Apropos of the CBO forecast for the next 10 years (posted by Eric Cartman a few days back), it is clear that while we need to reduce federal expenses (ending programs, limiting program eligibility, cutting waste/fraud/abuse, etc), we also need to raise federal revenues.
We can play at the margins, but we need serious revenue - as in the 10-12 number chunks per year range. 1% of US GDP is estimated about $270B. While we are spending in the 23-24% GDP range the next 10 years, our collections are currently forecast at 17-18% of GDP. We probably need at least 2 percentage points of GDP more in tax revenue - say 19-20% of GDP - and that is about the highest we have ever achieved an any year in the last 70 years (for very short periods). On a sustained basis, that will probably require some combination of significant tax code changes. Even with 2 percentage points more of GDP in revenue, we will still need at least 1-2% of GDP reduction in expenses as well - just to get to an "acceptable" 2-3% annual deficit.
Below is a list of possible changes I thought of. It includes changes I would advocate and changes I would not. While not all equal in size, all would raise money in big chunks (minimally, billions per year over time), or at least set us up for higher collections in the future by ensuring more money is unsheltered from annual taxation. Fairness and negative impact on the economy are both important considerations.
The list below goes from A to J. I put them in the order of how positively I personally view them - that is, I would do A first, then B, then C, and so forth. And stop when I had what I needed (at least $600B a year more in current dollars). So I most prefer A-C and least want to implement G through J (Sen Warren probably would start with J). I am curious how others here might rank them, specifically which 3-4 on the list they would do first, and which ones they would avoid at all cost. Reminder: This post and list is just about Federal Tax Revenue/Receipts. Expenses are not covered and would have to be dealt with as well. I would like to think we would all agree we need some of both to address the massive shortfalls we are facing. And maybe by doing some of these we will benefit from steady/lower interest rates in the future on the expense side as well.
Tax Changes In order of My Preference:
A) Eliminate all tax deductions for Charitable Contributions over $100K per year (so most individual tithing remains deductible - subject to standard deduction - but major gifts for any cause would no longer be tax deductible even when given to legitimate non-profit charities/churches/institutions, though the charities' income on assets remains non-taxed)
B) Cap the amount any individual or family can have in Tax Deferred Accounts like IRAs, 401(k)s, Roths, etc. Example: Combined total for all tax deferred accounts cannot exceed $5M for individual or $10M for joint. Must have required minimum distributions whenever exceed for over 1 year and cease new contributions via work or personal accounts.
C) Uncap Social Security – currently the 6.2% FICA rate stops at $168K
D) Raise Capital Gains Tax Rate: Under $500K – current 15% rate to 20% and Over $500K – current 20% rate to whatever your top marginal tax rate is - i.e. no difference in treatment for earned or capital gains income at very high income levels (also has the effect eliminating the carried interest issue and the 1256 Contract issues for the very high earners)
E) Raise Marginal Tax Rates for those brackets over $100K (~ top 20% income earners) by 3-7 percentage points
F) Materially reduce the Estate Tax Exclusion – currently about $13M a person – back to say $5M per person (so $10M per family) and do not index for inflation, so that when combined with A this gets much more meaningful each year
G) Institute a national sales tax or a national VAT tax to generate incremental income
H) Raise the Corporate Tax Rate back up from 21% to 30% or higher (was 35% not long ago)
I) National Carbon Tax or higher taxes on all energy usage in general (could even include raising federal gas tax or instituting a mileage tax on cars)
J) Wealth Tax - 2% annually over $1B and probably need to combine with an exit fee as some will want to leave the country