Taxation Ideas – publish yours here!

I don’t believe in moral arguments about taxation, except at the fringes.

This is a governmental function, burden, and necessity which we can choose or scrap, and the principles should be transparency and honesty, while raising only the revenue necessary to the functions we choose our government to perform. At the fringes, where I think an element of morality can be injected, we cannot have a tax system that destroys or seriously injures anyone, or that treats similarly situated taxpayers quite differently. No one likes taxes, but we all should be able to live with them, and the power to tax, abused, is the power to destroy.

Were I the God of Tax, I would scrap personal and corporate income taxes for a system that relied on:

1] V.A.T. – competitive rate with Canada
2] automated transfer payment tax – agreed rate by treaty among North America, EU, Japan, Australia and New Zealand, at a fraction of 1% on every single transfer in and out of a reporting institution
3] tariffs and excise taxes subject to change from time to time, as policy trade and commerce tools
4] leasing public land for private use at realistic economically viable rents
5] a carbon tax, but only if set by agreement among our trading partners and ourselves

I would scrap the Gift and Estate Tax.

I would keep the payroll tax and attempt to preserve the [partial] insurance nature of SS/Medicare.
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The above will not occur in my lifetime. So I would tweak the current system as follows, in the interim.
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Corporate tax: flat rate 30% on net taxable income. I would allow the deduction of dividends in the calculation of net taxable income.

Personal income tax: No itemized personal deductions, but a standard deduction for all roughly equivalent to the minimum wage: say, $15K single, $30K married. Then a flat 30% rate above that. Dividends and interest would be taxed as ordinary income. CG holding period would be extended to 5 years as a prerequisite to get the benefit of 15% rate. Less than five year hold = short term CG, and taxed as ordinary income. No carried interest exception, and hedge fund managers would be treated like real estate investors.

Retain the current Gift and Estate tax scheme with $5M exclusion.

Tweak the payroll tax to produce more revenue for SS/Medicare AND raise the retirement age, but keep early retirement option, at reduced bennies, at 62.

No AMT. No EITC. No CTC.

I have tried here for minimal tweaks that lead to simplification and ease of computation and collection. It seems to me that almost everyone would be paying more tax than we do now under my interim proposal. If that is a function of the arbitrary rate I assigned, and if a lower rate would balance the budget at 7% unemployment and produce surplus below that number, I would be all for the lower rate.

Enjoy!

Morning Report 9/19/12

Vital Statistics: 

  Last Change Percent
S&P Futures  1455.6 2.7 0.19%
Eurostoxx Index 2557.9 4.5 0.18%
Oil (WTI) 94.87 -0.4 -0.44%
LIBOR 0.376 -0.003 -0.79%
US Dollar Index (DXY) 79.39 0.141 0.18%
10 Year Govt Bond Yield 1.78% -0.02%  
RPX Composite Real Estate Index 194.3 0.7  

Markets are higher this morning after the Bank of Japan increased monetary stimulus.  This is in spite of a disappointing report on housing starts. Bonds are up half a point and MBS are up 1/4.

Housing starts climbed to an annual 750k pace in August, still roughly half of the pre-bubble average since we started keeping records in the late 50s.  To put that number in perspective, in 1959, we had just over 1.5 million housing starts with a population of 177.8M people. Fast forward today, starts are down 50%, while the population is up 75%.  Low household formation numbers combined with underwater homeowners is keeping demand low. That situation will not last forever – the low household formation numbers are creating pent-up demand that eventually gets released.  Even in a lousy economy, people still get married, have kids, and will need housing. We have underbuilt new housing for the past 10 years.

Chart:  Housing starts (1959 – Present)

 The recent QE-driven bull run in stocks has left many people skeptical, given that profitability may have peaked and Taxmageddon may usher in an early 2013 recession. Professional short-seller Jim Chanos is finding value traps in nat gas, iron ore, HP and Coinstar. Doug Kass mentioned Dell and Microsoft as short ideas on Bloomberg radio this am. 

WaPo has an article accusing the banks of price gouging in the latest round of QE. Basically so much capacity has been taken out of the mortgage banking industry that banks cannot handle the amount of business coming their way, especially as GMAC sits in bankruptcy and Bank of America pulled out of correspondent lending. Much of this new business is refinancing, which the banks view as temporary.  As a result they are reluctant to hire, knowing that the refi business is going to disappear once rates start backing up. Also, guarantee fees are increasing, which is working against what the Fed is trying to accomplish.

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