its just a straight up non-judgmental tax of economic activity.

    Consumer only targeted taxes put a disincentive on consumption which leads folks to find ways to avoid consumption and that isn't really a behavior we want to see. Just like a business only tax is a tax on capital ownership which is also not something we want. What we want is to take money for the state in the least distorting and most efficient/effective way we can manage.

    I don't really mind "political rights for corporations". I have no problem with corporations spending money to influence American elections. It's not a problem in a democracy unless the electorate is uninformed or lazy. To that end, I think all political donations of all kinds should be disclosed to the public.
    Its not a huge issue for me, but it is for many people. I think the real problem is one of accountability. Accountability in voting is simple and direct. But before you vote money talks in a big way deciding who has the opportunity to run. Individuals are accountable to their own finances in making the commitment to fund candidates, Corporations aren't accountable in that way. They account to groups of people or to other corporations in a long chain of ownership and varied risk and awareness. Even if you account for them its easy to hid where the money really came from and hold their feet to the political fire. So I think it would be better not to have them have such rights, but I don't take it as a key political issue as some do. But I am aware that this right originated in legal maneuvers so that the federal government could legally tax corporations.

    It's 2%. It's just not big enough to be noticed except in the few States that don't have a sales tax, and even then, it's not much.
    I was referencing proposals to eliminate income tax in favor of a national sales tax, in which case the rates are significantly higher.

    My problem with rebates is that we're basically writing deductions back into the tax code. We've just started the cycle back over.
    Its your only practical option with sales taxes if you don't want to be bleeding the already poor. About the only alternative is if we have a cashless society and you have a tax income level that is encoded into a payment card so it can give you a reduced sales rate if you are in the low income brackets. That or as you put in a sales tax system you make up front payments out to low income people so they can afford the increased burden.

    If we're going to target and eliminate wide-scale poverty, we're going to need to do better than lowering their taxes or keeping them as low as possible.
    I wouldn't say america has wide scale poverty. We have some concentrated pockets of it and its an issue, but its not what I would call wide scale. Right now it is about 15% of the US population. In a capitalist economy that isn't too terrible. I'm sure we can and would like to do better but the lower you go the harder it is to make gains on that number. I don't think you can ever eliminate poverty in a capitalist system, the best you can do is mitigate the impacts of poverty on those who are poor.

    Please don't, Sir. This plan could be improved by them.
    Well... my ideas are of a different flavor. I would like to see larger portions of taxes and spending become elective. That is people can decide how they want their tax contributions to be spent. This would be done by allowing government agencies to take direct payment and that payment can be deducted from tax obligation. Each tax payer would have a mandatory portion of tax and the rest could be offset by their direct contributions. This would democratize part of the state spending which would shift corruption opportunities from elected officials, de-politicize a number of political decisions, and lighten the work-burden of congress and the president to a degree by removing a portion of the budgeting from their preview.

    The potential benefits come in a few directions. For one it creates a more market style government that responds faster to people's desires and needs than the current system of budgeting. Secondly it frees up some political arguments from polarizing the political landscape. Those who favor a strong defense can put their money where their mouth is and those who want the state to patron the arts can take steps to have that happen and neither can moan they are forced to support that which they don't want (except fo course the portion of tax that is non discretionary) Finally it forces people to actually think about what they want their government to do and experience the result of those decisions.

    The downsides... are increased volatility of government funding which can lead to inefficiencies. Also there are issues with how you handle deficit spending and tax vs receipts. And you have a glut of government agencies advertising themselves to the public to receive tax contributions. There are issues of "mob rule" as well but not when it comes to laws and rights, the sort of things I worry most about with direct democracy. Whatever funding people provide the powers of these agencies and their mandates are still limited by law which is in the hands of the people you vote for.
    Feed me some debate pellets!

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  22. #16
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    Re: Sensible Taxation in America

    Quote Originally Posted by Mordecai View Post
    Yes, but I'm taking the point a little further than that.

    Dollar by dollar, what you're saying is entirely correct. I don't mean to patronize you; I want to cement our agreement in our respect.

    I'm simply adding that these taxes and liabilities don't exist in a vaccuum. Given a choice between tax-and-spend and borrow-and-spend, tax-and-spend is the better economic plan. Dollar for dollar, it's the same thing, yes. But there's also a tipping point, and after that tipping point is reached (specifically with regard to liabilities and especially in a debtor nation, as opposed to a creditor nation), the differences between the systems become incredibly obvious, hence my Greece/Denmark example. If you don't reach the tipping point, then you've basically tax-and-spend'd your way out of debt, in which case, yet again, the superiority of that platform becomes obvious. That's not a defense of high taxes, mind you, it's just an extreme example to illustrate the point that we ought to be closing our budgetary deficits even if it means jacking up taxes a notch or two. The specific taxes and what we should do with them we're discussing below.
    You don't sound patronizing at all, but I understand the nature of internet dialogue and sometimes its hard to "hear" tone here.

    I would agree that funding debt with debt is a problem, which I think is the main thrust of your concern.

    Additionally, I would add that there is absolutely no problem even funding debt with debt in a free market system. IE the government sells its debt on a free market (there are some crowding out issues for capital, but I think that is a bit beyond the scope of this discussion). We don't currently have that situation though. US debt exists on a non-free market because the rates of interest (and de facto the prices) of the debt are artificially skewed under the federal reserve. That non-market actor allows prices to remain artificially high, skewing the actual price, until a moment of collapse.

    If the government were to loan onto a free market system it would find an increasing marginal rate as its debt load became higher.


    Quote Originally Posted by Mord
    Hm. I have some thoughts, but first may I have a definition of "consumption"? I mean, we both know what it means, but when you use the word, what are you including? Just the final purchase of goods for the purpose of consumption, or is your use more inclusive?
    I was using the publicly available data from the BEA. BEA defines Personal Consumption Expenditures as: "Personal consumption expenditures (PCE) measures the goods and services purchased by “persons”—that is, by households and by nonprofit institutions serving households (NPISHs)—who are resident in the United States. Persons resident in the United States are those who are physically located in the United States and who have resided, or expect to reside, in this country for 1 year or more. PCE also includes purchases by U.S. government civilian and military personnel stationed abroad, regardless of the duration of their assignments, and by U.S. residents who are traveling or working abroad for 1 year or less." http://www.bea.gov/national/pdf/NIPAhandbookch5.pdf

    The FairTax's definition can be found here: http://thomas.loc.gov/cgi-bin/query/...2uQcCbb:e9889:
    Specifically it provides a legal guideline for interpretation as "(2) To tax all consumption of goods and services in the United States once, without exception, but only once."

    And defines consumption as: " The term `taxable property or service' means--

    `(i) any property (including leaseholds of any term or rents with respect to such property) but excluding--

    `(I) intangible property, and

    `(II) used property, and

    `(ii) any service (including any financial intermediation services as determined by section 801).

    `(B) SERVICE- For purposes of subparagraph (A), the term `service'--

    `(i) shall include any service performed by an employee for which the employee is paid wages or a salary by a taxable employer, and

    `(ii) shall not include any service performed by an employee for which the employee is paid wages or a salary--

    `(I) by an employer in the regular course of the employer's trade or business,

    `(II) by an employer that is a not-for-profit organization (as defined in section 706),

    `(III) by an employer that is a government enterprise (as defined in section 704), and

    `(IV) by taxable employers to employees directly providing education and training."

    Quote Originally Posted by Mord
    In other words, we're both proposing measures which simplify the tax code. All were debating is who is accomplishing more simplification. Don't get me wrong, it's a debate worth having, but please keep in mind that everybody would have an easier time with my (or your) plan than with the current tax code.
    Agreed, hell it would almost be impossible not to be more simple than the current tax code.

    Lets assume (for the sake of argument) that both plans are equally simple, by whatever metric we wish to propose (I would argue for the smallest compliance costs, IE that it takes the least amount of resources to determine/pay your taxes).

    After that metric, what would you say to a tie breaking metric along the lines of smallest alteration from a pure market decision? IE, the least change of action, spending, production, all of it from a hypothetical state of no taxes at all. The idea behind this metric is that our tax code should alter people's actions from what they decide is in their interest as little as possible.

    Quote Originally Posted by Mord
    You didn't object to my use of Gallup's averages regarding daily spending, so I'm going to use them again. I'm also going to again assume 150,000,000 direct American consumers. Please feel free to object to my numbers.
    I don't have a link to Gallup's source, could you provide it? I'm curious what they use as their data source.

    Regardless the numbers come out close, so the concern goes to paradigm shift. The same, of course could be said of the implementation of the income tax and I think if you gave a good year or so after passage before implementation most of the concerns would be ironed out, it is in people's benefits to do so after all.

    Remember that only companies that sell goods and services are required to pay the tax and provide auditing of those sales. Virtually all states currently have a process for collecting sales tax so most companies would not have to alter their behavior on any level, they are simply collecting a tax at a different rate and sending it to two agencies rather than just the state agency.

    Could you give an example of a concern that might turn out negative?


    Quote Originally Posted by Mord
    I'm not sure why, but I really do think it would be simpler if each "kind" of tax was in a separate bill.

    At some point, the plan I'm presenting will have to change. I don't know if that's 10 years from its enactment or 50 years from then, but it will need to change. I just think it'll be easier to change (hopefully for the better) if it's two bills.

    But I'm not married to that point. If I could get my proposal passed as it is except for the bit about it being separate bills, I'd be more than content with that.
    I think there our goals diverge. I don't see any benefit to making it easy to change. If it is, there is a likelihood that it will be changed under the radar or while we are distracted with some issue. If it is more difficult to change it forces the Congress to engage the people and obtain their active consent, which is certainly preferable when it comes to wealth extraction.


    Quote Originally Posted by Mord
    If you made a (marginal) dollar, you give up 20 cents on it. Doesn't matter how you got it.

    I understand your point, though, and it's a solid one. I'll give it some thought, Squatch, thank you. More replies and editing to come, I've been crunching numbers and taking your suggestions into account.
    What if that compensation is in the form of a driver or personal valet? What is the dollar figure of that? I might value it X and you at Y. Thats hard to tax and even harder to plan for.

    Looking forward to hearing more from you.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
    Also, if you think I've overlooked your post please shoot me a PM, I'm not intentionally ignoring you.


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    Re: Sensible Taxation in America

    Quote Originally Posted by Sigfried View Post
    The problem is if you put this on individuals, your collection rates are going to go down and your enforcement costs are going to go up, and overall the cost of processing them are going to rise. Companies can have a computer make the calculation, make the deposits and be done with it. Individuals will have to collect receipts, calculate obligations, ensure they save money etc...

    Perhaps the most efficient solution is the most scary. If the state (or a very trusted contractor) maintained a centralized database/account, all employers would make wage payments there, then the taxes would be accounted, and money transferred to employees. (or for checks, payment made to this account and checks made to draft from it). Cash payments would have to be tracked more or less as they are now but you could limit those to very small businesses.

    The real problem here is this then becomes essentially a government run consumer bank of sorts, which can lead to all kinds of both potential up sides and down sides. But it does make tax collection and accounting incredibly simple and cheap.


    I figure we just do it the way we already do it minus the divorce in payments. Company sends the tax monies before releasing salaries payable. One-shot deal, no unnecessary calculations beyond 14.2% and 2.9%.



    Quote Originally Posted by Sigfried View Post
    But I favor changing our thinking and looking at them more as what they are, programs to shore up low income people to a baseline standard of living and to help poor planners plan for retirement. And that involves taxing for them in the usual way, and paying them out in a mostly needs based way. Capitalism is great and all but it makes winners and losers and you have to live in the same country with the losers so it pays not to let them loose too much that they become desperate. You trade some dynamism for stability. Its like society insurance if you will.


    We need not debate the value of social programs in this thread. I'm approaching this subject from an economical point of view. Basic social services are fundamental to any developed, stable economy.



    Quote Originally Posted by Sigfried View Post
    Sure. What bothers me about consumer only taxes is it leads to squirreling away income inside of the structure of business. This means anyone who owns a business has huge advantages over anyone who doesn't. The gaming comes in taking best advantage of that. For a simple example you have the business lunch. The smart business man finds a way to make every lunch a business lunch so it can be had tax free, where the worker never has this option. Same goes for transportation, office supplies, and so on. A VAT ensures that no matter how the money is spent or what its for, a fair share is paid out. Its just a straight up non-judgmental tax of economic activity.

    Consumer only targeted taxes put a disincentive on consumption which leads folks to find ways to avoid consumption and that isn't really a behavior we want to see. Just like a business only tax is a tax on capital ownership which is also not something we want. What we want is to take money for the state in the least distorting and most efficient/effective way we can manage.


    We could go with a VAT, I suppose. I'm not familiar enough with the concept to vote strongly one way or the next, but your reasoning seems sound enough. 'Might even bring in some additional revenues. I'm still working on bridging the deficit between revenues generated by a national CT and revenues lost by abolition of the CIT.



    Quote Originally Posted by Sigfried View Post
    Its not a huge issue for me, but it is for many people. I think the real problem is one of accountability. Accountability in voting is simple and direct. But before you vote money talks in a big way deciding who has the opportunity to run. Individuals are accountable to their own finances in making the commitment to fund candidates, Corporations aren't accountable in that way. They account to groups of people or to other corporations in a long chain of ownership and varied risk and awareness. Even if you account for them its easy to hid where the money really came from and hold their feet to the political fire. So I think it would be better not to have them have such rights, but I don't take it as a key political issue as some do. But I am aware that this right originated in legal maneuvers so that the federal government could legally tax corporations.


    Eh... I understand your point, but it sounds like unnecessarily complicated politics more than good policy. Unlimited funds, do with them as you please, and everything disclosed. You don't like who the business is donating to? Stop using that business. Accountability assured if the populace is diligent.

    ...If the populace is diligent.



    Quote Originally Posted by Sigfried View Post
    Its your only practical option with sales taxes if you don't want to be bleeding the already poor. About the only alternative is if we have a cashless society and you have a tax income level that is encoded into a payment card so it can give you a reduced sales rate if you are in the low income brackets. That or as you put in a sales tax system you make up front payments out to low income people so they can afford the increased burden.


    It's 2%. Squatch has an idea regarding replacing the IIT completely with a national CT, but that's not my plan.



    Quote Originally Posted by Sigfried View Post
    I wouldn't say america has wide scale poverty. We have some concentrated pockets of it and its an issue, but its not what I would call wide scale. Right now it is about 15% of the US population. In a capitalist economy that isn't too terrible. I'm sure we can and would like to do better but the lower you go the harder it is to make gains on that number. I don't think you can ever eliminate poverty in a capitalist system, the best you can do is mitigate the impacts of poverty on those who are poor.


    All right.

    From an economic point of view, poor people have less education, produce less, and pay less taxes. That's bad.

    We should promote policies which primarily work to increase employment. President Reagan had a good idea in 1982 with the Job Training Partnership Act and President Obama has had some similar ideas. Germany does an outstanding job maintaining its manufacturing industry by foregoing the focus on college education and giving focus to apprentice programs.

    We need to do more in that area to fix poverty in these United States. We don't just need to employ people. We need to get them well-employed, and the accomplishment of that should be seen as a social, not a political, issue.

    But that's neither here nor there. Without the changes I'm talking about above, a national 2% CT isn't going to change anything for the better or for the worse unless it's indirectly by making America an easier place to do business. I'm not sure how I would mesh that with a VAT, I'll do some research. Thank you for the idea.



    Quote Originally Posted by Sigfried View Post
    Well... my ideas are of a different flavor. I would like to see larger portions of taxes and spending become elective. That is people can decide how they want their tax contributions to be spent. This would be done by allowing government agencies to take direct payment and that payment can be deducted from tax obligation. Each tax payer would have a mandatory portion of tax and the rest could be offset by their direct contributions. This would democratize part of the state spending which would shift corruption opportunities from elected officials, de-politicize a number of political decisions, and lighten the work-burden of congress and the president to a degree by removing a portion of the budgeting from their preview.

    The potential benefits come in a few directions. For one it creates a more market style government that responds faster to people's desires and needs than the current system of budgeting. Secondly it frees up some political arguments from polarizing the political landscape. Those who favor a strong defense can put their money where their mouth is and those who want the state to patron the arts can take steps to have that happen and neither can moan they are forced to support that which they don't want (except fo course the portion of tax that is non discretionary) Finally it forces people to actually think about what they want their government to do and experience the result of those decisions.

    The downsides... are increased volatility of government funding which can lead to inefficiencies. Also there are issues with how you handle deficit spending and tax vs receipts. And you have a glut of government agencies advertising themselves to the public to receive tax contributions. There are issues of "mob rule" as well but not when it comes to laws and rights, the sort of things I worry most about with direct democracy. Whatever funding people provide the powers of these agencies and their mandates are still limited by law which is in the hands of the people you vote for.


    I can't give agreement to democratizing the allocation of tax monies. That sounds like a bureaucratic nightmare on top of being impractical.

    We tried democratizing taxes in 1781. It didn't work. They ought to remain compulsory in much the same way they are now.

  24. #18
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    Re: Sensible Taxation in America

    yet military cuts are out of bounds? Im confused. We want to cut spending but the largest sector of discretionary spending is out of bounds.

    no taxes are better than low taxes. if i dont get decide where my money is going, then I dont want to give a single cent to government.

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    Re: Sensible Taxation in America

    Quote Originally Posted by HCabret View Post
    yet military cuts are out of bounds? Im confused. We want to cut spending but the largest sector of discretionary spending is out of bounds.


    I'm sure considerations of specific spending cuts would make an excellent thread, but this isn't it.



    Quote Originally Posted by HCabret View Post
    no taxes are better than low taxes. if i dont get decide where my money is going, then I dont want to give a single cent to government.


    Pardon me, but that doesn't sound like a formula for a very stable society.

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  27. #20
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    Re: Sensible Taxation in America

    Quote Originally Posted by Mordecai View Post
    I'm sure considerations of specific spending cuts would make an excellent thread, but this isn't it.
    Why isnt this thread? Is this thread not about 'sensible' taxation?







    Pardon me, but that doesn't sound like a formula for a very stable society.
    I never said that "stability" was the goal.

 

 
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