exceed the operational requirements of the schools. I know there is (was?) a small tax on endowment income, but it's like 1 percent and only on income and not total assets.
It should be substantial, and on the total value of the endowment. Think of it as a university wealth tax.
even less for sure when it comes to the broader electorate.
The budget deficits are going to be very challenging. And perhaps UFL can comment on the fact that as our trade deficits shrink (due to China supply chain aversion, growing fossil fuel exports, etc) we will have less of a capital account surplus, perhaps. I assume in the past those large trade deficits "helped" us fund our operating deficits. I wonder who that could mix into the stew.
deficit has nothing to do with the factors you list. They determine what stuff we import and export rather than the amount by which one exceeds the other.
The trade (current account) deficit is determined by saving (including government dissaving) and investment. If you want a little evidence that this story is right, go back a few years. It was pointed out a couple of decades ago that the U.S. was a massive importer of oil. One story that was out there went like: "If we could reduce our dependency on foreign oil, that would largely eliminate our trade deficit".
We did and it didn't.
and thus dissaving, we will have a trade account deficit of some type? And a shrinking trade deficit is unlikely, and if it were shrinking, it would probably be because the government deficit was going down and may well be associated with lower interest rates, but not because of the trade deficit?
and it works out with bilateral trade balances as well as the overall balance.
Countries that save a lot should run current account surpluses with countries that don't (which shows up as a deficit for the latter). What country has a low saving rate? U.S. What country saves a lot? China. The U.S current account deficit with China is the largest in the world.
That's because China floods the market with cheap goods, right? Is that why we have a very large trade deficit with Japan? all those cheap Japanese goods? No. It's because Japan has a signficantly higher saving rate.
This one of those questions where the economists' orthodoxy and popular perception are far apart. It's also on where the economists' story works pretty well.
The proposal is to replace that revenue with increased sales tax and "sin taxes"
I assume figuring out how to distribute the revenues is a roadblock. I have no idea if this would ever have a chance of passing but as a resident of Palm Beach County who pays very high property taxes in my area, it intrigues me somewhat.
In Illinois about half the real estate tax bill goes to the local school district so any effort to change the property taxes impacts how much money local schools will have. Even if the change is revenue "neutral" you are going to change who is paying and the individual "payment" will now be going to help a broader community so likely means a reduction in spending for higher spending districts.
All of which means real change (which we could use) is difficult if not impossible.
Whatever new sales taxes they levied would presumably do the same from what I gathered.
During the last gubernatorial election, one of the candidates was proposing to abolish property tax. Texas, just as Florida, already has no income tax, so his proposal had a hard time evening out the revenue.
According to the final 2023 Treasury Statement...
Medicare receipts: $358 billion.
Medicare spending:
Centers for Medicare and Medicaid services: $2,147 billion, an operating deficit of ~84.4%. That is, only about 17% of the spending is funded by a concurrent tax receipt.
In addition, the federal government handed nearly twice the Medicare tax receipts to the states for Medicaid ($616 billion) without receiving a nickel in taxes for any of it.
That's $2.4 trillion of the deficit. Everything else is trimming around the edges.
Suppose a company with over 1000 employees is making a profit, and their employees need federal assistance to live. In that case, the company should pay some hefty taxes on those profits or pay their employees a wage to get those employees off the federal/state dole. I'm tired of Walmart, Amazon, and their ilk making massive profits and not paying much (if any taxes) and paying their employees so poorly that the rest of us have to pick up the slack on our taxes.
I would also argue for an extra 10% (or higher%) tax on any C-suite or board that earns more than 100x (could hear an argument for a lower number) than their lowest-paid employee. I would include income from all sources not just compensation for the particular company as I know many people at that level sit on multiple boards and get paid in multiple streams so they can hide some of it. An example is that Bezos could give a 100k raise to every employee and he would still have more money than he did 4 years ago. No reason why any of employees should be earning below the poverty line and no reason why they would have to raise prices by a single penny to do so.
I have long felt taxing 100K earned as a plumber and 100K in investment returns from a trust fund baby differently are stupid.
All income, wages, dividends, cap gains, carried interest, EVERYTHING pays:
2.9% for Medicare, no cap (current law for wages)
12.4% for social security with no cap (rate is current for wages but capped)
The current marginal rates with no deductions (standard or itemized) deduction.
Everyone gets a 7K credit to start, fully refundable (amount could be tweaked.)
For businesses, they are all taxed on US-source income at the top marginal rate, plus 2.9% plus 12.4%. However shareholders are credited with their share of taxes paid by the corporate, effectively ending corporate taxation for domestic shareholders.
Seems to me this would generate way more money than we do now and be very simple. If people want to complain about LT gains being partially inflation, they would have the option to pay to increase basis annually if they wished.
I've always thought taxing capital gains at income tax rates, but with an inflation adjusted basis, seemed like the most fair and obvious way.
People who hit AMT pay tax on investments at their marginal tax rate. Only those who fall below or above the AMT threshold pay the ST and LT capital gains rates.
I think you mean they pay at the AMT rate, which is 26% or 28%, well below their "regular income" marginal rate of 35% or 37%, and does not include SS and Medicare taxes that would add ~15% on. So it is still really advantaged vs. earned income.
Also, we are talking pretty far up the chain, not sure you can call anyone paying AMT "upper middle class". They are just upper class.
From the tax policy center:
"In 2019, the AMT impacted just 0.1 percent of households overall. This includes 0.2 percent of households with income between $200,000 and $500,000, 1.8 percent of those with incomes between $500,000 and $1 million, and 12.5 percent of households with incomes greater than $1 million (table 1)."
Even if you tax capital gains as regular income, it would still not be subject to payroll taxes. Are you suggesting we change that as well?
1. Much of the discussion here and in the general public can be characterized as "how can we raise more money from other people". Any honest discussion of the national budget must start from the point that all should feel the pain of taces and/or cuts. Switching to a sales tax or wealth tax are two that fall in the category of let someone else deel the pain.
2. It's an unfortunate fact that increased revenue will trigger calls for increased spending, rather than budgetary improvement. I'm not sure what "punishments" or carrots could be used for Congress to control the budget (reduction of pension/benefits or pay, disqualification from holding office, wearing saxkxloth and ashes?)
3. Capital gains, especially passive holdings, are easy targets. Remember though, that elimination of pension plans makes private holdings for retirement very important for the future. Also long-held capital gains can be viewed as inflation hedging and "profit". That is, an initial investment of $1000 may have been the equivalent of 20 pairs of shoes; and when I sell it several years later for $2000, that may be the equivalent of 20 pairs of shoes and $400
4. Tightening the estate tax (sorry Gen X etc.) may be reasonable to capture at least wealy=tj that has escaped taxation during the owner's lifetime.
5. Business tax rules don't seem to have kept up with multinational business. The system seems to encourage companies to move profits to low-tax countries or a favored country. Biden pushed for joining this IIRC, but it seemed complicated.
6. Although some elements of the tax code are what I'd consider fraudulent steps to allow people to evade taxes, very many are steps by the Government to promote certain behaviors (marriage, children, education, et cetera) or allowances to protect people that allow others to use the same method (family farms, business losses, depletions).
7. The initial attempts in Europe at a wealth tax seemed to fail due to cost of implementation, relocation of those affected (to Monaco egc.), and limited production of revenue. I admit that I'm not bothered by the Gates and Bezos of the world (nor the uber-rich athletes) since I prefer their impact on the US job market (although both need to be reproached for their employee tactics IMO).
As a note of snark, anyone in favor of a wealth tax to limt the uber-rich must be in favor of ending large payout lotteries unless they're hypocrites.
8. I agree that most of all charitable donations should be taxed, especially those that carry a benefit to the donor
The tax code is horrible. We need simplicity efficiency and transparency.
First step is to stop equating progressive as good, moral, and fair.
A sales tax would be easy to understand
Easy to calculate. It would be transparent. It would be hard to manipulate. It would be socially beneficial because those who consume more will pay more in taxes. It could incent investment and be a disincentive to consumption.
As for those who say the rich need to pay their fair share, they would pay the most because they consume the most. And I would have no problem with a luxury tax.
Lastly you pay at point of sale and no record keeping or paying CPA or processing required.
....The U.S. economy is based mainly on consumption.
And not all are equally beneficial. My sons play online games where if you leave a match you are banned for a period of time. They constantly induce them to upgrade.
Look at Fanduel. They show fans looking at garbage time as opportunities to continue betting.
I don't want to make this a values argument. Someone be!ow made a comment implying selfish intent. I am a Catholic and we are required to help the poor. I am arguing we have fiscal issues and need to discuss options and rationale s for them.
Consumers in the U.S. love to consume. High state sales tax in some states don’t seem to keep people from purchasing goods like their fellow Americans in no income tax states. Consumption especially won’t be an in issue given that relative income would increase with the elimination of the federal income tax.
one is consuming?
I had a sneaking suspicion he was looking at my paychecks, because when I found him eating my leftovers one day, he said "well you make twice as much as me..."
"I don't eat twice as much as you," I replied.
I don't particularly especially like the way "regressive" gets bandied about, but how do these people figure that consumption will scale in such a way to make this sustainable? It seems to me it's more "let's take a more from more people, rather than a lot more from a few."
I admit that it works in the EU, but my suspicion is that it isn't just VAT.
is also a value judgment so the move to shift taxes away from one method of collection toward another involves value judgments. I suppose the most value neutral system would be a flat tax with no exemptions or carve outs. Everyone pays the exact same % of their income regardless of the source of income or the amount. Janitor making minimum wage pays x%. Banker making 300,000 pays 10%. Jaime DImon makes 30,000,000 pay 10%
Even under that system I think there would be some on the right and left who would see value judgments. The right might argue that is isnt "fair" to require them to pay such a higher amount. The left might argue the system isnt fair because the wealthy would not pay on paper gains but can use those assets to go borrow money which can again generate paper gains they dont pay taxes on.
As was tripped below.
In the roommate situation, we both have similar living accommodations so we pay the same rent. If I get the bigger bedroom, I pay more. Those are fairly "easy" definitions of fair.
I would agree with you that it's murkier when it comes to consumption - I didn't intend for my argument to advocate for use-based taxes, more to highlight the problem with people who think that consumption only will solve all our ills (when some people cannot afford to consume).
The other part (of which I don't really have data on hand) is the effective tax rate. My understanding of the rebuttal to people who point to when individuals were taxed at a marginal rate of 90% was that they were very, very aggressive in finding loopholes so they paid a much lower effective rate. Closing out a lot of these exceptions would allow us to have both a clearer forecast and clearer picture of "who pays what".
comment on the topic.
Because taxation was primarily tariffs and excise taxes which fell primarily on the poor and insulated the wealthy. Initially the income tax was only meant to hit people in what are currently the highest tax brackets.
If you went to a sales tax, whatever issues we see with wealth/income inequality would explode.
We have an obscenity of a tax code.
We need everyone to feel the impacts of unconstrained spending and the pain of paying taxes.
system? Complexity is a problem but it is separate from spreading the pain.
I think it was JS Mill who supported only letting taxpayers vote. Having everyone foot the bill may help reduce government spending.
When I get home to computer, I will link.
When I get home to computer, I will link.
(a) that’s because we adopted the suggestion of the noted leftist, Milton Friedman, who thought that it would be a good idea to give low income folks an income tax credit instead of a welfare check. If we still separated the two, nothing substantive would change, but that percentage would go down.
(b) Most of those folks pay the payroll tax. The number of folks of pay neither is less than one in five. Many of them have no income, are retired, or are self employed and income averaging or done such dodge.
is dynamic.
It includes households with retirees who paid taxes for years but now have total taxable income (SS, pension, etc.) that falls below the threshold for income tax.
It includes adults in school (trade schools, associate programs, etc.) who are likely to enter the workforce at some point.
It includes some families with younger children - say a single parent with two children earning $17.50/hour (the average Wal-Mart wage as of January 2023 although their overall minimum wage appears to be $14 per the linked article) working full-time at Wal-Mart. At 40 hours a week (if you're lucky enough to be scheduled for that many hours) for 52 weeks, it would be $36,400 a year but after standard deduction, EITC, and other child tax/child care credits, you are likely looking at no federal tax obligation. But as her children grow, the parent's income potentially improves moving to a new job/position, etc, that filer may become a net income tax payor.
if 40% of returns have zero income tax liability this year and 40% have zero liability next year, the number of folks who have had no total liability in the two year period is less than 40%. I'm not sure we know how much less, though.
resembles a bell curve.
The younger and the older are more likely to not have federal income tax liabilities. This is a Forbes summary (which I know is not the best source) of an article from the National Tax Journal in 2019 and showed roughly 90% of people ages 25-55 pay income tax. Obviously, that data may have shifted with changing patterns of work during the Pandemic and the overall aging of the US adult population.
From the Article:
Age and non-payers
Now, Don Fullerton of the University of Illinois at Urbana-Champaign and Nirupama Rao of the University of Michigan have taken a deeper dive into the 47 percent (now 44 percent according to TPC estimates) Their findings, published in the June edition of the National Tax Journal here and summarized in TaxNotes here (paywall) are fascinating:
-The likelihood of not paying federal income tax is closely correlated to age: If you are very young or (especially) very old, you are far less likely to pay income tax than if you are working age. Only 11 percent of those age 25-55 do not pay federal income tax while more than 80 percent of those age 75 or older are non-payers.
-Relatively few people are persistent non-payers. Among those of prime working age who do not pay federal income tax in any given year, nearly one-third will do so for only one year. Almost 6 in 10 will be paying income tax within three years, and just one-in-eight are non-payers for a decade or more.
-By the way, Fullerton and Rao found a similar story when it comes to government benefits. If you include Social Security, older adults are far more likely to receive government transfer payments than younger people. And, of course, once they begin receiving Social Security, they will continue to do so for their lifetimes.
-But if you exclude their benefits and look only at working age people, the pattern looks a lot like it does for taxes. Among those who receive some government support in one year, 60 percent will get a transfer in the following year. But five years later, only about one-in-five still will be getting benefits. And after 10 years, only about 12 percent still get benefits.
Otherwise, Congress will just keep spending and spending.
That's where most of our money goes. Both parties currently see those as untouchable.
Entitlement spending has risen largely because we've gotten older. Non defense discretionary spending hasn't been rising over time.
I wonder what it'll take to finally make the third rail something congress is willing to deal with again.
record lows again, down to around 2.8%, which is roughly the same as the post Cold War trough (2.7%) right before 9/11.
And yet it's a larger outlay than Medicare.
If you think we need to cut big government there's not much to cut besides social insurance and defense.
Maybe once Trump is off the scene the GOP reverts to a policy based party and we can debate how to right size the budget? For now the answer seems to be wait until a debt crisis and hope the other party is in charge so we can blame them.
Common Defense is the only thing of those that ONLY the Federal Government can do (leaving out the National Guard as a viable form of power projection). The fact that we've built a system where the common welfare stuff is also inextricably tied to the Federal level, and that they are becoming competing priorities, is unfortunate.
Kicking everything down to the lower levels isn't the right answer, as there are disparities by region, but so much can be done more locally. (E.g. Habitat for Humanity works well, but it isn't something that can be scaled nationally and still works. Still, a more efficient division of responsibility and resources would go a long way). Social support is also something that can benefit from volunteer and charity support, which can't be said for infrastructure or national defense...
On that last, maybe we could begin issuing Letters of Marque and Reprisal again. Bring the profit and adventure motive back into play for dealing with the Russkies and Huthis.... there have been semi-serious suggestions that Ukraine could do it to throw another wrench at the Russian merchant fleet. And the government does get a cut of the prize bounty from any privateer.
bit of a hazard as well. For example, let's say the loonies shouting around Portland get their way and we become the first state to institute UBI (not mocking UBI, mind you, just using it as a prop).
In a 50 state model, what's to prevent everyone from moving here and bankrupting the government, absent some other control? We don't have borders (for good reason...uh...yet), so you'd have to have some sort of test lest everyone pile in.
We're currently experiencing this with homelessness. People see us as "soft" and we get the good and the bad, the tired and poor, the drug addicts and the antisocials.
Conversely if a state has stricter taxation and one does not, you get things like Bezos declaring his existence in florida to avoid Washington's taxation ideas.
I wish I had a better idea than "make it a federal issue!" because as you said, not everyone is best served that way. However, leaving it to the states leads to odd disparities when mobility is a factor.
Interest rates on US government debt rises so high, that the US government has a difficult time raising new debt and/or cannot sustain it.
The WSJ just ran an article showing how US govt debt service will shortly approach $1T per year. However, there’s no consensus on when those payments and/or interest rates have an appreciable effect on US debt purchases (maybe once we default?).
China used to think they would supplant the USA in this regard, but they have their own structural issues that we’ve discussed before back here.
This topic is way outside of my wheelhouse, therefore, I will first ask a question: If we are to reform the tax system, should we not determine at the outset if we will tax savings (income) or consumption? My question implies that you should not tax both.
At this point, I’m sure you can see where I am headed. Proposals for either a flat tax or a Fair Tax (per the law put forward in Congress) are not included in the options listed in the initial post. Why not?
I have no answers on this one, but I’m sure some of you do. I like the idea of Fair Tax, but I am not sure what the implications are for revenue generation. What I really like is the proposal to repeal the 16th Amendment and disband the IRS. I’d go further and suggest that IRS employees be sentenced to long prison terms at hard labor. I mean, Leavenworth just sits there, half-empty. Let’s use it.
incremental to the current system. Even a VAT or national sales tax or Carbon tax was proposed as an addition to what we have right now.
We both went through the Reagan Reform which I think was the best piece of tax legislation in my lifetime. And under Reagan we also made the last material changes to Social Security and Medicare revenue. But even those were done while maintaining the overall structural and approach we have (taxing income). I welcome more radical alternatives, but I think we will not be able to address them - either at all (due to the complexity and Congressional makeup) or in time to address the next 10-15 years when we face the greatest fiscal challenge. Plus, making significant but incremental changes are much easier to predict in terms of revenue raised. Radical changes will inherently be less predictable. I worry about under-putting and making things worse.
"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
-Jean Baptise Colbert, Finance Minister to Louis XIV
Taxing consumption is pretty common. We have a sales tax here in Maryland. It has its good features (encourages saving in a way) and bad features (regressive).
Would this include all consumption? What, after all, is "consumption?"
Is buying a home one will live in consumption? If yes, this would raise the effective price of a home by 20+% in taxes. Home owners would be the ones penalized because if the total price stays the same, that 20+% is coming out of their hide. If homes aren't taxed at title transfer, what about the lumber that goes into them? Costs go up on new homes putting pressure on builders.
I'm not taking a position on the "Fair" Tax, just reacting to the title. Fair is in the eye of the beholder.
PS ... why not both?
included a prebated stipend for everyone which offset the tax burden for a pre-determined portion of spending to offset the regressive nature of a consumption tax. So if the cost of the tax on food, lodging, transport at the baseline level is $300, each month all individuals get $300. Lower levels of consumption result in savings, higher levels get taxed equally regardless of income level.
Since it is done at the point of transactions, there is no longer a distinction between business, individual, investment.
A benefit is that it directly pegs tax revenue to the GDP - there is less need to jack with tax rates, since revenue floats up as GDP grows.
You could look at the prebate as a form of UBI -- ie the tax system by default partially subsidizes the cost of living for all residents.
The proposal floated in the 00's also deals with your concern about the increase in prices. First - the taxes are already included in prices - if you are running a business, and you are paying taxes, you set your prices to cover that part of your cost of doing business. Second, since the Flat/Fair Tax is the source of revenue, all payroll taxes and deductions go away - it is not on top of existing taxes.
In any event, all of the items listed in the original post will have an impact on someone, since it means more money being taken out of the economy for use by the government. If you want to increase revenue, someone is going to pay more. The question is whether you make it broad and simple or narrow and complex.
What is not fair is that the tax code is incomprehensible. The people who wrote it don't understand it, the people who administer it don't understand it, and ordinary citizens don't understand it.
Local real estate taxes.
years ago. A lecturer came in to defend Pritzker’s proposal for a graduated income tax, and told me that it was “fairer” than a flat tax. I asked him by what measure, and he babbled about how it has been studied. I pressed the issue and asked him to explain to me how “fairness” is objectively measured, and more specifically, if Person A make $500K/year and pays 5% of that, or $25,000 in taxes, and Person B makes $50K, and only pays $2,500 in taxes, how is that objectively “unfair” to the person paying 1/10th of what the other guy is paying? One can argue about policy, but don’t try to sell me on objective “fairness.”
...isn't so much to compare what the high earner pays in taxes to what the low earner pays; but to consider impact that each additional dollar of tax has at various income levels, given the generally known costs of living.
If you have a family of four and AGI of $500K and have spendable income of $475K after taxes, you have covered the base costs of living far more comfortably than the person who has $47,500 left after taxes or about $4,000 a month. If you kept to the ratio of 30% of gross for rent, that would leave $1,200 a month for rent for the low earner and $12,000 a month for the high earner. A family of four in DuPage is going to have a very hard time finding housing for $1,200 a month.
Other everyday taxes are regressive, anyway, such as the sales tax.
To you last point, I believe that there is no such thing as objective fairness, any more than there is objective value for real estate (a taxpayer's appraiser I'm thinking of liked to talk about the "intrinsic" dollar value of the real estate, which is a fiction). Fairness in public policy is what the greatest number would agree to be fair.
...I suppose it'd be simpler to say that a flat tax has a disproportionate impact on lower incomes.
I guess there are two issues: (a) the definition of progressive/regressive and (b) the justification for progressive taxes.
If the taxes paid by an income group as a percentage of that income rises with the level of income the tax is progressive. If this falls as income rises the tax is regressive. Of course the categorization depends on a calculation of who actually pays a tax and economists have their own way of doing this.
The justification for progressive taxes is not usually based on fairness. Economists find this to be a slippery concept. The argument is utilitarian: Progressive taxes produce less pain for a given amount of revenue raised. The idea is that the reduction of utility (pain) caused by depriving someone whose income is $200,000 of $50,000 worth of consumption is less than the reduction of utility caused by depriving someone whose income is $40,000 of $5,000 worth of consumption.
Said in reverse, going from 50K to 45K has a larger negative impact than going from 250K to 245K. Maybe 50-48 utility lost equals 250-245 utility lost (numbers I picked at random) so it maximizes utility to tax the higher earner more on the margin, no?
Is a VAT considered regressive, progressive, or neutral? I honestly don't know, but my gut says "neutral" since it's based on consumption, not income. What's the expert view?
spend a larger percentage of their incomes on taxable goods
Better concepts include a refund or "pre-fund" of the tax value of a given standard of living, offsetting the basket of food, fuel, etc.
People with low incomes save less. That's the basis for the regressivity.
Yes. I guess you could wed a negative income tax to a VAT and claim that the combination is less regressive or not regressive but the VAT part is still the VAT part.
the concept from the mid-90s under the "Fair Tax" label did not have a 'non-taxable goods' category. If you bought something, the transaction was taxed. If you paid for a service, the transaction was taxed.
Monthly Universal Basic income voucher pre-pays the cost of basic goods and services, so low income has a net zero tax burden at worst, net tax income possible.
Prompted me to go online (because the answer surprised me), and I see your answer stated verbatim in a Tax Policy Center piece on this question. I hadn't though it through and was curious about the data that lay behind the answer, but the TPC answer made it quite obvious without the data.
service as we can possibly afford, with someone else's money.
...that all sectors of the economy, from mammoth corporations, to main street businesses, to sole proprietors, to wage earners, would be pitching in; and the design and implementation of the relevant policies would have to do that so far as possible.
The last item, the wealth tax, would have some issues with determining basis. If you hold 10 million shares of Amazon,, it's easy--look at the stock price on the tax lien date. But for real estate, which is already subject to a wealth tax (i.e., real property taxation), you'd have the same issue you get in ordinary real estate assessment at the local levels: the assessor says your shopping mall is worth $40 million, the taxpayer submits an appraisal saying $30 million, and the intervening taxing districts submit an appraisal saying it's worth $50 million. It takes one, two, or more years for the state tax tribunal to hear the case and issue a decision.
For holders of large real estate portfolios, you could be looking at hundreds of millions or even billions of dollars of notional values, with taxpayers likely filing lawsuits to question the way the IRS adopts values for wealth tax purposes. The IRS might say, "You annually have your portfolio valued at net realizable value, and that's your taxable basis." But taxpayers could point out that the IRS allows various depreciation approaches when the income from those real assets is taxed, so how about adjusting the net realizable value for depreciation (or other arguments--I'm not an accountant but can imagine there are other ways to cut down the taxable basis of real estate for a wealth tax program).
Then--what about your wealth that is composed of tangible personal property; and intangibles like goodwill? Is the federal government to effectively institute a personal property tax even in jurisdictions like Illinois that constitutionally eliminated it years ago? That would stir some further controversy.
A general thought: getting this kind of money can only come from one place: the Middle Class and especially the Upper Middle Class. Working Class folks don't have enough money to really help, there aren't enough rich people to tax. Yes, we must go after the highest earners, but to really fix this, the 45% of the population that is doing well but not yet rich is going to have to lift more than their share of the burden.
Answers:
M. Increase the IRS budget for enforcement and hire a large compliment of auditors to collect the tax money that extremely high earners hide despite it being taxable. Enforce the tax code aggressively with a few poster children getting draconian sentences early.
C. The current funding is less than the current outflow. And raise the retirement ages as well, slowly, to better align the demographics of a healthier, longer lived population with the system.
I. Properly applied, this could address electric vehicles using highways without using gas or diesel.
K. Tax hidden income, e.g., carried interest and (maybe) unrealized capital gains above some specific amount. This is really separate from your D, although you mention it there. This is not the same as M.
F. I used to be against the "death tax," but I now see it as a proper way to address familial wealth, especially wealth that has avoided being taxed through various tax avoidance strategies.
A. While I want Bill Gates to be able to give his fortune away, some of that money should go to support the government of laws that allowed him to acquire it.
L. Close loopholes and tax avoidance opportunities for high earners. This can only be effective if done along with M. Could it be included in your E?
Increase intake not by taxing more per individuals but by increasing the amount of workers paying into the system. How? Increase immigration, particularly highly skilled immigrants. Everyone wants to move here, allow more in.
with no hope or expectation of getting anything back.
They get FICA taxes withheld from their paychecks and employers match the employee’s “contribution “ and pays the 943 taxes immediately.
That’s what I did when I ran the finances on our family ag operation.
mk
Are minimum wage. Legal immigrants would make more and thus pay more.
Start with my basic position on immigration: we need more people, loosen the system up. A lot.
And emphasize young people who will pay into the system for a long time.
But the need to adjust retirement ages is real and getting worse. Immigration won't fix that.
And automation is also an issue. Tax the robots!
If productivity per worker increases there'll be more money to go around.
Statistically, upper middle class probably starts around $100k/year.
with locale. NYC costs a lot more than KC.
And, yes, all this means I pay more. "Ask not what your country can do for you, ..." and all that.
I like the idea of keeping the discretionary limit but decreasing the employer limit. Limit the total to 2x the discretionary limit and stop the catch up bonuses. I’m also good with A. C I’m not a fan of at all the reason social security is widely loved is that you get an actual return on your tax. Uncapping it would take that away not just to the 1% but to all the working professionals that already get taxed at the highest rates. I’m also fine with an upper limit of capital gains/qualified dividends before they revert back to standard income.
We need to address the entire income statement, not just revenue.
There is too much money invested in the current system which means too much resistance to any meaningful change.
That said, I would like to explore the possibility of eliminating income tax all together and replacing it with a VAT. I think lowering the estate tax rate exemption should also be on the table, as well as eliminating the automatic step up in basis once certain income or wealth thresholds are met. I'd like to see uncapping social security combined with some form of privatization or semi-privatization so that we can get out of the cycle of taxing current workers to pay for the retirees. Demographics are not good for social security as it currently exists.
contribution limits. The combined employer/employee contribution limit for 2024 is $69k. I can’t think of any policy rationale for it to be that high.
Wow. (you thought I was going to say "nice!" didn't you?)
Is it common for employers to kick in more than a few grand? I've never had an employer offer more than 5k, and only to 401ks.
law firms, and other small(ish) professional services businesses. For larger companies, to fully utilize the combined employer/employee maximum, employees typically need to do a mega backdoor Roth, assuming their plan permits it.
(mega backdoor Roth to the HOF, though)
I think most of the things you discuss are at least debatable and not outside the Overton Window of tax policy, for what it's worth. Some may make us hotter than others, but they are least worthy of a discussion, even if the conclusion is "no". Of course with our political system I have zero faith in anyone's ability to accomplish this. End Rant.
Back to my K option, I'd like a Canadian or someone in a country that has a more or less "automatic" tax return weigh in here, but I think we can be smart enough in 2024 to not have TurboTax be a thing. Taxes are what they are, they are deemed "reasonable" (or as close to something we can agree on), and that's what they are. No crazy loopholes, just "this is what you made on this system, it is subject to this taxation rate, that's it."
Let's say I have a W-2, a 1099-INT, and and 1099-DIV. If I made x on each, I get marginally taxed at a,b,c at different tiers, and that's it. No Buts.
I realize this is perhaps incredibly naive too, but it seems like it's better than the system of "it depends how good your accountant is" and the sheer number of loopholes we have. It would possibly cut down on charitable donations, but who knows? It would destroy Turbotax, but...well, I don't care.
As far as the others:
A) Universities would hate this, naturally, but I think you wouldn't get a gripe out of most people. I'm not sure if it would move the tax needle, though (I don't have any data). What if we eliminated tax exemption for religious institutions? You might never get a vote again, but sometimes I'm tempted.
B) I don't know if it would make a dent in 401ks (even at 23k/year, you're going to have to really spring to put 5M in over your career) but I guess with the other accounts it's possible. For my ignorant ass, what is the point of RMD in general letting people keep it there? My dad is annoyed by this because he doesn't always need the RMD.
C) People will hate this, but it's probably the only way Social Security will survive. I'm guessing my retirement return doesn't scale with it, though.
D) This is a third rail issue with so many people tilting at cap gains not being "honest work", or people who never have invested overly caring about it. I'd be curious what the estimates would be in increased tax revenue.
E) Ugh. As the resident of a state that wants to be California without the services of California, I think 100k is a very low cutoff. Again, I'd like to see what the take would be.
F) This is one of those issues that is meaningless to most humans at the federal level, but can be painful depending on state as (I don't think, at least) states have a minimum.
G) We probably should have one, but it would be political suicide and seen as regressive (which is ironic compared to Europe, but Europe also doesn't have the same wealth disparity)
H) We're still far more business friendly than Europe - are corporations really going to flee if we "revert"?
I) This belies a major issue with increased EV adoption - paying for roads et al when people don't use gas in their car. We need a taxation solution that isn't intrusive but also fairly calculates a car's impact (and Gas just so happens to do so)
J) It's tempting to implement this but I don't happen to like either side of the argument on this.
likely be pretty close to yours.
I have thought about your first one a lot around college. Is donating money to endow the Head Football Coaching position at ND really the goal of our tax policy? Is Donating money for the types of sports facilities schools have been building the goal of our tax policy? I think there might be a rationale on the college front to permit higher donations if they expand access or affordability.
I have spent time thinking about the capital gains tax rates. To me it makes sense to distinguish between active / passive ownership and / or shares purchased directly from the company. As I understand it the primary objective is to spur investment and generate economic activity. However does me buying your shares of Apple actually do anything for Apple? I can see if a company raises new funds then you are creating capital for them to expand but that is not true if I buy your shares and then sell to someone else. All in favor of eliminating carried interest.
Estate Tax is one I would definitely support. I do think we need to think about rates and how they can be avoided. I would be in favor of lower rates with fewer ways to avoid it.
I would not support a wealth tax although I would love to fall in that category. I think the original policy behind the estate tax sort of functioned as a wealth tax and i think it is a better method for that.
I also would like to find a way to avoid companies offshoring their profits to avoid taxes. I dont know if somehting like paying taxes where x% of your top earning employees live including their families.
There are two ideas I have been kicking around in my head that one is a revenue policy and one is a disclosure rule. For the disclosure rule require every entity to dosclose what % of their revenues came from governmental entities. We talk a lot about the free market but there are a lot of government programs people want to pretend dont exiat.
The revenue idea I kick around is related to employers who pay their employees so little they qualify for government support while turning a huge profit. I will admit this started from what I see as the hyprocrisy of the Walton family complaining about taxes while their employees wages are subsidized with government programs. I dont know that such a policy makes sense or is feasible just an idea in response to somethign that bothers me about our economy.
I have written before about the idea a big part of the problem is the shift in view away from the idea that corporations have any community responsibility / obligation. There is a lot of money we spend to create the environment that most want to take advantage of but want to pay as little as possible. Look at the recent attacks of cargo ships even our naval presence around the world works at some level as a subsidy. Would those companies locate overseas if 10% of their ships would not make it to the US? I dont know how to reestablish that sense of responsibility but would be all for ideas that do that.
Appreciate the post and the thought you put in the topic.
For example, B, D, F, and J. People make plans under current rules, then we change the rules of the game after people have already placed long-term bets. F is not as much an issue as I think people expect the current rules to expire next year anyway and go back down to current levels.
I would much rather see drastic cuts in spending than trying to increase "revenues" (one of my least favorite euphemisms for taxes). I would be very happy to throw away the entire tax code in favor of a national sales tax or other consumption-based tax as long as it is extremely simple to implement and doesn't have exclusions or loopholes.
I view $500k in capital gains as ridiculously low as it has a significant impact on almost anyone selling a business.
A, C, F, G and I.
It also might be a good idea to just not have a tax cut every few years.