New Year’s Tax Wishes: If I Was Dictator of America
Based on the notions of economic efficiency that I laid out here, if I could do whatever I wanted I would make the following changes over a ten-year period. (Some faster, some slower, some phased in, some implemented instantly on a given date.) The appropriate amounts in each case require a better calculator than I have access to.
Tax All Corporate Profits Like S-Corps, and Eradicate Taxes on Corporations, Dividends, and Capital Gains. Credit for the idea goes to Milton Friedman (Capitalism and Freedom, page 174 in my edition). Shareholders pay taxes on the year’s corporate profits (at normal earned-income rates or higher), whether or not they’re distributed. No more double taxation, but no more preferencing over earned and interest income, or indefinite/eternal deferral.
Eradicate Tax Deductions for Interest Payments — Personal and Corporate. Mortgage- and corporate-interest deductions are terribly distortionary; they encourage borrowing — debt financing — over equity- and self-financing. And they’re regressive.
Eradicate Business Deductions for Employee Health Care/Insurance. Destroy the distortionary historical artifact of employer-based health care coverage. Stop discouraging self-employment and personal choice of health-insurance options. (Having been self-employed for decades, I take this very personally. It’s cost me many tens of thousands of dollars.)
Scrap the Cap on Social Security Taxes. Include all earned income. This only makes a terribly regressive tax somewhat less regressive, and it expands the tax slice from that still-regressive tax — a tax that discourages working for a living because it only taxes earned income. But it makes Social Security cash-flow solvent beyond the foreseeable horizon (revenues support outlays). Other propositions here should be scaled to compensate for its regressiveness and work disincentive.
Change All Local Property Taxes to Land-Value-Only Taxes. Land value taxes are the least distortionary taxes around. This would remove the disincentive to improve land. Since it’s non-distortionary, it would also be good to increase its total share of the tax take.
Greatly Expand and Simplify the Earned Income Tax Credit, and Deliver it on Weekly Paychecks. Beyond its manifest benefits to tens of millions, and turbocharger effect on the economy, it could allow for some reduction or eradication of other (economically inefficient) means-tested payments.
Tax Carbon. Since people/businesses aren’t paying for their negative externalities, it’s distortionary not to tax carbon. All hail Arthur Pigou. This is a non-progressive tax, so other taxes would need adjustment to compensate.
Reduce Income Taxes and Make Them More Progressive. As possible and needed, given the other changes, to achieve:
Overall Results:
1. Make the whole tax system — local, state, and federal combined — actually progressive. All the way from the bottom to the top.
2. Increase the total tax take by a few percentage points of GDP. Because Americans (notably, Tea Partiers) want the amount of government we’ve got. So they need to cover the costs. True conservatives pay their bills.
Cross-posted at Asymptosis.
I don’t think taxing all corps as S corps will do it. I don’t need to be a corp and as a share holder I’m not the corp, especially an S corp. If I’m a retired person living off my cap gains and dividens, then those are income to me and not the S corp.
Unless we are now going to allow corporations to claim status are a retiree?
If the corp is going to claim personhood, then just as I pay the plumber from my taxed income and write a 1099, so goes the cap gains and dividens. That is, unless my income having been taxed and now used to pay the plumber, said money in the hands of the plumber should not now be taxed…double taxation and all.
Distortions are in the eye of the beholder. As it relates to mortgages, it was never a problem regarding saving when people had incomes beyond autonomous consumption.
Lets get rid of the EITC and fix the damn income tax rates. Much simpler. Of course that would mean we have to get real with the CPI vs poverty level calculations.
You can’t reduce income taxes and make them more simple (other than removing deductions) at the same time. The government still needs money. You have not provided a source to replace such a major revenue generator as the income tax. Which is why we’re in this freakn’ deficit situation currently.
Hi Steve:
Healthcare Insurance costs are a reflection of the healthcare industry and its service for fees cost model which promotes more service with little regard for the quality or efficiency of the outcome. The costs are there and not-so-much with the insurance companies which still could be more efficient . . . hence the group and individual MLR with ratios for age and life style such as smoking and age.
Indeed though, the healthcare cost write off by companies was pretty important when corporation income taxes were higher.
Speaking as a quasi-Georgist, thanks for the LVT bone!
As for:
“Other propositions here should be scaled to compensate for its regressiveness and work disincentive.”
I don’t see FICA as regressive at all, I see it as a social insurance program run by the gov’t.
Everybody gets what they put into it.
Raising the cap might be good because six-figure earners tend to live longer, but we shouldn’t use that as a funding mechanism.
Steve
until you understand that the payroll tax is not “regressive” i can’t take you seriously. some day when you have time sit down and figure what the poor get for their “tax” and what the rich get for theirs. That might give you a clue.
Actually now that Obama has destroyed SS it doesn’t matter anymore. But it was morons on the left that finally brought it down.
Troy
you are doing a little better than Steve, but it’s obvious you don’t know much about SS either. The six figure earners get back what they put in to it, with a little extra to cover inflation and the average rise in incomes over the years. But they actually put “enough” in to it so that the “more than they put into it” that the poor get comes directly from what the rich put into it. sorry, i haven’t got time to explain that to you, but it is correct.
someone who contributes at the cap his whole life gets back a benefit check that is about 26% of his adjusted earnings… meaning that if he lives about 20 years he gets back just a little more than he put in over 40 years. that’s pretty damn close to taking care of that “tends to live a little longer”
meanwhile a worker at 45% of median wage gets a benefit check equal to about 50% of his adjusted earnings… you can work out what “ROI” this is equivalent to. when i did the math, making certain assumptions, I came up with about 10% Real.
So just exactly how is this “regressive” and just exactly what would your “fix” accomplish besides turning it into welfare, which turns out to be about as clever as liberals can think.
yes i am mad at liberals. i thought the danger to SS came from the right. I had no idea that liberals would be stupid enough to sell their children’s birthright for a shopping spree at Wal-mart.
Coberly
If I understand the jist of your argument correctly SS taxes are not regressive because those at the lower end of the income scale get more back in relation to what they put in than do those at the higher end.
That’s fine if you only consider SS as a forced retirement-savings program in which case the money put in is obviously redistributed downward.
But SS isn’t only distributed in the case of retirement benefits (disability, survivor..). While I can’t speak for anyone else, as a liberal I think of SS as a social safety net; insurance that we all get. I think if you get down to it most people see it that way but I could be wrong.
As for why it’s regressive- The first 100kish of income is a flat tax % after that there is no tax. Someone making 200k pays roughly half of what someone making 100k pays as a percentage of their income in SS taxes and obviously the higher the income the lower the percentage. It also goes without saying that there is no SS tax on cap gains (making this even more regressive) which is what “a tax that discourages working for a living” means. The cap is also the biggest reason why those at around the 100k cap seem to have the biggest tax burden as a percentage of their income when looking at state, local, excise, ect..-hardly what you want if you’re looking for a middle class. But hey, not everyone is.
At the end of the day it’s about what each individual thinks is “fair”. You judge the “fairness” of SS tax based on the individual benefits people who pay in, get back. That’s fine-but we don’t judge any other tax on that basis so why start now?
Steve ducking the Coberly specific argument, I too am pleased to see your inner Georgist reveal itself.
Not that I know enough to chime in, but enough smart commenters on old MaxSpeak and indeed in PGL era AB (cough, cough ‘Liberal’) brought it up (along with Sandwichman’s Lump of Labor ‘fallacy’) to make some of these heterodox ideas worth talking about.
I mean if not Angry Bear then where?
Though I think I will come down on the other side. In my previous career workk g first for the County Tax Assessor and then County Building and Planning the bias was towards taxing ‘highest and best use’. Which creates tax incentives for maximal development while tending to underplay environmental externalities.
I mean at some level how do you reconcile conservation easements with Georgian land tax? For example what little is left of English natural environmental territory is the result of more or less conscious tax avoidance or preservation of natural resources.
At one level medieval English Forest Laws were a huge injustice and were at the core of the demands and ultimate guarantees of the Magna Carta. But it was the ability of the Crown and indirectly the upper nobility’s ability to shelter thse resourses for their own pleasure that gives us what environmental diversity Britain has today. Pure instrumental pragmatist ‘greatest good’ policies would have all of England resembling Orange Counties California and Florida.
Fast forward to the present. At one level Ted Turners mega bison ranch and attempt to recreate the native grasslands of the Upper Plains should (in my feeble understanding) be taxed out of existence via pure application of Georgian Ground Rents. Or maybe I got this all wrong. Still willing to watch Steve back this up.
Jeremy
first, I don’t give a damn what “people think”. People don’t think. I know why Steve and other people who don’t think call SS “regressive tax. regressive tax. regressive tax.” It’s because they learned to say that in graduate school like a good parrot.
SS is not a tax at all. What “tax” gives you your money back with interest? It is indeed a “forced retirement savings program.” It has to be “forced” because the people in general aren’t any smarter than Steve. They would not contribute voluntarily until it was too late.
So don’t “judge any other tax…” on that basis, because SS is not a “tax,” much less “any other tax.” And if you stumble over the WORD tax… you need to sit down quietly and think about what SS DOES and not what you call it.
Bruce
subject to certain possible misunderstanding, your point is excellent. our educated elite seem to get their brains stuck in a crack. “regressive tax” “land tax” “incentive to work” “maximize growth” but ask them to step back and look at the broader picture of the good of the people. well, they cant do that. they are, after all, educated.
even poor Linda Beale (above thread) thinks that the answer to the privileged elite is to give all the poor kids scholarships to Harvard.
Steve-Aren’t self-employed health insurance premiums now fully deductible? In terms of eliminating the cap, both Mr. Coberly and Mr. Webb have already illustrated (especially Mr. Webb) that it is not necessary and, if I remember Mr. Webb’s post correctly, quite possibly harmful.
LVT and zoning are independent, but work together. “Highest and best use” is always dependent on zoning, so greenspace etc. can be protected via public policy. LVT is not some mechanistic law of nature that we must follow to the letter, it’s just a tool in the toolbox.
My sister is moving into an apartment complex in LA this month.
~70 units on 5 acres, ~$100,000 in rents, currently paying $4000/mo in property tax.
in my world this $10M property would incur ~$100,000 in property taxes, encouraging higher density development.
And the more density development we have, the less we have to develop greenspace.
If you are going to calculate what the poor and middle class get for their taxes, you have to include everything the rich get for their taxes. There’s a reason the US has so many millionaires. It has a potentially (and once) vibrant economy, a powerful military, a solid research establishment, a police force, a court system and a host of other things that make it possible to build a business and become rich and stay rich. The more government issued money you have, the more government chartered collective you have, the more government protected land and property you have, the more you are using government services, and the more you should pay.