Raising taxes by eliminating the income tax

[corktownyuppie]

Just read this article on Slate.com. I think it's an idea that's so powerful that it should be worth consideration at the federal level with an IRS. But putting that aside, I think it might be a way to raise taxes collected while eliminating the income tax.

Plus, the progressive/liberal part of me likes that it helps reduce income inequality while not punishing and providing disincentives for being productive and making more money.

I think it's ridiculous that the Top 1% are spending $80,000 on a wedding while a family of 4 can't pay for health care. At the same time, the plan could help get rid of the income tax which is really keeping people we need in the city from moving back in.


http://www.slate.com/articles/busine...equality_.html

As I wrote yesterday, rising income inequality has been largely a consequence of two forces: changes in technology that have extended the reach of the most gifted performers in every arena, and increasingly open competition for the services of those performers. Finger wagging at corporate pay boards will not alter the strength of those forces. Regulatory reforms aimed at promoting better corporate governance are often desirable in their own right, especially in the financial services industry. But such reforms are also unlikely to alter the income growth trends we’ve seen in recent decades.
The good news is that we could pull a few simple policy levers that would greatly reduce the adverse effects of growing income gaps without threatening the benefits that have been made possible by improved technology and increased competition.


The simplest step would be to scrap the current progressive income tax in favor of a much more steeply progressive tax on each household’s consumption. Families would report their taxable income to the IRS [[ideally under a tax code that greatly simplifies the calculation of taxable income), and also their annual savings, as many now do for IRAs and other tax-exempt retirement accounts. The difference between those two numbers—income minus savings—is the family’s annual consumption expenditure. That amount, less a large standard deduction—say, $30,000 for a family of four—is the family’s taxable consumption. Rates would start low and would then rise much more steeply than those under the current income tax.

[Goose]

so what happens to the money that is "saved"? when you withdrawl it and spend it then it's taxed as consumption... so basically, you are being taxed on 100% of your income regardless of your income level [[less deductions) unless you leave the money in savings and NEVER spend it... once you take it out and spend it, TAXED...

sounds like a plan drawn from classism and envy rather than common sense...

[Scottathew]

I would support throwing away our current tax code for something fair and simple.

How do you folks feel about a national sales tax in place of the income tax? That way you're only taxes if you consume. If you put on an $80,000 wedding, then you're going to pay A LOT of taxes. If you're a family surviving off of 40k, then that $80,000 wedding alone would generate twice as much tax revenue as they paid total, period.

[corktownyuppie]

I would support throwing away our current tax code for something fair and simple.

How do you folks feel about a national sales tax in place of the income tax? That way you're only taxes if you consume. If you put on an $80,000 wedding, then you're going to pay A LOT of taxes. If you're a family surviving off of 40k, then that $80,000 wedding alone would generate twice as much tax revenue as they paid total, period.

The argument against the national sales tax is that it's heavy handed on the poor, who are more likely to spend a greater percentage of their income. If I make 15,000 per year and I have to spend every dollar of it, then all of it gets taxed. If I make 200k per year and only spend 50k of it, then 75% of my income goes tax free.

[corktownyuppie]

so what happens to the money that is "saved"? when you withdrawl it and spend it then it's taxed as consumption... so basically, you are being taxed on 100% of your income regardless of your income level [[less deductions) unless you leave the money in savings and NEVER spend it... once you take it out and spend it, TAXED...

sounds like a plan drawn from classism and envy rather than common sense...

Classism and envy? If so I'm hardly the poster child. I'm in finance and probably make in the top 2-3% of Detroiters.

In 2008 the national savings rate was -1%. That is a problem.

We need to positively incent income.
We need to positively incent savings.
We need to negatively incent spending.

This does all 3 of those things without punishing the talented and productive disproportionately. And btw, we already get taxed on 100% of our income. So that's a red herring.

[DTFellow]

If anyone is serious about fixing the tax code to balance income inequality, we don't really need to change the system we use. Progressive taxation, where its has enough "levels" can do a reasonably good job of this, if we use history as a guide.

The biggest issue that I can see, if we want to reduce the perceived "taxation inequality", is the mess and maze of potential deductions. When President Obama talks about his so called "Warren Buffet syndrome" where Warren pays a lower rate than his secretary, it only occurs because of the way that deductions are set up. If there were less deductions, or we lowered the amount of income that could be deducted, this issue of shrinking tax rates would largely disappear. However an across the board tax increase wouldn't really fix the problem since those who can claim so many deductions through income shaping to reduce their marginal rates likely would still be able to continue the practice, even if the top marginal tax rate increased from 35% to 39%.

Ultimately, while alternative tax schemes sound interesting and might cause some change to the inequality that we currently see, it is unlikely that the political will and expertise exist to implement such changes. Under the current system, without major changes to the law surrounding deductions, the effect of a tax rate increase would be [[such as not extending the Bush Tax Cuts) to increase the rate on all people, but the only people who would really feel the increase are those in the middle, without substantial deductions but above the point of the standard deduction.

Notice how neither party seems to be talking about THIS.

[drjeff]

The argument against the national sales tax is that it's heavy handed on the poor, who are more likely to spend a greater percentage of their income. If I make 15,000 per year and I have to spend every dollar of it, then all of it gets taxed. If I make 200k per year and only spend 50k of it, then 75% of my income goes tax free.

But I think it would work if buying stock was taxed at the same rate. Otherwise the extra $150,000 is just sitting around and people with that much money sitting around usually invest it. Tax stock purchases and eliminate the capital gains tax.

[Trumpeteer]

If you're familiar with the "Fair Tax" proposal it provides for a "pre-bate" for all indiduals/families that results in a check sent each month to repay the taxes charged on the basic necessities of life, i.e. food, medicine, etc. And yes the poor definitely spend a higher % of their income that would be taxed BUT those with more means usually spend more of the disposable income they have thus generating more tax revenues. Also, the arguement can be made that money currently "earned" by less than legal means, i.e the black market, would finally generate tax revenue when it's spent.

[ghettopalmetto]

Classism and envy? If so I'm hardly the poster child. I'm in finance and probably make in the top 2-3% of Detroiters.

In 2008 the national savings rate was -1%. That is a problem.

We need to positively incent income.
We need to positively incent savings.
We need to negatively incent spending.

This does all 3 of those things without punishing the talented and productive disproportionately. And btw, we already get taxed on 100% of our income. So that's a red herring.

Consumer spending is 70% of the economy. This is a recipe for a downward spiral in federal revenues.

[oladub]

Woodrow Wilson [[D) effectively shifted taxes from import corporations to the middle class when he instituted the federal income tax. Until then, the primary source of federal government income was the import tax and that was largely a tax on the very rich and owners of corporations which imported goods. Recent international agreements such as NAFTA, GATT, and the most recent freer trade agreement signed by Obama with S. Korea make it even more lucrative to shift production overseas and further evaporate our middle class. The Gingrich proposals to import more foreign workers would further evaporate the US middle class as a larger labor supply is created for remaining jobs.

Treasury and Federal Reserve policies creating huge new supplies of dollars also further destroy the middle class by creating inflation. Inflation is a huge and hidden tax allowing government to pay their bills with cheaper dollars. In the short run, a larger money supply masks delation but in the larger run causes inflation. At least that's how it worked out in Zimbabwe and the Weimar Republic. Perhaps we will be luckier.

Without addressing the incentives our government has created to shift jobs overseas and the inflation it causes to keep the game going, some of the other tax proposals are simply an exercise in moving the deck chairs around on our economic titanic.

[Goose]

Consumer spending is 70% of the economy. This is a recipe for a downward spiral in federal revenues.

agree

the whole idea of this just fail stimulus is increased spending.... without spending there is no production and without production there is no jobs....

[hamtown mike]

This is an interesting suggestion. Let's look at two people. Bob and Steve. Bob earns 40k a year. Steve earns 400k a year. Bob splurges on a $40 dinner with his wife. Steve splurges on a $4,000 night at a resort with his wife. Bob pays $4 in tax on dinner. Steve pays $400 tax on the night at the resort. Both, in their minds, have 'splurged' and both have equally contributed based on percentage.

[ghettopalmetto]

This is an interesting suggestion. Let's look at two people. Bob and Steve. Bob earns 40k a year. Steve earns 400k a year. Bob splurges on a $40 dinner with his wife. Steve splurges on a $4,000 night at a resort with his wife. Bob pays $4 in tax on dinner. Steve pays $400 tax on the night at the resort. Both, in their minds, have 'splurged' and both have equally contributed based on percentage.

Except Steve still has $395,600 left. Bob has $39,956 left. After allowing for housing, transportation, clothing, meals, medical care, insurance, debt service, savings, and taxes, who is more apt to spend his entire income? And who is more apt to establish a permanent aristocracy?

[Novine]

"How do you folks feel about a national sales tax in place of the income tax? That way you're only taxes if you consume."

These Flat Tax/Fair Tax/999 Tax plans are great....if you're already rich. This analysis of the Cain 999 Plan shows how these flat tax systems are massively tipped in favor of the wealthy at the expense of the poor and the middle class.

http://www.washingtonpost.com/blogs/...uFvL_blog.html

[DTFellow]

No responses to my "just drop deductions that favor the rich" idea?

[oladub]

How does reducing tax deductions for the rich prevent jobs leaving our shores or government/Federal Reserve policies from eroding our the spending value of our money?

[coracle]

Except Steve still has $395,600 left. Bob has $39,956 left. After allowing for housing, transportation, clothing, meals, medical care, insurance, debt service, savings, and taxes, who is more apt to spend his entire income? And who is more apt to establish a permanent aristocracy?

It's possible that if Steve is1%er working in the Private Sector and Bob is a Public Sector worker, that Steve paid some or all of Bob's $40k, his taxes and his pension in the first place; as well as splurging $4,400 on a night in a resort with his wife which went towards paying somebodyelses income. Good old Steve; we need your input.

[ghettopalmetto]

It's possible that if Steve is1%er working in the Private Sector and Bob is a Public Sector worker, that Steve paid some or all of Bob's $40k, his taxes and his pension in the first place; as well as splurging $4,400 on a night in a resort with his wife which went towards paying somebodyelses income. Good old Steve; we need your input.

So you're going to take one very specific scenario, and apply it to everyone?

What if Steve doesn't actually work, and his income is purely from investments? What if Steve's money comes from inheritance, or selling drugs? What is Steve is a CONGRESSMAN??? What if Bob actually delivers pizzas for a living, or works in a factory, or is trying to pay student loans that Lucky-Ass Steve didn't have to take?

You claim that we need Steve's "input". What does that mean, exactly, by "input"? You want his input, yet you want to cut his taxes at the same time. Doesn't Steve, as being a disproportionate beneficiary of our stable government, regulated economy, and physical infrastructure, owe a disproportionate contribution toward preservation and enhancement of these tools? Whatever Steve's "input" is, Bob's "input" is at least as important. Without millions of Bobs, you have no Steve to worship.

Sorry. I refuse to buy the argument that working people should be enslaved to the wealthy and ordered to do their bidding. If you want to live in a permanent caste system, we can arrange to have you shipped to India.

You go worship money somewhere else. But please do let us know when some of Donald Trump's crumbs trickle down into your pocket.

P.S. Your disdain for public employees is nothing short of appalling.

[coracle]

Well gp that certainly got your attention. I'm just wiping the spit off my screen. Mission accomplished!

[Gistok]

Well gp that certainly got your attention. I'm just wiping the spit off my screen. Mission accomplished!

You sure it's not "drool"?

[coracle]

That's a good point Gistok. I hadn't considered that Steve might have got his disproportionate benefit of our stable government, regulated economy, and physical infrastructure, and owe a disproportionate contribution toward preservation and enhancement of these tools, from an inheritance and maybe some investments; and may not even work! Now that is definitely worth a drool! While if I have it right, at the same time millions of Bobs are delivering Pizzas sprinkled with Trump crumbs on the Indian sub-Continent. Life just isn't fair.

[maxx]

No responses to my "just drop deductions that favor the rich" idea?

Sounds good to me. Obama tried to eliminate the tax credit on private airplanes, but the Reps., true to form, wouldn't hear of it.

Where is the incentive to save when interest rates are below 1%?

And we need to incentivize spending so that more people will get rehired by businesses. The consumer drives our economy, not the rich, Mr. Cain.

[ghettopalmetto]

That's a good point Gistok. I hadn't considered that Steve might have got his disproportionate benefit of our stable government, regulated economy, and physical infrastructure, and owe a disproportionate contribution toward preservation and enhancement of these tools, from an inheritance and maybe some investments; and may not even work! Now that is definitely worth a drool! While if I have it right, at the same time millions of Bobs are delivering Pizzas sprinkled with Trump crumbs on the Indian sub-Continent. Life just isn't fair.

The entire reason our income tax system is progressive is so we avoid establishment of a permanent aristocracy...

...the same permanent aristrocracy the Founding Fathers hoped to avoid duplicating when they declared independence from Great Britain.

But if you want to continue worshipping people who chose to be born to the correct families, make a living by manipulating paper, or by screwing the rest of us over, that's your prerogative.

I like to think, however, that our economy functions better when more of our people have an incentive to do actual productive work, instead of a Chosen Few living high off the hog thanks to the efforts of you and me.

[ordinary]

SIMPLIFIED TAX FORM

1. How much did you earn last year? ____________________
2. Send it in.

[coracle]

SIMPLIFIED TAX FORM

1. How much did you earn last year? ____________________
2. Send it in.

3. If you didn't earn anything how much do you want?_________________
4. Where can we send it to?_____________________________________