I just came across a fellow internet econocrank’s tax proposal, and find it quite interesting — especially its proposed progressive tax on net worth, which echoes the flat tax on financial assets that I’ve bruited. It also reflects many of the notions I suggested I’d implement if I was the Dictator of America.
The basic problem with this and all comprehensive tax reforms, of course, is that the political system doesn’t work this way, can’t work this way, never has worked this way. We only move forward, improve the system, over centuries — with fitful, stumbling, fumbling steps, forward and backward, never addressing the whole economic ecosystem.
It makes biological evolution look downright intentional and speedy, by comparison.
All that said, I like this proposal. See what you think.
1. Federal Income Tax:
All income and compensation is taxed at a 20% rate except:
– Income under a realistic poverty line (eg $15,000 for a single person), which is taxed at 2% instead
– Income used to pay for large medical expenses (>10% of income) is tax-free
– Income placed into tax-free education-retirement savings account (with modest caps)
– No other adjustments, deductions, or exemptions
Effective rates: 10% on $60,000; 15% on $160,000; 19% on $1,000,000.
Totals about 65% of federal revenue.
2. Federal Net-Worth Tax:
All net worth (accumulated wealth), except the first ~$800,000 is taxed at a progressive 1-1.7% rate.
This tax replaces property, capital gains & estate taxes. Net-worth is the best measure of how much a household has profited from the economic infrastructure governments (all taxpayers) provide.
Effective rates: 0.2% on $1million; 1.0% on $3million; 1.7% on $27million and over.
Totals about 20% of federal revenue.
3. Federal War Tax: Everyone contributes to any war effort: A 6% surcharge increases a federal taxes bill of $10,000 to $10,600 while the nation is at war.
4. Eliminate all these taxes:
– Social Security Taxes – Social Security & Medicare funded from general revenue instead
– Estate Taxes & Capital Gain Taxes – Replaced by more efficient and fair Net-worth Tax
– State Income Taxes in their current form – Replaced by more efficient and fair surcharge – See #5
– Property (real estate) taxes – Replaced by more efficient and fair surcharge – See #5
– Sales taxes, tolls, etc. – Replaced by more efficient and fair surcharge – See #5
– Corporate Taxes – Profits distributed to corporate owners and taxed as income.
5. All states and local governments eliminate all their current taxes and instead set and collect a surcharge on a household’s combined Federal Income and Net-worth Tax.
6. Excise taxes only on products that have a cost to society that is not reflected in their price … e.g. cigarettes, gasoline. Totals only about 10% of federal revenue.
Cross-posted at Asymptosis.
See what I think:
thank god for the lunatic right. to save us from the lunatic left.
here is what i would do:
tax only income because it is the easiest, cheapest, and most straightforward way to collect taxes. tax it with a moderately graduated tax. tax all sources of income the same.
let the people continue to pay for their own retirement through Social Security. probably make Medicare fully paid for by the people who will get the benefits, and even extend that idea to universal care.
don’t want no nosy taxman looking under my bed… or in my bed… for my “net worth.” and really don’t like the idea that the tax man can tax me into poverty by taking away my “net worth.” i can easily pay a percent of my income… almost any percent as long as i know what to expect. being taxed to death on what I own AFTER I own it, according to the tax man’s appraisal would be like having a tapeworm.
i should add
tax enough to cover the costs. room for “deficits” under special conditions, but not as the ordinary way of doing business.
i might make an exception by adding a carbon tax… if nothing else will raise the cost of gas to what it actually is costing us to burn the stuff.
http://en.wikipedia.org/wiki/Land_value_tax
If you take that first 15K at 2%, and the rest at 20%, the effective rate for a single person earning 60K is 15.5%. Take 2 increments at 15K for a married couple earning 60K ttotal and the effective rate is 11%. I can’t figure out where a 10% number would come from.
I don’t think a married couple earning 60K has an effective rate anywhere near 11% today, so right there you have an extra hit on the middle class. According to Bruce Bartlett, “Those with adjusted gross incomes between $50,000 and $75,000 have an average burden of 4.2%.” I’ve linked the ref before, but here it is again. So this plan, compared to current tax policy, is more regressive.
http://www.forbes.com/2010/03/18/tea-party-ignorant-taxes-opinions-columnists-bruce-bartlett.html
For all that Dale and I quibble, I basically agree with him on SS. It needs to be user funded.
Wealth is generated by unspent income. Also per Dale, taxing income directly is simpler and more straight-forward. It also gets directly at wealth accumulation, right at the source.
My only disagreement is with with Dale concerns “moderately graduated.’ It needs to be steeply graduated, and include income of all forms – paycheck, deividends, and capital gains. in fact, recognizing he difference between investment and speculation, I would put a surtax on certain kinds of economic rents, frex: short term capital gains, and any gain from any kind of financial derivative.
JzB
How do you “distribute” corporate profits to owners? If I own a few shares of IBM for a few weeks in the Spring, and again for a few weeks in the Fall, who is going to determine my share of their profits? A bonanza for accountants. And now think about day traders.
The tax system needs to be simpler. There is no tax that can be considered “fair” by all standards, so we must focus on efficiency – cost of compliance and enforcement. I like a low-rate gross receipts tax on corporations, with no deductions or exclusions. I have no hard data, but I think 3% should be enough to replace the corporate income tax, eliminating its complexity, compliance costs, and leakages.
Once corporate profits are no longer taxed, there is no rationale for a lower personal income tax rate on dividends, so they are taxed as ordinary income. This satisfies Warren Buffet’s desire to pay a higher rate than his 6-figure secretary with the vacation home in Scottsdale.
Payroll taxes should be eliminated. They are regressive and create bad incentives.
There are any number of personal income tax simplification ideas. Pick any one with fewer and wider brackets, and fewer deductions and exclusions. With the elimination of payroll taxes, it is feasible for everyone who works full-time to pay at least a little bit of income tax, instead of 50% paying nothing (beyond the 15% payroll tax).
Estate tax should be based on the amount left to each heir, rather than the total estate. $1M per person exemption, and then a substantial, but not punitive, rate. Maybe 30%. Then if Warren Buffett wants to leave $1B to one person, big tax. $1M each to 1000 people, no tax. It breaks up or reduces large estates, and helps solve the “small business” issues as well, as the new owners will not be forced to sell in order to pay the tax.
Keep the “sin” taxes, they help pay the misallocated costs of adverse behavior, as well as discouraging it to some extent.
I also like the Wray square footage tax, to replace everything, except I don’t see how it can be easily administered at a national level.
How do you “distribute” corporate profits to owners? If I own a few shares of IBM for a few weeks in the Spring, and again for a few weeks in the Fall, who is going to determine my share of their profits? A bonanza for accountants. And now think about day traders.
The tax system needs to be simpler. There is no tax that can be considered “fair” by all standards, so we must focus on efficiency – cost of compliance and enforcement. I like a low-rate gross receipts tax on corporations, with no deductions or exclusions. I have no hard data, but I think 3% should be enough to replace the corporate income tax, eliminating its complexity, compliance costs, and leakages.
Once corporate profits are no longer taxed, there is no rationale for a lower personal income tax rate on dividends, so they are taxed as ordinary income. This satisfies Warren Buffet’s desire to pay a higher rate than his 6-figure secretary with the vacation home in Scottsdale.
Payroll taxes should be eliminated. They are regressive and create bad incentives.
There are any number of personal income tax simplification ideas. Pick any one with fewer and wider brackets, and fewer deductions and exclusions. With the elimination of payroll taxes, it is feasible for everyone who works full-time to pay at least a little bit of income tax, instead of 50% paying nothing (beyond the 15% payroll tax).
Estate tax should be based on the amount left to each heir, rather than the total estate. $1M per person exemption, and then a substantial, but not punitive, rate. Maybe 30%. Then if Warren Buffett wants to leave $1B to one person, big tax. $1M each to 1000 people, no tax. It breaks up or reduces large estates, and helps solve the “small business” issues as well, as the new owners will not be forced to sell in order to pay the tax.
Keep the “sin” taxes, they help pay the misallocated costs of adverse behavior, as well as discouraging it to some extent.
I also like the Wray square footage tax, to replace everything, except I don’t see how it can be easily administered at a national level.
I still think the Automatic Payment Transaction tax is the best I’ve read about. All done as it passes through the digital banking system. It has the best chance of capturing the black market and the off shoring stuff. If implemented as discribed, it would capture the international exchanges which would capture the outsourcing stuff.
http://www.apttax.com/
And it’s automatically progressive as it targets the money from money economy.
Except for publically traded stocks and bonds a net worth tax is an incredible accounting pain in the ass. Good for accountants though.
There are some oddities here. Once we decide that those below a certain income level should be spared paying most income taxes, why do we still want to charge them 2%? One reason I can think of is that the partisan argument that “everybody needs skin in the game” is being honored. There’s no reason to enshrine political spin in the tax code. Poor people have enough problems without having to pay income tax.
Why a 20% rate? Is there any evidence that a 30% rate would harm economic efficiency? (Kimel, you there?)
There is some opinionating mixed in with the details of the plan: “Net-worth is the best measure of how much a household has profited from the economic infrastructure governments (all taxpayers) provide. “More efficient and fair” over and over and over, on pretty thin evidence. That sort of thing. Says who, and (other than in the case of “efficient”) so what? I know there are some long-standing “best practices” in taxation, available from the World Bank and such like, but I’m not aware that this gem is part of the package. If this view is all about truth, justice and one guy’s view of what’s fair, it’s not much of a selling point. If it is among generally accepted best practices, then I’m all ears.
Why is there an arbitrary rule for funding war? If 6% is too little to pay for the war, why limit the tax to that? If the Treasury is able to borrow cheaply and war coincides with recession, why pay any additional tax? Writing tax law to exorcise the ghost of Bush seems a bad idea, no matter how big a disaster Bush happened to have been.
Why does federal law dictate to states how to raise revenue? What do we do about state constitutions requiring a balanced budget, when state revenues are locked to a counter-cyclical federal tax structure?
Vegans (hate that word, by the way) want us to believe milk has negative externalities. Dairy farmers want us to believe milk is like, well, mother’s milk. Do we put an excise tax on milk? Pot has negative externalities, so do we tax medical marijuana?
coberly,
Wealth taxes do have “best practice” feathers. A wealth tax slows the concentration of wealth, and can’t put anybody into poverty. A 2% take from $1 still leaves you 98 cents. To the extent that a wealth tax replaces some amount of income tax, it reduces distortion.
“best practice” FEATURES. (Feathers? Where’d I come up with feathers?)
except I don’t see how it can be easily administered at a national level.
tax land, it ain’t going anywhere.
The more money one has, the easier it is to manipulate how income is reported and how much of it there is. I would think same would apply to a “net worth” tax. One could take out a loan, manipulate a few numbers, move money around internationally, pay tax, and then pay off the loan, for instance. And then there is the choice (and potential manipulation) of appraisers (think about ratings agencies). (Simplistic, but then I’m not a provider or user of sophisticated financial instruments/manipulations)
Does everyone here who owns a house know how much it’s worth? I used to know until I found out that at least half of that value was hot air. Who would audit decisions like this? And what would have happened to the tax base in the past 3 years?
On SS, I agree with coberly and jazzbumpa. I’m for steeply progressive income tax brackets, as well. We need to differentiate between someone who earns $400K and someone who earns $2M, $50M, etc., ending with those earning $1B plus.
Golfer1john has a good idea about estate taxes and I believe he’s right about the difficulties that would result from trying to determine how to distribute corporate profit. Coming up with something resembling a K-1 would be terribly complicated and disproportionately benefit accountants and tax preparers. There’s the issue of retained earnings as well.
To kharris, I’d say that I agree with most of what you say. Especially the part about state taxation. Most states would have been worse off during the past 3 years. Of course, I’m sure that the proposal would need to be taken as a whole, but I share many of the same objections. As for “wealth tax” I agree if it’s estate taxation, but I remain doubtful about any tax that involves valuation of non-financial assets every year (net worth).
“The basic problem with this and all comprehensive tax reforms, of course, is that the political system doesn’t work this way, can’t work this way, never has worked this way.” … and it’s more than politics. Each action ripples out affecting most if not all others. Can anyone juggle that many balls? A complete restructuring could take years of modeling, discussion, and tweaking to be done well.
On the other hand, proposals and discussion offer a chance to examine our own preferences as well as to understand how difficult it is to come up with a comprehensive plan that works – and why. Interesting post!
“The basic problem with this and all comprehensive tax reforms, of course, is that the political system doesn’t work this way, can’t work this way, never has worked this way.” You forgot to add “thank goodness.”
jazz
no need to quibble here. i agree even with your only disagreement with me. question being, what is “steep.” i am pretty sure there is “steep enough” to pay the country’s bills, without getting so steep that the poor middle class doesn’t need to pay any taxes at all.
and speaking as one who knows, it is even possible for the real poor to live decent lives without all the money that Steve wants to throw at us. the problem is that we don’t have policies that promote decency. we have one party that wants no taxes, and another party that wants to tax the other party to pay for everything they can think of.
and oh yes, tax income of all forms the same. i am not sure about the surtax… a tax on financial transactions might accomplish the same thing, but i hate to get into the business of deciding what ways of making money are equal, but better, or worse.
but let me say clearly, i don’t “know” about this, just offering a point of view.
Golfer
unlike what I said to jazz, about Social Security I KNOW.
the payroll tax is not regressive. it is not even a tax. there is no hope of arguing with anyone who does not understand this.
but for those wavering on the sidelines… the payroll tax is one face of the Social Security package which is highly PROgressive, and you have to be a moron not to understand that. It’s not a tax because you get your own money back, with your name on it, plus interest, more or less a small insurance transfer as needed.
as for the 50% who pay no taxes… do you mean children and the destitute?
i pay a tax of about 10% on an income you couldn’t eat on. so, according to the Statistical Abstracts do most people earning more than about 2000 dollars per year. So I think you need to be a little skeptical about believing everything you hear.
kharris
feathers is okay. i understand the desire for a wealth tax. i am not wealthy. i still don’t like the idea of a tax that takes away what you already have. Do I have to sell my grandfather’s clock because the tax man calls it “wealth” and i don’t have the income to pay the tax?
If top income tax rates are moderately high and apply to all sources of income, I think you achieve the goal of limiting the growth of large fortunes. “All sources” would have to include capital gains, interest, dividends. And of course gambling winnings. And why not inheritances (rather than estate taxes)?
I do sympathize with the notion of taxing gross reciepts of businesses. No deductions for anything. This might cause some vertical integration, but it’s probably a small price to pay for ending the games that accountants and, more importantly, politicians play. If I recall correctly, a 3 percent tax would mean nearly a trillion dollars in taxes.
Calculating wealth in order to assess a wealth tax is not all that hard, except for the ownership of real property. Yeah, it’s hard to know what a house would bring, but even harder to know what a business would bring, since the market for businesses is pretty thin on “comps”. There are ways around this, though. Adopt a valuation rule for businesses that rely on a net income multiple, for instance. That induces a new tax avoidance incentive, of course, but all taxes do.
Some comments argue against a wealth tax based on personal unease at the notion. That ain’t a reason folks. It turns out that people who pay a particular form of tax often find reasons to be uneasy about it. It’s hard enough to make good decisions about tax policy already. Validating “unease” as an argument against any form of tax means we will never be able to improve the system.
Oh, and just to be consistent, I should point out — coberly says that he can’t have a discussion with people who don’t accpet his view of Social Security. That is essentially to say that only if you agree with coberly is he able to discuss Social Security with you. He (of course, again) insists that the reason you need to agree with him is his own self-declared superior knowledge. Both of these approaches to discussion are utterly illegitimate. We are all entitled to our own views when we come into a discussion, and while we are all tempted to declare that we know best, but should not expect others to accept such declarations from us.
Just a note on illegitimate forms of argumentation. The notion of an “Overton Window” has been around since before Overton was born. There is a range of views on any subject that is acceptable among the general public. Those who hold notions outside that range as seen as kooks or, well, fill in the blank with any of the long list of derogatory terms used in our politics.That range of currently acceptable views is said to reside withing the “Overton window”. (Most of you know this already.)
Now, what can one do to win a debate if there is an appealing alternative one’s own preferred outcome? One thing is to make the alternative less appealing by insisting that the alternative is outside the Overton window. “One cannot hold a discussion with a person who thinks FICA is a tax.” See? No argument against the notion that FICA is a tax. Just an assertion that viewing FICA as a tax is outside the range of acceptable ideas. Now, the Overton window notion makes no claim for the rightness or wrongness of a view. Even if coberly manages, by repeating endlessly in outraged tones, to make readers here believe his narrow views of what FICA is, what various policies imply for the future of Social Security and so forth, that in now way means coberly is right. It would just mean that discussion of views contrary to those coberly holds would fall silent. That’s not a healthy outcome, but it is the one coberly is working toward.
kharris
thank you for correcting my manners, morals,rhetoric, and logic, not to mention grammar.
i can’t hold a discussion with you because you are working off a vendetta based, as far as i can tell, on the false idea that i called you a racist. since i have denied that, i would think that logic would suggest to you that i must at least now not be calling you a racist.
i don’t remember saying i couldn’t have a discussion with someone who thinks SS is a tax. in fact i have pointed out myself exactly the way in which it IS a tax. I have also pointed out the ways in which it ISN’T a tax, in the hope of prying some people off of their word-perseveration long enough to consider what it is that SS does. But I will admit that I have passed from having a provisional tolerance for those who called SS “regressive” to absolute contempt for them.
Sorry that in your Miss Manners mind it is unacceptable to really profoundly fundamentally disagree with someone who is raping your children.
On the 1040 I file, there is a standard deduction of $5800 (single) or $11,600 (married), and personal exemption of $3700. So, the first $9600 for a single person with no other dependents or deductions is tax-free. $19,000 for a family of 4. Then there are credits and exclusions for various things that can allow even greater earnings to be untaxed. That family of 4 could put $12,000 into their IRAs, and about $9,000 I think into an HSA, so they could earn up to $40,000 and not pay income tax. I’m told there can be untaxed capital gains even above that level. Not that truly poor people have capital gains, but I’m sure there are some not-so-poor taking advantage of that provision to pay no income tax.
As for the percentage of what, my impression is that it’s the number of returns filed. Maybe the number of people covered by the returns. Either way, it’s pretty close to reality, I think.
Who does your taxes? If you’re paying 10% personal income tax on everything over $2,000 you should maybe get a smarter accountant 🙂
Perhaps it’s semantics, or perhaps you didn’t read what I wrote closely enough. Everybody with wages, even $1 of wages, pays the payroll tax, even if they pay no personal income tax. And, of course, everyone who buys something pays the taxes levied on the seller, indirectly. It is hardly possible to pay “no tax” and participate in the economy at all.
Social security retirement benefits are mildly progressive as compared to the total income of retirees. The ratio of benefits to lifetime taxes paid is higher for lower income amounts. One must assume that those who paid higher taxes while working have more income from other sources and more wealth than those who paid lower taxes, which seems reasonable.
The taxes (or “contributions”, if you prefer – and accept the notion of an oxymoronic “involuntary contribution”) certainly are regressive. Low earners pay the full rate, but high earners pay only on a portion of their earnings, and thus pay a lower average rate. The “rich” pay a lower rate than the “poor”, which is the definition of a regressive tax.
Considering, though, that those over 65 have, on average, higher wealth than any other age group, the combination of the tax and the benefit is regressive. It transfers income from relatively poorer young wage-earners to relatively better-off retirees.
And, I guess we’re going to have to disagree on this point, but the way Social Security works is “pay as you go”. The money you pay in today is not held anywhere in your name. The system pays out benefits each year more or less equal to the taxes it takes in. For a long time it has been collecting a little more in tax each year than it pays out in benefits, and the accumulation of those flows is referred to as a “trust fund”, but it is only an accounting entry. There is no money or real assets in the “trust fund”, only a promise to pay future benefits. Very soon it will pay our more than it takes in, and over time the “trust fund” will go to zero, unless taxes or benefits are adjusted.
The good news is that it all doesn’t matter. Uncle Sam can pay any benefits he wants, regardless of taxes or “trust funds”, because he is the one who creates dollars, and he can create as many dollars as he needs, just by adjusting the numbers in his computer. He has no need to tax or borrow in order to spend, except as Congress constrains him.
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Taxing wealth directly is too difficult to administer and enforce, and too easy to evade. Except for sin taxes, all* our major taxes are aimed at one or another proxy for wealth. Income tax, sales tax, corporate profits tax, property tax, are all supposed to tax the wealthy more than they tax the less wealthy. All are imperfect, and some have become horribly complex. There are many incremental improvements we could make fairly easily, and even some fairly radical reforms, such as taxing corporate receipts instead of profits, and inheritances instead of estates, if we could overcome the entrenched special interests that have a stake in the current arrangement.
*FICA is different. It lets the really wealthy off the hook. Somehow the worst of our taxes, in terms of equity, has become a universally worshipped idol by virtue of being associated with the worst of our income maintenance programs, in terms of equity. Don’t get me wrong, Social Security pensions are great, for some it makes the difference between barely getting by and being totally destitute. I will be getting one in a few months, but to give more money to the people who already HAVE more money is just not appropriate in this age of increasing inequality.
Still suffers from the flaw in presuming that $15k or $800k has the same value everywhere, even though the cost of living in Manhattan is probably ten times or more the cost of living in parts of North Dakota.
There are also problems in a net worth tax, primarily valuation but also liquidity. Like the estate tax and property taxes, it risks forcing low-liquidity taxpayers to sell property that is valuable on paper but has little cash flow – like a farm, a home, a ranch, etc. It also forces the Service to find the value of real and personal property, even though some items of property may have been held without sale for a very long time. If the Service doesn’t undertake valuation efforts and uses the old price, that’s a big incentive to hold property for a long time rather than buying a new property (see Prop 13) – you might see a dramatic tax value to pass property by inheritance or gift rather than in a market that will attach a price.
If the Service does undertake valuation, it’s a mammoth undertaking requiring lots of knowledge and oversight of every taxpayer. And it will surely involve some process for taxpayers to contest valuation, pushing the Service into valuation fights with many thousands of taxpayers, rather than relying on an arm’s length market price (which may be quite stale, but is more objective). It also gives a strong incentive to avoid purchases of real property or large personal property, and instead invest in smaller personal property (e.g. TVs, computers) that would be harder for the Service to track and value. The Service might be able to track the purchase of land, homes, boats and cars, but buying technology at the store or online would be far harder to track for several hundred million people. At that point, you might as well use a VAT and spread the enormous cost of enforcement onto retailers.
I should point out that eliminating the ‘double tax’ on corporate entities is going to put more pressure on the Service to enforce the accumulated earnings tax. But it seems to imply that all corporate taxes are eliminated, in which case everybody and their sister will start forming C corporations to shelter income, or checking the box on LLCs. Either way, it’s such an easy way to hide income that, unless it’s blocked by something like an aggressive accumulated earnings tax, it would almost be malpractice not to use an entity to hold income.
Also the elimination of deductions for trade or business or for production of income is a real bias against self-employed people. But the elimination of entity tax mitigates this, and basically means that people who conduct business in a pass-through (or as individuals) get crummy tax treatment. Further incentive for everybody to form an entity.
I guess I should have also been more explicit in saying that the elimination of corporate tax would be a good way to shelter income against the net worth tax, not just the income tax. If there are no corporate taxes, then I’ll have my family LLC check the box to be treated as an entity (or maybe a family corporation or a family trust, depending on how the tax treatment of trusts changes under this scenario) and only hold a small fortune of our wealth personally.
Without any corporate taxes and no tax-based reason to force a distribution from the corporation, we essentially havea good incentive for the richest taxpayers to shelter income. Since it wouldn’t make sense to pay franchise and legal fees unless the amount of sheltering is significant, you’d see a skewed effect where not only did the richest get the most benefit from corporate shelters, but it might be a shelter difficult to access for the rest of the population.
Now you just need to worry about the state treatment of your entity, and surely Delaware or Nevada will be very obliging on the tax treatment of my entity if Illinois and New York are not. State property taxes would presumably be mostly unaffected, so you’d just have to worry about state and federal tax on the income from a distribution. Which if you’re very high-income is likely better than taking the income individually. And if you can conduct your employment as an LLC (something often available to doctors and professionals, but not to middle class workers) then your services income would be sheltered at the entity level.
Presumably the hidden dividend rules would still apply, so the entity couldn’t just buy your house and your car and let you have them. But it could hold a significant portion of your assets tax free.
I have to say, I think some sort of aggressive method for forcing corporations to disgorge their income would be the only way to make this work.
I should also be clear that I’m against entity taxes and I don’t think a system allowing people to hide income at will in an entity is bad. But it surely will cause lots of distortions, no doubt more than the few I’ve listed here. And for people who want to raise revenue or redistribute incomes (I am opposed to both of those goals) it’s not without its drawbacks.
Also should point out that eliminating the SALT deduction is effectively double-taxing some income. When a tax-hungry state like New York or California takes a bite out of your income, today the feds will tax your income after that itemized deduction. But without the SALT deduction, the states will take their bite then the feds take theirs.
So in a grossly simplifed example if you have $100k taxable income and the state took 5%, then the feds took 20%, without the SALT deduction that’d be $25k taxes. But with the SALT deduction, that’d be 5% of $100k and then 20% of $95k for only $24k taxes. The effect is small, but $1k is still real money that people will notice – and the effect gets much bigger as incomes go up. You could easily see a two-income household in a high-income, high-tax state like NY or NJ bringing in $200k or $300k (for example, lawyers in large NYC law firms start at $160k and after some years make it past $200k – so if two fifth-year lawyers marry you’ve got a $400k household, not counting bonuses) and seeing many thousands of dollars walk out the door with just the SALT deduction. This doesn’t even consider the effect of losing the personal exemptions or the child deductions, or all the other tax benefits that would be eliminated.
Eliminating the SALT deduction isn’t a horrible idea on its face; the idea would be to force blue-state taxpayers to feel more of the burden of their revenue-hungry elected officials. But you could also call getting rid of the SALT deduction the “blue state tax” because of the overlap between high-earners and high taxes in Democrat-dominated eastern states.
This is why the idea common among Republicans is to offer for some period a dual-tax system where you choose between the old system and the new flatter tax. Fred Thompson floated it in 2007 and Rick Perry and Newt Gingrich advanced it in 2011. It lets you push the advantages of a flatter and simpler system while avoiding the possibility that anybody would pay higher taxes. If you can elect into different treatment, then you can preserve a lower rate. Of course, it means everybody calculates two taxes, so it doesn’t save on simplicity. But it’s a nice transitional measure that lets politicians avoid being labeled as tax hikers (something that hurt Herman Cain, whose 999 plan was simple but would’ve raised taxes on lots of people).
Taxing all stock transactions and trades? Might as well call it the “London Financial Industry Promotion Act.” Taxing every trade on the stock market will have distorting effects on the market, making it less liquid as people delay purchases and sales until prices get further from their estimated value. That means a potentially rockier market, with prices straying over wider standard deviations.
It also encourages people to move businesses and stock transaction to overseas markets. Combined with Sarbanes-Oxley, Dodd-Frank and the new CFPB, a market transaction tax is yet one more reason to establish or list your corporation overseas. It may not necessarily result in changes to existing companies, and it may not even deter too many new companies from listing here, since the other benefits to being in the US are still present. But the more rules and fees and taxes we pile onto being a US company, the more we discourage businesses and traders from working here. The effect is delayed but cumulative and it’s not like we can pretend there are no consequences to a tax.
Whatever you tax, you punish. If we tax listing and trading your company on a US exchange, we shouldn’t be surprised if it eventually discourages company formation in the US or if it suppresses trading and market liquidity.
War tax also would not have applied since WWII, the last time the US officially declared war. Far too easy for the Congress to just pass a resolution authorizing military force, since it won’t trigger a tax.
Unless the ‘war tax’ rule established some other criteria for whether we are in a war. If it looks to whether we have significant troops stationed overseas, then we’ve been at war basically since 1942. If it looks to whether any of our troops are engaged in hostile front line action, then we’ve been in a large number of wars, I’d guess maybe 1 year out of every 3 (panama, grenada, desert storm, desert shield, somalia, balkans). Wouldn’t really be much sense to having a war tax every couple years, especially if it taxes the same 6% for a small peacekeeping mission to Africa that it charges for a full-scale, million-troop engagedment in the Mideast.
Seems like a partisan rhetorical throwaway.