Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1359.4 | -0.7 | -0.05% |
| Eurostoxx Index | 2526.7 | -14.9 | -0.59% |
| Oil (WTI) | 106.1 | -0.2 | -0.14% |
| LIBOR | 0.4916 | -0.001 | -0.20% |
| US Dollar Index (DXY) | 79.286 | 0.178 | 0.23% |
| 10 Year Govt Bond Yield | 2.05% | -0.01% |
Markets are weaker this morning on a weaker than expected economic report out of Europe and a lousy forecast from Dell. Mortgage applications fell 4.5% for the week ending Feb 17. Existing Home Sales will be released at 10:00 am.
Obama has laid out the broad brush strokes for a corporate tax overhaul. He plans on lowering the statutory rate to 28%, while eliminating loopholes. His plan will benefit domestic manufacturers and he will target the energy sector for more revenues. It looks like he is proposing some sort of AMT for corporations, with a minimum tax for overseas earnings. The plan will be revenue-enhancing.
Of course, the devil is always in the details, and hopefully the administration is smart enough to draw a distinction between overseas production meant to be sold overseas and outsourcing to cut costs. He could end up hurting US competitiveness if he doesn’t think this through.
The FHFA sent a letter outlining its plan for the GSEs aptly titled “The Next Chapter in a story that Needs an Ending.” It is a strategic document, not a step-by-step plan. They intend to build a new infrastructure for the secondary market, gradually reduce the footprint of Fannie and Freddie, while maintaining foreclosure prevention activities and credit availability.
With the S&P 500 rallying, bonds have sold off a bit, driving best-ex mortgage rates back over 4%. FWIW (and I am not a big technical analysis guy) it appears the March Treasury futures are stuck in a 140-145 range, which implies a yield range of 1.85% to 2.05%. We are again at the top end of that range. As I have mentioned before, the S&P 500 is right up against resistance and looks like it wants to break out. The Fed has been stepping into the MBS market when rates hit these levels, so we’ll see if that continues.
Filed under: Federal Reserve, housing |
All Things in Moderation 
Unwinding GSE’s similar to the Greek bailout story, a headline that will always be available on any given day.
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Brent, suppose the domestic and foreign markets for a particular finished good are fungible. For example, I assume that an Ohio built Honda can be sold without modification in Japan, and vice versa. If that is a bad example, I hope that it still conveys the basis for my question.
In the instances of fungibility, how can a tax policy distinguish between “overseas production meant to be sold overseas and outsourcing to cut costs”? By attaching a tariff in violation of WTO on the importation of the motherboards from Singapore?
I strongly urge removing tax preferences for overseas manufacturing and outsourcing, but I don’t see how penalizing the process in excess of domestic taxation can be justified.
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@Mark, I don’t know how he proposes to actually do it. There are a lot of different flavors for overseas earnings:
A McDonalds in Tokyo
Hedge funds incorporated in Bermuda
Intel’s fab plants in Taiwan
A Ford JV plant in China
Like I said, I hope the administration is thinking this stuff through.
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Of course obama is introducing more uncertainty into the regulatory environment, which isn’t going to help encourage hiring.
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Gordon Brown writes about the Greek bailout. He makes things sound systemically worse than they appear to be.
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Thanks, Brent.
An interesting table of “tax expenditures”:
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Mark:
An interesting table of “tax expenditures”:
Given the underlying premise that money not collected can sensibly be called “expenditures”, the list seems to be missing what must be the biggest, er, “tax expenditure” there is – what I guess could be called the “personal living exclusion”, ie the difference between the average tax rate prior to any other exclusions and 100% of all income earned in the nation.
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Scott, I take your “personal living exclusion” to be a tongue-in-cheek exaggeration in order to make the point that “tax expenditure” is a euphemistic phrase.
I assume that you know, but someone else here may not, that the design of each “tax expenditure” was to satisfy some policy consideration some wise Congress sometime established, and which now cannot be changed without a catfight in a shitstorm. Each of those policy considerations was designed as a subsidy to encourage a particular behavior thought to be a benefit to the public at the time. First came the notion of the subsidy, e.g.: Can we subsidize employers to buy medical insurance for their employees? Why, yes we can. Let us do it not by paying them a portion of their cost of the policy, but by making employee med ins deductible to the employer and, to encourage the employees to take the deal, not taxable to the employee! Voila. Instead of paying out subsidies to employers and employees or paying insurers, we leave it to the tax system. Thus it is called a “tax expenditure”. But you knew this.
Euphemism or not, we should not have them. They disguise spending, or they disguise policy. One plus: they make good work for lawyers and accountants.
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Mark:
I take your “personal living exclusion” to be a tongue-in-cheek exaggeration in order to make the point that “tax expenditure” is a euphemistic phrase.
At least someone here gets me.
Each of those policy considerations was designed as a subsidy to encourage a particular behavior thought to be a benefit to the public at the time.
A lot of them were, sure, although some of them might have been originally justified on “fairness” or equitable grounds as well.
Euphemism or not, we should not have them.
I very much agree. The purpose of the tax code should be simply to fund necessary government activities, not engage in social engineering of behavior or “equitable” outcomes. Hence my oft-repeated desire for a simple, flat tax that is applies to all and is devoid of any deductions, credits, exclusions, etc.
One plus: they make good work for lawyers and accountants.
Everything following the colon, yes indeed.
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Ugh. It what world are any of those expenditures? Lost potential revenue or whatever, but those aren’t expenditures. They aren’t spending anything. Income and outgo are two different things!
When public companies can start reporting the fact that didn’t buy a small island in Barbados as $100 billion in additional income, then that would make sense.
Silly government. Expenditures are what you call the money you actually have and then spend on something. 😉
Not sure why individuals shouldn’t be able to deduct state and local taxes from the federal returns—none of that constitutes income that they actually have to be paying taxes on. I also don’t see why companies shouldn’t be able to deduct equipment expenditures in the year they are expended. I understand, generally, the reasons for not allowing the deduction of medical insurance or pension contributions, but I suspect there would not only be a shitstorm, but real negative consequences, at this point, if those things went away.
The deductibility of mortgage interest should be eliminated, and I think it could be, if existing loans were grandfathered in and refinances were eliminated on a sliding scale. All for limited deferral of income from foreign controlled corporations, but I may not be aware of secondary consequences. The capital gains exclusion on homes sales make sense because in an inflated market, all the money you need to be able to purchase your next home (which has been appreciation at a similar rate to yours, most likely) would instead go to the government. Meaning you’d have to take out a bigger and bigger loan each time just to move to a similar house.
I’d like to see someone try and take away the child credit. I don’t think that would go over well.
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Kevin:
Not sure why individuals shouldn’t be able to deduct state and local taxes from the federal returns
I’m not sure why your share of carrying the federal expense burden should be less than mine simply because you choose to live in a state with high taxation and I do not. Or vice-versa, as the case may be.
There is no reason that Californians should get a benefit from the rest of us for voting in profligate spenders.
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I’m not sure why your share of carrying the federal expense burden should be less than mine simply because you choose to live in a state with high taxation and I do not. Or vice-versa, as the case may be.
This is a good point. Again, I don’t think there is an ideal solution. The other way, your taxing people on money they do not have, so why tax them on money they do not have, but not tax them on money they do have, or will have, such as tax-deferred IRA contributions or pension matching, etc.?
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Kevin:
Again, I don’t think there is an ideal solution.
Sure there is. Your state could tax you on only after-federal-tax income. Or either the state or the fed (preferably both) could do away with income taxes altogether, and tax consumption.
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Mark, in addition to your chart, here’s the argument of the day for the flat tax:
http://www.washingtonpost.com/blogs/ezra-klein/post/our-unequal-tax-system-in-one-html-table/2012/02/22/gIQAFSGFTR_blog.html#pagebreak
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“markinaustin, on February 22, 2012 at 11:03 am said:
Each of those policy considerations was designed as a subsidy to encourage a particular behavior thought to be a benefit to the public at the time.”
You are being overly generous. Many of these were never designed to benefit the public but to capture a rent for a private interest from the inception, often as part of the “horse trading” to pass a larger piece of legislation.
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Sure there is. Your state could tax you on only after-federal-tax income.
There ya go! That would be the better system.
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but jnc4p, a flat tax is regressive, or so I’ve been told.
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nova:
a flat tax is regressive, or so I’ve been told.
Whoever told you that, you should ask them to explain square circles, too.
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circle gets the square
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I’m not sure why your share of carrying the federal expense burden should be less than mine simply because you choose to live in a state with high taxation and I do not.
State and local taxes are deductible on the premise that one shouldn’t have to pay taxes on taxes. Since local taxes are lower than federal taxes, the bookkeeping is easier to deduct them from the federal. Here’s the thought example. If I live in Florida, I pay no state taxes and get taxed at the federal level at say 15%, thus keeping 85k.
If I move to Maryland which has say 10% taxes, I need to make 111k to take home the same net amount after state and federal taxes.
The AMT starts eliminating deductions and makes high income earners pay a higher rate. Since blue states tend to have higher median incomes and higher local tax rates, the AMT falls disproportionately on blue states. Red states already are getting a break then since filers in those states are far less likely to be hit with the AMT.
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yello:
State and local taxes are deductible on the premise that one shouldn’t have to pay taxes on taxes.
Why state and local taxes are deductible was not in question. The point was that it creates an unjust result with regards to the burden of funding the federal government. Here’s the thought example. If I live in Florida, with no state income tax, and earn $100k while paying 15% in federal taxes, I am contributing $15k towards the upkeep of the federal government. And if you live in Maryland, with a state tax of 10%, and also make $100k, you only contribute $13.5k towards the upkeep of the federal government. There is no justification for such a result.
Since blue states tend to have higher median incomes and higher local tax rates, the AMT falls disproportionately on blue states.
The AMT doesn’t fall on states. It falls on individuals. So the relevant comparison is two individuals making the same money in two different states, not the average income of all income earners in two different states. The AMT eliminates the same deductions for a person making $1million a year in a blue state as it does for a person making $1million in a Red state. If the AMT effectively eliminates the entire deduction for state and local taxes for a given income level, it is possible that the advantage otherwise gained by the high tax blue state resident (see thought example above) will also be eliminated. But it can never be the case that the ATM provides an advantage to a low tax red state resident over a high tax blue state resident.
The federal credit for state and local taxes paid is undeniably a benefit for residents of high tax states, which, according to you, tend to be blue.
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“novahockey, on February 22, 2012 at 1:11 pm said: Edit Comment
but jnc4p, a flat tax is regressive, or so I’ve been told.”
Having this fight at PL as we speak (or post technically).
http://www.washingtonpost.com/blogs/plum-line/post/mitt-romney-scourge-of-the-one-percent/2012/02/22/gIQATficTR_blog.html
Also, this is a great quote with regards to the tax code:
“complexity can be a useful tool in wielding power without scrutiny”
http://www.nakedcapitalism.com/2011/12/matt-stoller-why-ron-paul-challenges-liberals.html
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jncp, certain conclusions that can be drawn from the chart you posted are so anomalous as to beg for further investigation. As I read it, one in the top 10% of a lower quintlie always pays a far higher share of average income than one in the lowest 10% of the next higher quintile. As I say, that bears further investigation – it is hard to accept at face value.
You and I are both believers in the simplicity and potential acceptance of a flat tax. We differ in that I would exempt the poor, as would have Adam Smith, simply on our shared perception of “ability to pay”.
At PL, you argued for “flat tax no exemptions” for corporations. Corporations pay only on net income, loosely based on definitions from accounting practices. I hope you were not arguing for a gross income tax. I would gladly trade the tax breaks inherent in “taxable income” being defined differently than GAAP income, for lower rates.
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“If I move to Maryland which has say 10% taxes, I need to make 111k to take home the same net amount after state and federal taxes. ”
So what? Your living in Maryland is a choice. It doesn’t cost the Federal government any less to fund the army on your behalf because you live in Maryland instead of Arkansas.
Scott’s solution on states taxing income after deducting Federal taxes is more appropriate.
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jncp,
Your chart is why we need to be more progressive and tax all income equally but at graduated rates. As mark noticed, there are a lot of freeloaders in the top quintile. The answer is to make them pay more, not shift the burden downstream.
Also, from that table one can infer that only about 10% of the population pays zero or less. This is a far cry from the 47% phony number that gets bandied about.
I have no problem with people being net beneficiaries. There are people worthy of charity at the federal level. The concept of a negative income tax goes back to Nixon and was an implicit cornerstone of the ‘make work pay’ ethos of the Clinton ‘ending welfare as we know it’ plan.
I realize I am pissing up a rope with this crowd of libertarians, flat taxers, and government stranglers, but a progressive tax system has been a cornerstone of our country for over a hundred years. Every couple of decades we come around and prune all the detritus that accumulated on it as we should but going to a pure flat tax is just robbing impoverished Pauls to pay fat cat Peters.
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yjkt, the anamoly I noticed is not the same one you noticed.
Look at the chart. It reads that if I moved up from the 19-20 percentile to the 21-22, I get a huge tax break, and that repeats if I moved from 39-40 up to 41-42, 59-60 to 61-62, and 79-80 up to 81-82. So ridiculous, if true, that it almost surely is false.
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yello:
As mark noticed, there are a lot of freeloaders in the top quintile….I have no problem with people being net beneficiaries.
An interesting study in the use of language. “A lot” of people who pay rates of between 8.7% and 34.6% are “freeloaders”, while people who not only don’t pay one red cent, but are actually receiving money are benignly referred to as “net beneficiaries”. Hmmm.
There are people worthy of charity at the federal level.
The federal government does not hand out “charity”. It redistributes wealth. Charity implies a voluntary donation from one person to another, which is not what is occurring with taxation.
going to a pure flat tax is just robbing impoverished Pauls to pay fat cat Peters.
An absurd notion. If they are “impoverished”, there is nothing to “rob” them of.
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As mark noticed, there are a lot of freeloaders
That’s not what I noticed, dammit. What I did notice is far more intriguing. Look at my 2:14 pm comment and someone explain
HOW THIS COULD BE TRUE.
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Mark:
HOW THIS COULD BE TRUE.
I think you are misreading the table. The top 10% of a given quartile does not refer to the top 10% of income earners in that quartile. It refers to the top 10% of tax payers. Hence the very ordered nature of the table, from left to right. By definition the top 10% will pay a higher rate than the previous 25% in the same quartile. So you don’t necessarily move from the top 10% of the bottom quartile into the bottom 10% of the second quartile just because of an increase in income.
Top to bottom is a function of income, left to right is a function of percentage rate paid.
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I learn something new from John Carney every week:
“Will Greek Credit Default Swaps Fall Short?”
http://www.cnbc.com/id/46386655
Byzantine does not adequately describe the process.
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The point was that it creates an unjust result with regards to the burden of funding the federal government.
What your analysis neglects to take into account is that the costs of taxes gets baked into salaries so that the net pay remains the same. A teacher in Maryland gets paid more than a teacher in Florida because it cost more, including taxes, to live in Maryland.
We used to have a saying in Florida, “You get paid in sunshine.” In reality the salaries are getting adjusted for the lower tax burden. On a per capita basis, the federal government comes out way ahead on blue state residents because other living costs (housing, food, commuting) are much higher in blue states as well and the federal government gets to tax the extra money people need to make to afford to live in them.
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“I realize I am pissing up a rope with this crowd of libertarians, flat taxers, and government stranglers, but a progressive tax system has been a cornerstone of our country for over a hundred years”
I can honestly say that I resent the fact that I’m somehow more or less responsible than any other for financing government operations.
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So ridiculous, if true, that it almost surely is false.
The people in the lowest 10% of a given quintile are the ones with the best tax breaks. Note the huge break the people in the lowest 10% of the top 1% get over even the lowest 10% of the highest quintile. These guys have the best tax lawyers. They are the argument for the Buffett Rule.
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“yellojkt, on February 22, 2012 at 2:11 pm said:
robbing impoverished Pauls to pay fat cat Peters”
I’d say that this describes the current tax code, with it’s myriad benefits and deductions for special interests more than anything.
Keep in mind, when I say flat tax, I’m not referring to the proposals of Newt Gingrich, Hermann Cain, etc.
I’m referring to a real flat tax that applies to all income equally, including capital gains and also rolls in the FICA taxes. This has the effect of:
A. Taxing long term capital gains as ordinary income
B. Removing the cap on FICA taxes
both of which are long standing progressive goals.
More fundamentally, having a flat tax that applies to everyone equally ends the pernicious practice of politicians of promising benefits for one group of people that are to be paid for by a separate group of people.
Under the flat tax, if you want to start a war or enact a new entitlement, everyone pays more, not just people you don’t like.
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jnc:
More fundamentally, having a flat tax that applies to everyone equally ends the pernicious practice of politicians of promising benefits for one group of people that are to be paid for by a separate group of people.
I highly doubt this is a good selling point if you are trying to bring yello on board. Providing benefits to one group to be paid for by another is a cornerstone of progressive politics.
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Oh, for all the posters here who like to call Warren Buffett out for somehow managing to turn policies that benefit his book into public imperatives, I ran across this again which you may find interesting:
“Warren Buffett’s Humbug
By David Stockman Nov 17, 2010 2:20 pm
Contrary to the Oracle of Omaha, taxpayers should not be grateful for TARP, bailouts, or quantitative easing.”
…
“As it turned out, the probability that a sharp contraction of GE Capital’s footings would not have had noticeable impact on the macro economy was never tested due to the Washington’s alphabet soup of bailouts. Instead, Warren Buffett ended up with a call on GE that was stapled to a put to Uncle Sam. No wonder he’s grateful. ”
http://www.minyanville.com/businessmarkets/articles/david-stockman-warren-buffett-general-electric/11/17/2010/id/31189
See also:
“Friday, November 19, 2010
Stockman Savages Buffett Op-Ed, Bailout Canards ”
http://www.nakedcapitalism.com/2010/11/stockman-savages-buffett-op-ed-bailout-canards.html
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I can honestly say that I resent the fact that I’m somehow more or less responsible than any other for financing government operations.
Well, the ‘fairest’ way would be to split the federal tax bill 300 million ways and just demand every man, woman, and child pay their share. The 16th Amendment did away with that, so take it up with the people that passed it.
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FWIW, Virginia rejected the 16th amendment and has never ratified it.
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“novahockey, on February 22, 2012 at 2:47 pm said:
FWIW, Virginia rejected the 16th amendment and has never ratified it.”
Screw it. Time to secede again and then the Blue States can cease whining about having to subsidize the Red States.
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jnc:
Time to secede again and then the Blue States can cease whining about having to subsidize the Red States.
Just tell me when and where to be.
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Catch you all later, I’m off to kick the feds out of General Lee’s house by way of Jefferson Davis highway
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“markinaustin, on February 22, 2012 at 3:00 pm said:
As mark noticed, there are a lot of freeloaders
That’s not what I noticed, dammit. What I did notice is far more intriguing. Look at my 2:14 pm comment and someone explain
HOW THIS COULD BE TRUE.”
See the linked articles by Bruce Bartlett and Kevin Drum. It has to do with earned and unearned income composition in each quintile. The numbers are from the Federal government, so you can judge how accurate you believe that source to be.
http://economix.blogs.nytimes.com/2012/02/21/tax-code-not-aligned-with-basic-principles/
http://motherjones.com/kevin-drum/2012/02/our-screwed-tax-system
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The amusing thing is quotes like this:
“That’s a violation of horizontal equity, the principle that people who make similar amounts of money ought to pay roughly similar taxes.”
Where supporters of progressive taxation as a paragon of fairness are outraged that people within the same quintile have different tax rates.
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“ScottC, on February 22, 2012 at 3:12 pm said:
jnc:
More fundamentally, having a flat tax that applies to everyone equally ends the pernicious practice of politicians of promising benefits for one group of people that are to be paid for by a separate group of people.
I highly doubt this is a good selling point if you are trying to bring yello on board. Providing benefits to one group to be paid for by another is a cornerstone of progressive politics.”
It was more about working some alliteration into a post. “Pernicious practices of politicians” is a good one.
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So it’s TAXES that brings you all out? Who knew?
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left to right is a function of percentage rate paid.
And the beef I have is that the left-most and right-most columns describing average tax rates are subsets of the next columns toward the middle, e.g., taxpayers with the top 10% tax rates within each quintile are also part of the top 25%. Why don’t they break down the average tax rates by quintiles (or quartiles) as well?
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Thank you, Scott. I see.
I also agree with Mike that the breakdown within quintiles ought to be more illuminating than it is, in the way he suggests.
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Banned wrote: “So it’s TAXES that brings you all out? Who knew?”
You’re new here, aren’t you son.
—
As the flat tax introduced in the House in March 2011 is not flat, I’ll hold with my original contention that flat tax proposals are anything but. To summarize, there’s a $15k deduction for individuals, $30k deduction for couples, and $6500 per kid. Tax rate is 19% to start.
The average income in the US is about $50k. A single person earning $50K would owe $6650 in taxes. If person has a non-working spouse and two kids, they would owe $1330. This is clearly social engineering of the kind properly decried in this neighborhood of the intertubes.
*http://thehill.com/blogs/floor-action/house/149301-house-gop-introduces-first-flat-tax-bill-of-the-congress
BB
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FB:
I’ll hold with my original contention that flat tax proposals are anything but.
Except, of course, those that are. Like the one jnc proposes.
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As soon as jnc gets elected, I’ll take it seriously. Until I see a bill along these lines, it’s simply another modest proposal.
I’ll be seriously short on sleep tonight. The debate is compelling, but won’t be over until 3 a.m. GST (Glasgow Standard Time).
BB
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FB:
As soon as jnc gets elected, I’ll take it seriously.
I didn’t ask if you took his proposal seriously. I just figured you were talking about a flat tax in response to jnc’s earlier advocacy for a specific flat tax proposal, in which case your response seems quite a non sequitur. I guess you must have had some other reason for talking about a totally different proposal by someone else.
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Ron Paul just got off a great shot on the birth control topic. He drew a pitch perfect analogy between birth control and gun control. Republicans blame murders on people, not guns. Likewise, birth control doesn’t cause immoral behavior, but immoral behavior causes people to use birth control.
Now, the widespread availability of contraception almost certainly has had an effect. Then again, that’s also true of guns. The US and UK have similar rates of violent crime, but the murder rate is far higher in the US. Having been mugged on both sides of the Atlantic, I was a lot happier running away (bravely) when I was pretty sure the mugger didn’t have a gun.
BB
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Scott – Then you can only have deliberately misread what I wrote. There was a link in my message to the flat tax bill introduced in March 2011. If we’re going to talk tax plans, it is not unreasonable to discuss the one on offer in the current Congress. As far as I know about topics for discussion here, related themes are often brought up. Or is that a standard to which you hold those who disagree with you politically.
Furthermore, jnc said nothing about whether or not there should be a personal exemptions. Once you include an exemption, you do not have a flat tax, you have a tax with an asymptote. It is flatter than the current system, but does have curvature.
BB
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FB:
Then you can only have deliberately misread what I wrote.
Only? Well, that is manifestly untrue.
If we’re going to talk tax plans, it is not unreasonable to discuss the one on offer in the current Congress.
Perhaps, but if we are going to address/dismiss someone’s advocacy of a given tax plan, it is unreasonable, or at least fallacious, to discuss an entirely different one to the one being advocated for.
As far as I know about topics for discussion here, related themes are often brought up.
Sure. But if someone proposes a flat tax that is, indeed, flat, and another person responds to this by explicitly contending that no flat tax proposals are actually flat, but uses an entirely different proposal as evidence for his contention, he doesn’t seem to me to be making a sensible point.
Or is that a standard to which you hold those who disagree with you politically.
Nope.
Furthermore, jnc said nothing about whether or not there should be a personal exemptions.
Actually what he did say was:
So, not only did he explicitly deny referring to the only kinds of proposals that you seem interested in talking about (ie existing proposals from elected politicians), he also explicitly made it clear that his proposal “applies to all income equally”, which by definition means there would be no exemptions. So, unless you have a substantive reason to think the jnc doesn’t actually mean what he says, then your reading of ambiguity into his proposal is entirely unjustified.
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FB:
Sorry it’s taken all day to get back.
A tax with an exemption treats all types of income equally above a certain threshold.
Yes, which is another way of saying that it treats all income equally except for that portion which it does not treat equally.
I’m aware you like to redefine words (hypocrite), but that doesn’t make it so.
I generally only re-define words back to a more common/traditional/accepted definition, and away from those that have been conveniently invented by others for the sake of their arguments. (Note how I resisted the almost irresistible temptation to add “as I’m aware you like to do.” Damn. I guess it was irresistible.) In the case at hand, however, I am not even sure what word you are accusing me of redefining. Perhaps you could be more specific.
The only comment made by jnc was in treating different types equally (cap gains, income tax, FICA).
No, he didn’t say “different types”. He said “all income”, which I interpreted as, well, all income.
He has subsequently expanded on this, saying “I’d set the personal exemption equal to the amount that it costs the IRS to collect the tax to promote efficiency. I.e. it shouldn’t cost the government more to collect the tax than it takes in.” So, I guess technically, then, you were right..even jnc’s proposal is not strictly speaking flat. I’m not sure I will ever be able to believe him again.
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As a general rule, I’d set the personal exemption equal to the amount that it costs the IRS to collect the tax to promote efficiency. I.e. it shouldn’t cost the government more to collect the tax than it takes in.
However, if push came to shove and in order to actually pass it an exemption was set in at say the poverty level, I’d be fine with that in the name of not making the perfect the enemy of the good. The main point is to eliminate all the deductions for specific government approved purchases and behaviors and to only have one bracket.
I distinguish the proposal for a real flat tax from those that we see from the various politicians that include things like taxing investment income at zero percent. Those aren’t flat taxes and discredit the argument as they set up another favored class, specifically the investor class.
If you roll in the capital gains income and effectively remove the cap on FICA, you can raise enough revenue to get the rate down significantly. Logically, the rate should end up somewhere along the lines of the percentage of GDP that the government is spending, assuming a balanced budget.
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Logically, the rate should end up somewhere along the lines of the percentage of GDP that the government is spending, assuming a balanced budget.
That is right around 25% right now, but historical down around 21%. That is still a huge tax hike for Mitt Romney, so don’t expect him to endorse it anytime soon.
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Once you include an exemption, you do not have a flat tax, you have a tax with an asymptote.
All tax structures have this feature with the asymptote being the top marginal rate. With the top bracket kicking in at about 300k, the super-rich earners, like say Lady Gaga, are paying essentially a flat tax.
The reason you don’t see serious real flat tax proposals is that with the preferential treatment of capital gains, plenty of the rich pay much less than they would under a flat tax.
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yello:
With the top bracket kicking in at about 300k, the super-rich earners, like say Lady Gaga, are paying essentially a flat tax.
The term “flat tax” refers to a tax system applied to all tax payers, regardless of income level. It makes no sense to say that one person, or one segment of tax payers, is paying a “flat tax” in the context of a tax system that is not flat but is, in fact, progressive.
It is a mathematical truism that the marginal progressivity of any progressive tax system begins to approach zero at income levels above that to which the top rate applies. That is true regardless of what the top rate is (30% or 99%) and regardless of the level at which the top rate kicks in ($50k or $50mm). This truism does not magically turn a progressive tax into a flat tax.
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“Logically, the rate should end up somewhere along the lines of the percentage of GDP that the government is spending, assuming a balanced budget.
That is right around 25% right now, but historical down around 21%. That is still a huge tax hike for Mitt Romney, so don’t expect him to endorse it anytime soon.”
I have no expectation that Mitt Romney or most of the other Republicans would endorse a real flat tax as I believe most of their proposals maintain preferential rates for investment income, and some envision a long term capital gains rate of zero. As David Stockman put it, this nothing more than “vulgar Keynesianism robed in the ideological vestments of the prosperous classes.”
Ron Paul and Gary Johnson may be the exceptions.
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“The reason you don’t see serious real flat tax proposals is that with the preferential treatment of capital gains, plenty of the rich pay much less than they would under a flat tax.”
Bingo.
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I believe most of their proposals maintain preferential rates for investment income, and some envision a long term capital gains rate of zero.
That idea galls me. When I hear trial balloons like that floated, I just want to grab a pitchfork.
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“yellojkt, on February 22, 2012 at 9:50 pm said: Edit Comment
I believe most of their proposals maintain preferential rates for investment income, and some envision a long term capital gains rate of zero.
That idea galls me. When I hear trial balloons like that floated, I just want to grab a pitchfork.”
Hearing this referred to as a flat tax galls me. It may be many things, but a flat tax isn’t one of them.
“Make the United States the most desirable location for new business investment through a bold series of tax cuts, including: Eliminating the capital gains tax to make American entrepreneurs more competitive against those in other countries; Dramatically reducing the corporate income tax (among highest in the world) to 12.5%; Allowing for 100% expensing of new equipment to spur innovation and American manufacturing; Ending the death tax permanently.
Move toward an optional flat tax of 15% that would allow Americans the freedom to choose to file their taxes on a postcard, saving hundreds of billions in unnecessary costs each year. This optional flat tax system will preserve deductions on charitable giving and home ownership, and create a new personal deduction of $12,000 for every American. This deduction is well above the current poverty level, ensuring that this new system does not unfairly target the poor.”
http://www.newt.org/solutions/jobs-economy/
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Ironically, Romney’s tax proposals are the most sane of all the completely blue-sky wishful thinking dream lists being put out by his competition. Newt’s in particular is pure fantasy. It would bankrupt the country in days.
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“Ironically, Romney’s tax proposals are the most sane of all the completely blue-sky wishful thinking dream lists being put out by his competition.”
Even his most recent one? I think it has a $500 billion magic asterisk.
http://www.washingtonpost.com/blogs/ezra-klein/post/mitt-romneys-latest-tax-plan/2012/02/22/gIQApNKZTR_blog.html
It will be interesting to see if we get full gridlock in 2012 and ‘Taxmageddon’ in 2013.
http://www.washingtonpost.com/business/economy/end-of-payroll-tax-holiday-sets-up-harder-hit-for-taxpayers/2012/02/16/gIQAnxqTMR_story.html
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“Most sane” is a very relative term. We are grading on a seriously heavy curve.
Taxmageddon is going to have to be dealt with in the lame duck session. There is no way either party is giving the other side that much ammunition in an election year. I’m all for letting all the BushCutz® expire. We had a balanced budget before them.
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Scott – A tax with an exemption treats all types of income equally above a certain threshold. I’m aware you like to redefine words (hypocrite), but that doesn’t make it so. The only comment made by jnc was in treating different types equally (cap gains, income tax, FICA). Flat tax purists here aside, would you care to cite any proposal out there (Congress critter, Heritage, whatever) for a flat tax
I suspect you would simply prefer to make snide comments about non sequiturs.
BB
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