Tax reforms I would like to see

Where would returning to the rates of say 1950 put it?

thinkstoomuch wrote:Nope. Just the start of the pain. Not really much gain.

Real pain will start sometime in the future, can you spell Greece. We Americans are headed in that direction. Only real question is how long we can paper over the cracks. Longer it takes the worse it will be.

Some minor facts.

From BEA Table 2 Line 16 (2011) "Government social benefits to persons" =2,274.3 Billion. Line 4 "Wage and salary disbursements--Private industries" = 5,466.0 Billion. Line 3 "Wage and salary disbursements--Government"=1,195.3 Billion.

When Government Jobs and Social Benefits are more than 63% of the private sector wages it is pretty much unsustainable. Especially when the total income taxes (to all levels of government) equals 116% of the total wages of government employees.

Like I said too many thoughts to be worth posting, probably shouldn't even have posted those.

T2M

PS Not to mention that it looks like we will continue to kick the can down the road by what the US Senate did last night. In 2010 those earning 369k paid 355 billion on taxes at a rate of 23.39% In 2000 they paid at a rate of 27.45%. So if we go back to that rate the Federal government gets 61.6 billion. Or about 4.6% of the debt for 2011. Oh those cuts, we find out about them in 2 months, I think I have heard this before.

Spacekiwi wrote:shirt term pain, long term gain T2M?

Bottom posting this time. Edit added Taxes versus GDP from Table 1.1.5 (hope it is right no guarantees)

Donnachaidh wrote:Where would returning to the rates of say 1950 put it?

Pick a year, the following data is BEA Table 2.1: Line 26 "Less: Personal current taxes" divided by Line 3 "Wage and salary disbursements".

Be aware that not exactly comparable as this is all taxes local, state and fed. But it shows how effective tax those mythical tax rates actually were in generating revenue. Also it isn't adding things like my military retirement and investment income. But if you read the table you will understand why I have difficulty pulling them out.

I did have glue to separate sets of tables together 1929-1969 and 1969-2011. I don't like going between the tables as weird stuff happens that I am not smart enough to post accurately. Heck I screw these up pretty regularly.

Easy copy paste into a spreadsheet program to generate a chart.

Year | | %Wages | | %GDP

1942 | | 5.97% | | 3.03%
1943 | | 15.81% | | 8.41%
1944 | | 15.14% | | 8.05%
1945 | | 16.51% | | 8.70%
1946 | | 15.36% | | 7.74%
1947 | | 16.08% | | 8.11%
1948 | | 14.17% | | 7.13%
1949 | | 12.39% | | 6.25%
1950 | | 12.84% | | 6.44%
1951 | | 15.80% | | 7.99%
1952 | | 17.23% | | 8.93%
1953 | | 16.68% | | 8.75%
1954 | | 15.31% | | 7.94%
1955 | | 15.50% | | 7.93%
1956 | | 15.98% | | 8.37%
1957 | | 16.21% | | 8.44%
1958 | | 15.96% | | 8.24%
1959 | | 16.28% | | 8.35%
1960 | | 16.89% | | 8.76%
1961 | | 16.86% | | 8.68%
1962 | | 17.23% | | 8.81%
1963 | | 17.34% | | 8.84%
1964 | | 15.42% | | 7.85%
1965 | | 15.86% | | 8.02%
1966 | | 16.59% | | 8.43%
1967 | | 17.02% | | 8.77%
1968 | | 18.43% | | 9.56%
1969 | | 20.16% | | 10.62%
1970 | | 18.69% | | 9.93%
1971 | | 17.41% | | 9.03%
1972 | | 19.35% | | 9.98%
1973 | | 18.68% | | 9.58%
1974 | | 19.54% | | 10.07%
1975 | | 18.12% | | 9.01%
1976 | | 19.15% | | 9.44%
1977 | | 19.87% | | 9.73%
1978 | | 20.48% | | 10.00%
1979 | | 21.44% | | 10.49%
1980 | | 21.76% | | 10.72%
1981 | | 22.84% | | 11.04%
1982 | | 22.31% | | 10.88%
1983 | | 21.00% | | 9.97%
1984 | | 20.46% | | 9.60%
1985 | | 21.05% | | 9.89%
1986 | | 20.80% | | 9.80%
1987 | | 21.68% | | 10.33%
1988 | | 20.69% | | 9.90%
1989 | | 21.92% | | 10.33%
1990 | | 21.62% | | 10.22%
1991 | | 20.84% | | 9.79%
1992 | | 20.53% | | 9.63%
1993 | | 21.01% | | 9.70%
1994 | | 21.37% | | 9.75%
1995 | | 21.76% | | 10.03%
1996 | | 23.01% | | 10.61%
1997 | | 23.89% | | 11.12%
1998 | | 24.55% | | 11.67%
1999 | | 24.83% | | 11.84%
2000 | | 25.53% | | 12.38%
2001 | | 24.93% | | 12.00%
2002 | | 21.02% | | 9.87%
2003 | | 19.46% | | 8.98%
2004 | | 19.31% | | 8.84%
2005 | | 21.20% | | 9.57%
2006 | | 22.28% | | 10.11%
2007 | | 23.18% | | 10.61%
2008 | | 21.92% | | 10.05%
2009 | | 18.25% | | 8.19%
2010 | | 18.66% | | 8.24%
2011 | | 20.99% | | 9.27%


T2M

Using those numbers, the average Wage % is 18.977% and the average GDP% is 9.276%.

The top 10 (high to low) highest wage% year were 2000, 2001, 1999, 1998, 1997, 2007, 1996, , 1981, 1982, and 2006. While the top 10 (high to low) highest GDP% years were 2000, 2001, 1999, 1998, 1997, 1981, 1982, 1980, 1969, and 1996.

So high wage % years had 5 Republican Presidents (Reagan and W. Bush) and 5 had a Democrat President (Clinton); while high GPD % years had 4 Republican Presidents (Reagan, W. Bush, Nixon) and 6 Democrat Presidents (Clinton, Carter). Wasn't Clinton the one who ran a budget surplus?

None of those years included Obama. How his he the one you blame? And what about the House Republicans that flat out refuse to look at reality and realize that any solution to America's fiscal problems will include tax increases as well as spending cuts?

thinkstoomuch wrote:Bottom posting this time. Edit added Taxes versus GDP from Table 1.1.5 (hope it is right no guarantees)

Donnachaidh wrote:Where would returning to the rates of say 1950 put it?

Pick a year, the following data is BEA Table 2.1: Line 26 "Less: Personal current taxes" divided by Line 3 "Wage and salary disbursements".

Be aware that not exactly comparable as this is all taxes local, state and fed. But it shows how effective tax those mythical tax rates actually were in generating revenue. Also it isn't adding things like my military retirement and investment income. But if you read the table you will understand why I have difficulty pulling them out.

I did have glue to separate sets of tables together 1929-1969 and 1969-2011. I don't like going between the tables as weird stuff happens that I am not smart enough to post accurately. Heck I screw these up pretty regularly.

Easy copy paste into a spreadsheet program to generate a chart.

Year | | %Wages | | %GDP

1942 | | 5.97% | | 3.03%
1943 | | 15.81% | | 8.41%
1944 | | 15.14% | | 8.05%
1945 | | 16.51% | | 8.70%
1946 | | 15.36% | | 7.74%


<snip>

Tax code reforms I'd like to see. It will never actually happen as it would cost the politicians too much power, but still it would be nice...

1. Put the entire tax code into a shredder and start over. There are 1000s and 1000s of pages of loopholes that special interests have added over the years. Make congress put in each one individually.

2. Start with a flat tax with floor. For example, $20,000 per individual floor and a tax of 20% on all income above that.

3. Make congress have individual votes on each and every exemption they want to add to the simple code. No huge 1000 page bills, stuffed full of exemptions that no one has read. No backroom deals at midnight.

4. Add a few key exemptions via the process of individual votes.
- Charitable deductions - with a much tightened definition of the term charity.
- Business expenses - with very very very much tightened rules on what constitutes a legitimate business expense.
- 401K/IRA contributions - same contribution limits on both (retirement savings)
- 529 contributions (education savings accounts)
- Home mortgage interest - modified by prorating or by a cap
- Medical/Dental expenses which exceed 7.5% of income (current law)
- Medical savings accounts which can roll over (unlike current law which requires you to spend it all in one year, this would allow you to save over time for an emergency)
- Health insurance - to give the same tax treatment to individual health insurance that employer health insurance receives
- Others??

5. In general change the capital gains tax from 15% to the same 20% so corporate CEOs, hedge fund managers and trust fund babies actually pay the same income tax rates as the rest of us. But offer some incentives to encourage long term mindsets among the corporate elite.

5. Do the same thing with the corporate income tax. The US has the highest corporate rate in the world. Of course no one actually pays it. But with the current situation big companies like GE can hire fantastic accountants to find every loophole and pay little or nothing, which small companies which don't have access to the same level of accounting wind up paying much closer to the nominal rate.

6. Modify the estate tax to require defer payment so that payment is required upon sale of the asset rather than at time of death. Right now if you inherit a business which is valued above an arbitrary cap (which changes from year to year, $5 million in 2012, $1 million in 2013) you have to pay estate tax on it. The problem is that for some businesses the money isn't liquid and the heirs must sell the business to pay the tax.

biochem wrote:6. Modify the estate tax to require defer payment so that payment is required upon sale of the asset rather than at time of death. Right now if you inherit a business which is valued above an arbitrary cap (which changes from year to year, $5 million in 2012, $1 million in 2013) you have to pay estate tax on it. The problem is that for some businesses the money isn't liquid and the heirs must sell the business to pay the tax.

This is the only one I'd REALLY disagree with. The capital gains I'd say should be abolished entirely and simply folded into normal income tax, because the money I make off my investments isn't any 'better' than the money the 18 year olds under me make off their paycheck. But, 20% is a good place to start.

The problem with this sort of thing is that when the 'asset' is say, a $25 million dollar investment vehicle that makes regular payouts and includes the $5 million family mansion, then there *is* no estate tax. Ever. You've just succeeded in permanently abolishing the estate tax.

As a small business owner, a family-owned business that's being run as a sole proprietorship and is worth $5 million is an invitation to disaster in the event anything goes wrong. With that much in assets it's time to investigate private incorporation or at least turning it into an LLC.

Our system is that capital gains are rolled into your taxable income and then treated the same. We no longer have estate tax (death duties), and an asset that is inherited simply brings its notional capital gains along with it until it is sold. A person's residential home and up to 2 hectares of attached land surrounding it are not subject to capital gains. Gets messy if a home is co located with a factory on the same deed though.

The House Ways and Means have come up with a new tax proposal.

Interestingly this seems to be partially bipartisan as the Democrats and Republicans on the Ways and Means committee have been working in multiple subcommittees for 3 years on it. How much of the final product was Republican ideas vs Democrat ideas hasn't come out yet. But since Republicans are in charge, it's a safe bet that Republican ideas dominate.

Typically Senate Majority Leader Harry Reid's response was totally partisan and totally negative. Basically he just attacked the character of the House Republicans and Republicans in general without addressing the positives or negatives of any of the specific proposals. (This guy is one of the most irritating and most partisan politicians in Washington. I would dearly love to see him kicked out and replaced with someone more flexible. Well one can dream.)

Key Points

1. Reduce complexity of the tax code. It is supposed to reduce the number and complexity of tax breaks to make it easier for people to file taxes without an accountant.

2. It reduces the tax brackets to 3 tax brackets: 10%, 25% and 35%.

99% of the tax filers will be in the lower 2 brackets. The basic idea is that now someone in the current 35% tax bracket officially pays 35% but once they add in the tax exemptions/deductions etc they wind up paying an effective rate of 25%. The idea behind this proposal is to eliminate the tax exemptions/deductions etc and just have them pay 25% in the first place. It is supposed to be revenue neutral i.e. neither increasing or decreasing the taxes paid. We'll see if enough exemptions/deductions were eliminated to make it work.

The 35% bracket is only for the top 1%. It is a complex bracket that only includes certain types of income such as income from financial services but excludes other types of income such as farming.

3. Changes in deductions I've seen to date:

INCREASE in standard deduction (default deduction for those who don't itemize)
INCREASE child tax credit
DECREASE mortgage interest deduction
ELIMINATE deduction for state/local taxes
DECREASE in tax exemption for employer health insurance

4. Corporate tax rate reduced to 25%, closer to what most of them were actually paying anyway and they have to pay some tax on income earned outside US.

5. 60% of Capital gains taxed at ordinary income rates, 40% of capital gains taxed at 0%

6. New Tax on too big to fail banks

7. Carried interest (a complex thing that wall street gurus use to avoid income taxes) will now be taxed as ordinary income instead of capital gains.


I think it's a great start but Washington Pols on both sides of the aisle are more interested in politics than in actually fixing something plus given that Wall Street will be actually paying taxes, I'm sure they'll be free with the bribes.... sorry "campaign contributions".

Jeb Bush has a new tax proposal. It's supposed to make things simpler and fairer and stimulate the economy.

1. Reduce the top tax rate to 28% and end AMT (alternative minimum tax) but cap itemized deductions (except charity) at 2% of income. The idea is that since the rich don't pay anywhere close to the nominal rate anyway, it would be fairer to cap deductions and lower the nominal rate closer to what people are actually paying.

It does seem to be a reasonable idea if the math works out to be revenue neutral as it is supposed to. (Different groups are analyzing that, but even if the math is wrong [most think it is] it could be fixed with tinkering changing the top rate to 29.9% for example or making the cap 1.75% or both)

Winners/losers

Poor & Lower Middle class - neither, they don't itemize so this doesn't affect them directly. Possibly winners if this actually does stimulate the economy.

Upper middle class & rich with expert and/or creative accountants - Losers

Upper middle class & rich without expert and/or creative accountants - winners

Superrich - neutral, they get their income from investments and pay capital gains tax so this doesn't impact them much

Owners of mcMansions - losers, they won't be able to deduct all their interest

Small businesses that file under the personal rate - potentially losers, they tend to itemize a lot but may avoid the impact by changing to LLCs

2. Double the standard deduction and increase the earned income credit (an income based credit that lets lower income people pay less tax on money earned than money from investments, charity etc designed to keep the working poor working rather on welfare)

The working poor - winners

The lower middle class - winners

The upper middle class and rich - neutral, they don't qualify for the earned income credit and they itemize deductions

3. Reduce complexity by having 3 tax brackets 10%/25%/28% (it seems like he's borrowing from the Ways and Means proposal)

4. Eliminate some (mostly unspecified) deductions.

Those I've seen to date:

ELIMINATE deduction for state/local taxes


5. Carried interest (a complex thing that wall street gurus use to avoid income taxes) will now be taxed as ordinary income instead of capital gains. (He's been listening to those Ways and Means guys again)

6. Corporate tax rate reduced to 20%, closer to what most of them were actually paying anyway but eliminate most deductions/exemptions that those with excellent accountants were paying. Plus some other tinkering to make it "fairer" and more competitive.

In theory revenue neutral.

There should definitely be a cap on home mortgage interest, probably around $20,000 or so. If somebody is paying $350,000 a year in mortgage interest and really needs the deduction, they've got problems.

Is a child tax credit really such a good idea? Should everybody else have to pay for your kids?

I once read a science fiction story where the first page of the tax return was to determine how much you had to pay, and on the next 4 pages you specified how it was to be spent - which government departments got your money. Any part of the government that didn't get enough money had to cut back.
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If a business tries something that doesn't work, they either stop doing it or they will go broke. If the government tries something that doesn't work, they just keep shoveling our money into it forever.

Imaginos1892 wrote:There should definitely be a cap on home mortgage interest, probably around $20,000 or so. If somebody is paying $350,000 a year in mortgage interest and really needs the deduction, they've got problems.

I tend to agree in principle, although I would make the amount higher. Average home prices in parts of the country can be high. But there should be a cap. There are good arguments for encouraging home ownership but McMansions aren't necessary.

Is a child tax credit really such a good idea? Should everybody else have to pay for your kids?

We need those kids to pay for your social security.

I once read a science fiction story where the first page of the tax return was to determine how much you had to pay, and on the next 4 pages you specified how it was to be spent - which government departments got your money. Any part of the government that didn't get enough money had to cut back.

I doubt that would work in real life. Cool departments would get lots of money. Boring departments that are necessary to keep the country functioning would be funding deprived until the wheels fall off.