Tax plan

[Raider5678]

What would be an effective tax plan?

As in where and how should the government collect it's taxes?

Or is the current set up good?

[dimreepr]

An effective tax plan depends on occam's razor coupled with the peek of Laffer's curve.

The current set up is more to do with the self interest of those who don't want to pay their taxes.

[Phi for All]

As a foundation for whatever you decide, I espouse the belief that people don't mind paying taxes when they can see more direct benefits from them (IOW, spend the money more wisely). As you know, I think public funding should only benefit the wealthy directly by supporting ports and roads, and indirectly through educating the populace and keeping them healthy. Already wealthy companies shouldn't get subsidy funding from the public.

 

And the wealthy should be taxed at a greater rate, since they benefit more from dense populations and the workers tend to suffer more from population density. Especially the uber-wealth that should be used to offset uber-poverty, because hey, humanity folks. Modern societies can't be left at the mercy of folks who have no idea what poverty is like.

[Raider5678]

Modern societies can't be left at the mercy of folks who have no idea what poverty is like.

Can I quote you on that?

[Phi for All]

Can I quote you on that?

 

You can indeed.

[Ten oz]

What would be an effective tax plan?

As in where and how should the government collect it's taxes?

Or is the current set up good?

Is the current set up good? Our current set up is far from perfect. However no system ever will be perfect. Anger over taxes in biblical. Even Jesus got mad about taxes, lol.

 

Since the economic collapse we have seen continued growth in home values, GDP, jobs, and reductions in deficits. All the stuff we would like to see. Why rock the boat? Considering the long term consistency of our economic improvement over the last several years I think small modifications would best and not a total overhaul which would have untested results.

 

The massive cuts proposed will 100% increase deficits and spur major cuts to govt services. Both sides of the aisle acknowledge that. Republicans merely add the caveat of "in the short term".

 

Historically a federal reduction in services hasn't led to greater economic growth. The opposite has been true. Govt spending money helps which is why every recession is fought with federal spending. Meanwhile tax cut have seemingly always produced temporary bumps in private sector bullishness which later gave way to recessions.

 

Life is also full of wildcards. Trump hasn't had a 9/11, Katrina, billion dollar wall street Ponzi scheme, massive oil spill, earthquake, or etc.....yet. Just like I have a savings account and credit cards I keep empty for unforseen emergencies our govt needs to be flexible. sh!* happens. Our economic environment is akin to an ecosystem and not merely a dog that needs to be unleashed.

 

Long story short is that the system we currently have has been serving us better than other interpretations of it had for a awhile. Best not to make any major changes for now.

Edited May 3, 2017 by Ten oz

[Raider5678]

Is the current set up good? Our current set up is far from perfect. However no system ever will be perfect. Anger over taxes in biblical. Even Jesus got mad about taxes, lol.

 

Since the economic collapse we have seen continued growth in home values, GDP, jobs, and reductions in deficits. All the stuff we would like to see. Why rock the boat? Considering the long term consistency of our economic improvement over the last several years I think small modifications would best and not a total overhaul which would have untested results.

 

The massive cuts proposed will 100% increase deficits and spur major cuts to govt services. Both sides of the aisle acknowledge that. Republicans merely add the caveat of "in the short term".

 

Historically a federal reduction in services hasn't led to greater economic growth. The opposite has been true. Govt spending money helps which is why every recession is fought with federal spending. Meanwhile tax cut have seemingly always produced temporary bumps in private sector bullishness which later gave way to recessions.

 

Life is also full of wildcards. Trump hasn't had a 9/11, Katrina, billion dollar wall street Ponzi scheme, massive oil spill, earthquake, or etc.....yet. Just like I have a savings account and credit cards I keep empty for unforseen emergencies our govt needs to be flexible. sh!* happens. Our economic environment is akin to an ecosystem and not merely a dog that needs to be unleashed.

 

Long story short is that the system we currently have has been serving us better than other interpretations of it had for a awhile. Best not to make any major changes for now.

Hasn't our deficits been growing?

I mean, a common Republican thing was to claim we were trillions of dollars in dept. Is that something they made up? Wouldn't be the first time, but still.

[Ten oz]

Hasn't our deficits been growing?

I mean, a common Republican thing was to claim we were trillions of dollars in dept. Is that something they made up? Wouldn't be the first time, but still.

In fiscal year 2009, which started almost four months before Obama's presidency began and ended eight months into it, the deficit was 9.8 percent of GDP. The 2014 shortfall is 2.8 percent of GDP -- a decrease of 71 percent. So that's where the claim comes from.

 

The situation largely tracks if you use real dollars. Using the same comparison with Congressional Budget Office figures, the deficit fell from $1.4 trillion in the 2009 fiscal year to $486 billion in the 2014 fiscal year -- a drop of about 66 percent

http://www.politifact.com/truth-o-meter/statements/2015/jan/20/barack-obama/barack-obama-claims-deficit-has-decreased-two-thir/

[Delta1212]

Hasn't our deficits been growing?

I mean, a common Republican thing was to claim we were trillions of dollars in dept. Is that something they made up? Wouldn't be the first time, but still.

There are two things at play. One is the debt, which is how much overall the government has spent beyond its revenue in total. The other is the deficit, which is how much we add to the debt each year.

 

Generally, what you want to do when the economy is strong is decrease spending and raise taxes in order to pay down the debt, giving you the flexibility to then lower taxes and increase spending when the economy is flagging or crashing in order to spur growth. This helps to even out the boom-bust cycle and spur consistent growth.

 

What has happened over the last twenty years instead, is as follows:

 

Under the Clinton years, the economy was fairly strong and in some years ran a surplus, which is what you want to be doing.

 

When Bush II took over, he reasoned that running a surplus meant that we were taking money we didn't need from our citizens and proposed a series of tax cuts. At the same time, he opened up two wars in Afghanistan and Iraq without arranging any way to pay for them. In essence, he charged them to the national credit card pretty much in full. Those two things took that surplus and turned it into a very large debt. Then the end of Bush's term rolled around and the economy crashed.

 

This left Obama in the position of needing to drastically increase spending in order to prop up the economy and keep it from failing all together. Unfortunatelt, part of that process is that we should have been building that cushion in the preceding years when the economy was doing well, but we hadn't been. Just chugging along at normal, we were already running a pretty sizable deficit.

 

Adding in the cost of the spending required to deal with the crisis ballooned the deficit to record levels. However, in the time since that initial spike, pretty much year over year, spending has come down as the economy has recovered and the deficit has been pretty consistently shrinking.

 

Keep in mind that this is still a deficit, so we're still adding to the debt, but we've been adding less and less each year.

 

Now, once again, the economy is in pretty good shape. The unemployment rate is way down. A lot of people are still feeling the after effects of the Recession, but moving forward we're looking to be in a pretty strong position overall. This is the time we should be thinking about how to build up that cushion for the next time the economy trips.

 

Instead, Trump is talking about, like Bush II, cutting taxes, a move that will almost certainly push the deficit back up again, and he isn't even starting from a balanced budget this time the way W was.

 

The rhetoric surrounding this is that it doesn't matter because the tax cuts will spur economic growth which will increase GDP and therefore raise revenue in the long term. This is predicated on something called the Laffer Curve. It is the idea that, tax rates above a certain threshold cut into income enough that putting in additional effort to increase one's income is no longer worth, so people make less money and revenue actually falls with increasing taxes. You can see the logic of you imagine a tax rate of 100%. Who is going to bother working at all if they don't actually get paid anything because the whole check goes to the government.

 

The problem lies in where on the curve revenue actually starts to fall. The empirical evidence, such as it is, seems to point to this number being pretty high, as historically tax cuts even at the highest rates we've seen have not ultimately led to a corresponding increase in government revenue. Right now, tax rates are actually at recent historical lows. Given past performance, it is exceptionally unlikely that any tax cuts will spur economic growth to a level that will increase revenue beyond what was lost in the cut. Cutting taxes without a corresponding cut to costs will increase the deficit.

 

Anyone who tries to tell you that a series of tax cuts will pay for themselves is selling you a bill of goods. Tax cuts are popular. Cutting government programs is not. Deficit spending is not. Telling people that you can cut taxes without cutting any programs or increasing the debt is therefore popular. It is also a lie.

[KipIngram]

I've often thought that a good tax plan would be as follows:

 

1. Use negative income tax as the only welfare program. Everyone would start with a poverty credit. Up until some level higher than that credit income would be taxed at a rate designed to offset the credit. For example, a 50% tax rate up to 2X, or a 33% rate up to 3X.
2. One the credit was fully paid back, the income tax rate would drop to 0% up to a rather large amount (enough to represent "extremely comfortable affluence.) A cap would define the upper end of the 0% bracket.
3. Above the cap, impose an extremely stiff (quickly reaching near 100%) rate. This tax bracket would be designed to prevent "super wealthy" individuals such as Bill Gates or Warren Buffet.
4. Use a value added tax for general revenue raising - a flat VAT rate on everything with no social engineering allowed.

Important features of the program (i.e., things that would "break it" if not implemented correctly, would include

1. Don't set the poverty credit too high. If people can live a content and happy life on just the poverty credit, you destroy incentive to earn.
2. Set the multiplier associated with paying back the poverty credit high enough. People receiving the poverty credit need to feel that if they do earn money it will bring them immediate marginal benefit. If too much is kept back to repay the poverty credit then once again the incentive to work one's way off the welfare program would be destroyed.
3. Set the cap at which the "super wealth prevention" tax kicks in high enough. People need to be rewarded for their success - if the cap is too low once again you will destroy incentives. I could see the cap being as high as a $1 million a year, or more. We don't want to destroy all wealth - just the ridiculously extreme wealth.

I would structure business taxes in a similar way (except there would be no poverty credit for businesses). I believe that an economy based on small and medium sized businesses would be better than one based on huge corporations, so I'd use a "super wealth prevention" tax for businesses to to prevent the emergence of such huge entities. I would also use tax policy to penalize companies that outsource jobs - American companies should promote the welfare of American workers (and German companies that of German workers, etc.)

 

Generally speaking I'd like to see an American economy in which the "most wealthy" class of people numbered in the millions or tens of millions, and in which the class of "biggest businesses" numbered in the tens or hundreds of thousands. This would spread economic power far and wide, instead of concentrating in the hands of a few. No single entity or small group of entities would be large enough to "buy the government."

 

The reason for the VAT for general revenue is that I would expect almost no one to pay the large "super wealth" prevention tax. Achieving incomes significantly above the cap would bring one no benefit, so there would be no reason to seek it - the tax would wind up raising very little revenue. The purposes of the income tax would be 1) welfare implementation and 2) super wealth prevention - not revenue raising per se.

Edited May 18, 2017 by KipIngram