<p>Which values are those?</p>
<p>I guess Paul Volcker is also paranoid.</p>
<p><a href=“http://www.washingtonpost.com/ac2/wp-dyn/A38725-2005Apr8?language=printer[/url]”>http://www.washingtonpost.com/ac2/wp-dyn/A38725-2005Apr8?language=printer</a></p>
<p>A longstand goal of the current administration has been to move to a wage based taxation system, where assets are not taxed. Or as others have said, rents are free, the sweat of the brow is taxed. The proposals on the table seem consistent with the admin’s goals.</p>
<p>There is no problem with lowering or eliminating capital gains taxes if one also eliminates interest taxes, dividend taxes etc. Right now, it does not make economic sense to treat different kinds of investment returns differently under the tax code. For instance, the double taxation of dividends has the indirect effect of making debt more attractive than stock, as the interest on debt can be deducted (by the company) but dividends are taxed twice. The recent changes in the tax code for dividends, from an economic view are crazy, but that’s a long story. Of course, as we cut, the lost revenue will come from somewhere- wage earners.</p>
<p>It is also interesting to note that, if one drops the deductibility of state taxes, it is the democratic states that lose. Another in a long list of paybacks?</p>
<p>You should also note that many wealthy get health plans that are not tax qualified, since they are not available to the rank and file. So I suspect the real target for the health care cap is labor unions and their generous health plans. Maybe we should call this the GM assistance act, as it will, if passed, give GM wonderful ammunition for chopping the cost of health care coverage.</p>
<p>The problem with the AMT could be solved by retroactively indexing it. But that’s too simple.</p>
<p>A huge dent could be put in the Social Security shortfall by merely eliminating the cap on earnings subject to Social Security. But that’s too simple…and would really hit the people with wages in the $100K+ range where it hurts.</p>
<p>Ok, I have taught tax policy. Here is my take on some of the changes:</p>
<p>1.Seventy five percent of capital gains would be tax free. (We have to protect the richest of the rich).</p>
<p>Response: I never understood why anyone would be so gung ho on capital gains tax cuts. Why should someone pay less tax owning general motors stock that has been around for 50 years and does not put any more money in General Motor’s pocket for expansion; yet a hard working doctor or lawyer or business owner would pay three times the tax rate of a person who sold the stock? I would eliminate the capital gains rates for stock that has been previously issued by corporations. I would, however, have a special rate for NEWLY ISSUED STOCK since we want to encourage investment and encourage companies to raise money. This benefit would go to the first stockholder whose money goes to the corporation issuing the stock. This way IPOs would flourish.</p>
<p>By the way, I would also eliminate (or at least reduce) the benefit of capital gains rates on all other assets including real estate ( other than principal residences). Having a special capital gains rate for real estate, we are artificailly raising the prices on all real estate. Depreciation and appreciation is more than enough incentive.</p>
<p>2.The mortgage deduction would be replaced with a tax credit. You would only get the credit on your primary residence and it would be limited so people who own expensive homes would have their credit capped. No credit for vacation homes or second homes.</p>
<p>Response: Well, you can only deduct interest on up to 1.1 million of debt now. In fact, this credit might even be better than what we currently have. Tax credits, however, are generally better for the lower or middle class than for the rich. The rich want deductions because of their tax brackets. I would have to see how this is implemented.If interest is eliminated, I would do what they do in Canada, eliminate all gains from sales of principal residences. I have no problem eliminating interest deductions on second and third homes. </p>
<p>3.State and local income taxes would not be deductible.
Response: I don’t like this at all. States that have income taxes would be very hard pressed as would those who pay the tax. This should be kept. This would be grossly unfair to those who live in high tax states such as California and NY.</p>
<p>4.Tax-free employer-provided health insurance would no longer be tax free above a certain amount. (Maybe $11,000 a year). </p>
<p>Response: This would be a HORRIBLE mistake. We should be encouraging all employers to provide health insurance to their rank and file employees and not discourage it. This absolutely should remain tax free, or you will see companies eliminating this benefit!</p>
<p>The Alternative Minimum Tax will be dropped
Response: I absolutely agree with this.</p>
<p>They should also eliminate the phase in and phase outs of deductions based on income. Either a deduction is beneficial to the economy or it isn’t .Phasing it out over income is very stupid and just adds a lot of complexity. Moreover, the poor don’t pay taxes so why give breaks that only they can use? For example, adoption credits are available for people who make under $155,860 and are phased out if people make over that. I guess Congress wants to encourse poor and middle class folks to adopt but discourage the rich from doing so. This, however, is actually very generous for a phase out Most phase outs are at much lower incomes</p>
<p>The problem with any tax reform or simplification is that we eliminate the deductions for supposedly lower rates temporarily. Overtime,the rates are increased and we are stuck without the deductions. This is exactly what happened as a result of the last “tax simplification” law.</p>
<p>AS to a fair tax,which someone has suggested, this would be a disaster. A fair tax is a national Sales tax, if I remember correctly. Canada implemented a national sales tax that was to replalce its income tax. Now the poor Canadians have BOTH! In addition, there is more smuggling in Canada than found in almost any other country as a result of their high sales tax. To help combat this smuggling, Canada requires inspection of many parcels, especially those coming into and leaving Canada. This has caused the postal rates to be outrageous and has tripled the time it takes to get a package. their who postal system is a disaster compared to ours. </p>
<p>Finally, a national sales tax would really shaft the lower and middle class. It is considered very regressive. Trust me, you won’t like the consequences of a national sales tax.</p>
<p>Here’s a puzzle I wrestle with, and maybe Xiggi can share a current academic perspective:</p>
<ul>
<li> some have argued that cutting or eliminating taxes on investment income would spur investment. Presumably this is because the net return on an investment would rise thereby encouraging more investment. But, if this is true, then enlarging the pool of funds would drive down returns (free market and demand/supply curves in operartion!) so, to a great degree, the NET return would be the same. There are, of course gainers in such a scenario - those that consume investment income. I suspect the NAM membership would be overjoyed. So, perhaps this is another way of paying back the wealthy backers?<br></li>
</ul>
<p>Now, let’s make things a bit more complicated. Assume a zero sum game, where the tax take will be constant, if one cuts rents (investment taxes) then one must raise somewhere else. Wage taxes? OK. Wage taxes up. Net income for wage earners down. Consumption down. Income for industry down. Less need for investment…</p>
<p>How would this be better than cutting rents?</p>
<p>
While I agree or at least see the logic behind much of taxguy’s views. I have trouble with this one. Yes, perhaps states like New York would lose out, but why is this “unfair” whereas the converse of this (that states like New York currently have a bigger portion of their state taxes subsidized by the rest of the country) not unfair? Maybe I’m missing something, but just because you end up paying more taxes doesn’t necessarily mean that it is unfair; it could mean that you have been getting away with other people paying your fair share all along.</p>
<p>Fundingfather, I certainly have mixed feeling about the elimination of the state income tax deduction. There are pros and cons to this. I guess I am a bit biased ( and thus may have clouded judgment) since I live in a relatively high tax state.</p>
<p>…and don’t forget, even with the deduction for state taxes, California is a net exporter of income tax dollars to the federal government (taxes sent to Washington vs. Federal tax dollars spent in California.) I don’t know about NY…</p>
<p>TD:</p>
<p>philosophically, the Dems cannot support increasing the SocSec wage cap by much bcos that would mean high wage earners would end up with a negative return on their “investment.” In essence, SocSec then becomes a de facto welfare plan, which the Dems have spent years trying to avoid.</p>
<p>DStark, HR 25 includes the repeal of the 19th amendment, and provides for the automatic sunsetting of the FairTax if the repeal does not pass. Two of the biggest advantages to the FairTax are the dissolution of the IRS, and the stripping of a huge amount of power from K street lobbyists. When the Congress can’t give tax favors, special interests lose power. When people see themselves paying the tax every day, they are more cognizant of what the government is raking off the top. Why do you think election day is 6 months away from April 15?</p>
<p>Taxguy, it is IMO immoral for income to be taxed twice, and that’s what the elimination of the deduction for state & local taxes would be. We already have this situation with SSI and Medicare taxes, as well as taxes on dividends–how much more are you going to stand for?</p>
<p>Wyogal, it’s not happening.</p>
<p>Wyogal notes, “Two of the biggest advantages to the FairTax are the dissolution of the IRS, and the stripping of a huge amount of power from K street lobbyists”</p>
<p>Response LOL, I really laughed at this one. Do you really think that people would pay any tax if there were only a telephone in a room and no IRS? Get real! Taxes are paid out of fear of enforcement. If there is no enforcer, no taxes will be paid!</p>
<p>Wyogal also notes,“it is IMO immoral for income to be taxed twice, and that’s what the elimination of the deduction for state & local taxes would be.”</p>
<p>Response: Nothing about morality comes into play in tax policy. As one famous former minister of France’s economic policy noted that “good tax policy involves so plucking the goose as to get the maximum amount of feathers with the least amount of hissing.” </p>
<p>This was true 300 years ago, and I submit is still true.</p>
<p>
And there will be no need for parasitic “taxguys” who share the European view that society’s producers are geese to be plucked, either. I like it already.</p>
<p>ON the contrary. I would love lower taxes. Lets reduce spendingl, and we can get lower taxes. Frankly, I have the best social service company in the US> I show folks how to legally reduce their tax bite. If I am a parasite, everyone should have one like me!</p>
<p>Fair enough, I have one like you too. :)</p>
<p>I think we should lower spending on everything I don’t like, increase government spending on the things that benefit me, eliminate my taxes, and raise taxes on everyone who’s not like me. That about cover it?</p>
<p>Well, taxguy, if you won’t educate yourself about the FairTax, there’s nothing I can do to convince you. Why not take the challenge? I’d love to hear your reasoning against it. </p>
<p>And of course there is a moral component to taxes–when someone stops you on the street and takes your money at the point of a gun in order to give it to someone else, we call it robbery. When the government does the same thing we call it … what was that T word again? 
And you know, when Robin Hood was robbing from “the rich”, it really wasn’t the rich he was robbing, it was the tax collector (who taxed primarily the poorest peasantry).</p>
<p>At the same time, I’m foursquare behind you on cutting spending. It’s absolutely laughable to watch the pols running around like Keystone Kops claiming there’s nothing to cut.</p>
<p>What is the tax rate going to be?</p>
<p><a href=“FairTax Volunteer - FAQ 1”>FairTax Volunteer - FAQ 1;
<p>That rate from the link (23% above a certain spending level) means deficits lasting as far as the eye can see.</p>
<p>It is a tax increase on the middle class and of course a tax cut on the upper middle class and rich. It is a redistribution of taxes from the well-off to the middle class.</p>
<p>Very fair to some, not fair to others.</p>