Posted on 11/11/2010 4:42:09 PM PST by NaturalBornConservative
Review of Tax Reform Proposals -
By: Larry Walker, Jr. -
I am in agreement with the Fiscal Commission's goals on tax reform. Although the details are a little vague, it's clear to me that Option 1 is probably out of the question, Option 2 is promising, and Option 3 is pretty much a joke. I think that those who have discounted this initial 'draft' report at face value are doing the commission a disservice. And as far as the Trash Talker In Chief, who has already started spouting off without even reading it, I have nothing but contempt for the comments I heard today out of South Korea.
I personally had a falling out with President Bush, when he put together a special commission on the War, and then proceeded to ignore everything they said. So I hope that someone in Washington takes this commission seriously and implements some of their more excellent ideas (the right ones). If not, there will probably be another major falling out.
Of course, the following tax reform proposals go along with proposed cuts in spending. I am just looking at the tax aspects today, but as long as spending is cut as proposed, there is hope of some kind of compromise on taxes. I think we do need to simplify our tax code and lower tax rates however, our main problem right now is spending. Thus, spending reform should occur prior to any type of tax reform, and of course the repeal of Obamacare is number one on that list. At the top of the tax reform list today is passing another patch for the AMT, and extending the 2010 tax rates for another couple of years. There's no time to waste on partisan trash talk.
My likes and dislikes are below in brackets, and a link to the original report is at the bottom.
Comprehensive Tax Reform Goals:
[I have no problem at all with the commissions outline of goals for comprehensive tax reform. I think they are in agreement with what every fiscal conservative has been chiming for decades.]
Option 1: The Zero Plan
Option 1: The Zero Plan
*Note: All options set aside $80 billion for deficit reduction and treat capital gains and dividends as ordinary income. Rates based on very rough static estimates. No behavioral effects are assumed. Magnitude of tax expenditures estimated broadly.
[Although I like the idea of lowering the tax brackets and consolidating them down to the three, and having one lower rate for corporations, the elimination of all tax expenditures is problematic. Having survived through a household with four young children, I have empathy for parents of young children. Between day care, food, medical, and the extra running around that parents deal with, it would be right to extend the child tax credit. Although it wasn't there in my day, it would have given us some badly needed relief.]
[I am however not a fan of the EITC (earned income tax credit). I think the EITC discourages people from being all that they can be, and instead keeps them locked within a certain range of income. So the EITC can be dumped.]
[I agree with repealing the AMT (alternative minimum tax), in fact, we ought to just go ahead and do that right now. And I agree with repealing the limitations on itemized deductions (Pease), and personal exemptions (PEP).]
[I disagree with taxing dividends and capital gains at ordinary rates. I think we should encourage investment by extending more favorable tax rates to investment income. ]
[I would like to see the continuation of deductions for mortgage interest, property taxes, state and local income taxes, and charitable contributions.]
[I am in favor of keeping deductions for retirement contributions such as IRAs and SEPs which are not addressed in this summary.]
[Thus, Option 1 falls short of the mark because by the time one adds back all the desirable tax expenditures, we're right back where we started. However, Option 2 is more appealing.]
Option 2: Wyden-Gregg Style Reform
Individual Tax Reform
[Again, the repeal of the AMT, PEP, and Pease are most desirable, fundamental to both options and should be done now, today.]
[I like the idea of having just the three tax brackets.]
[The tripling of the standard deduction is very appealing. It would take the place of the mortgage interest deduction for many, allow non homeowners a higher deduction, and not impair those with larger mortgages (under $500K). I think limiting the mortgage deduction on 2nd homes and mortgages over $500K is prudent. Why are we subsidizing 2nd homes anyway?]
[I'm OK with the limitations on charitable contributions, and the employer health care exclusion.]
[I don't know what is meant by 'repealing several other tax expenditures.' The commission needs to be more specific.]
Corporate tax reform
[The corporate tax reform ideas seem reasonable, but of course more detail is required.]
Option 3: Tax Reform Trigger
*This is a very rough estimate of the haircut necessary to reduce the deficit by $80 billion in 2015
[Option 3 is absolutely out of the question. Throwing tax reform back into the hands of politicians virtually assures that nothing will be accomplished for another 40 years. The use of the word 'trigger' pretty much sums it up. Who's going to pull it?]
Source: http://www.fiscalcommission.gov/news/cochairs-proposal
Thanks!
It’s refreshing to see a blogger with an article of some substance, who’s not afraid to post his full content right here where we can read and discuss it.
My own feeling is that Tax Reform needs to be radical and straightforward, recognizing the fact that taxes on income and production (including corporate) are regressive and anti capitalist.
If so-called “government services” are lost in the fray, then so be it. Charity, like the profits of production, belongs in the private sector.
No man, institution or government owns the fruit of industry and labor. And no amount of “good intentions” can make its theft moral.
Thank you. I agree with you in spirit.
I don’t know what they base their tax reform numbers on. It certainly doesn’t include ALL personal income, and must be missing some huge chunk of what SHOULD be considered the actual income tax base.
Their “Zero Option” makes it sound like eliminating all deductions and tax credits would result in these 8%, 14%, 23% individual rates, and they still need a 26% corporate tax on top of that.
Those rates just don’t jibe with real income stats and tax collections. According to research I did for this post http://www.freerepublic.com/focus/news/2598690/posts?page=54#54 the IRS collected a total individual and corporate income tax haul of $1.36T in 2008 and the BEA counted total personal income of $12.4T — which means a single tax rate applied to that FULL tax base would require a rate under 11%.
I find it VERY suspicious that the co-chairmen’s report includes actual AMOUNTS in the spending cuts section, but there are NO figures in the Tax Reform section to tell us what tax base amounts were used. A pretty chart where they appear to calculate the “cost” of putting back EITC, Mortgage deductions, etc. doesn’t satisfy me. I want to know why the BASE for any income tax calculations differs from the BEA numbers.
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