Tag: Flat tax

This is working out well…

In case you don’t live in the US, today is tax day. If you are like me, you set it up so Uncle Sam takes the least amount possible during the year from your paycheck, and after you do your taxes, sent these parasites a check for whatever you owe them. Unlike most of the people that tell you our system is unfair because others are doing better than them, I can actually control my spending and even do a bit of saving. I know how to make my money work better for me and don’t need to use government as a savings plan to make sure I don’t blow my cash on blow, booze, and bitchez. That whole thing about if we magically managed to redistribute the world’s wealth equally today, by the end of the month, with so few exceptions we can drop them as statistical noise, we would be back exactly where we started, with the same people complaining about how the system is rigged against them and looking for a handout. But that’s not what this piece is about.

I actually wanted to point out a major flaw in our system. When you have almost half of the people in your country not paying federal taxes or ending up with an effective marginal rate of zero or lower, and they get to vote, these people will never have a problem with the rest of us getting soaked by the crooks in DC, which continue to collect record amounts of money, despite most people predicting that things are heading south. Yeah, I know we have been told by a complicit and completely owned subsidiary of the DNC that masquerades as the media that we have been in an economic recovery, for 8 years now since Obama took over, but those of us actually working don’t see any of that recovery, and actually see things getting worse.

The thing is that we have 2 candidates, both in the same party, telling us DC should be taking even more money from the productive so they can increase the number of people sucking at the government teat. Shit, one of them has dropped any pretense of reality, and is promising $18 trillion in new entitlements and government handouts. My favorite one is free college. We get told that college has now become a necessity for people to qualify for better jobs, and thus, college should now be treated like so many other things the left wants us to now take as obligations of the productive to pay for the masses to have. I have yet to get any of the “free college” morons to explain to me why I should expect this to not result in college educations turning into even bigger wastes of money and time than they have become today. After all, we already have a government run free K-12 education system, and nobody that has a modicum of honesty and scruples, believes this system has been anything but an abysmal failure. It used to suffice to finish high school to actually be qualified for good employment. Then government took that over and dumbed it down so the failure of the unionized but well connected education establishment could avoid owning the miasma they created, and we all know how many people now leave high school without having met even the lowest of standards to show they actually worked on getting educated. Anyone else find hilarity in the fact that it is the same people that fucked over the K-12 system that now want to take over and make college free as well? That’s gonna end so well…

Anyway, back to talking taxes. Don’t get me wrong. I understand that we should pay some taxes. My disagreement is with a system that allows people that don’t pay anything to elect politicians that then tell the rest of us we need to pony up even more of our money for them to expand the abuse and corruption already rampant in the system. The best change to save our system of government right now, the one that would do the most to curb government abuses across the board, would be a flat tax and the abolishment of the IRS. If everyone has to pay an equal percentage, we will all have the same skin in the game, and with people that vote for a living suddenly out of that job, DC might finally be forced into fiscal responsibility. Even more important, the current corrupt system that allows the political aristocracy to abrogate itself unlimited wealth and power by forcing the rest of us to buy favors from them, especially taxation mitigation related favors, would implode overnight. No wonder that neither the collectivist & crony economy party nor the less collectivist and crony economy party want to do that.

As you send more of your hard earned pay to DC to be squandered by the vote buying aristocracy and their schemes and scams, remember that the answer to quite a few of this great country’s problems is actually quit simple. A flat tax would do away with so many of the special mechanisms that have propped up this dysfunctional bloated government we have today and in a single move force DC into dealing both with the economic reality they have created as well as return some sanity to the political class. It is therefore that it is anathema to the current political aristocracy whom would lose drastically should the status quo be upset. A man raped every year by the big government state – so people that pretend they mean well ca keep buying votes from close to half of the country that has no skin in the tax paying game – can dream.

Are we paying our fair share yet?

We constantly get told that we are not paying up enough of our fair share to help the liberal wealth redistribution schemes and scams buy them votes, but a new study by the CBO shows something quite different:

(CNSNews.com) – The top 40 percent of households by before-tax income actually paid 106.2 percent of the nation’s net income taxes in 2010, according to a new study by the Congressional Budget Office.

At the same time, households in the bottom 40 percent took in an average of $18,950 in what the CBO called “government transfers” in 2010. Taxpayers in the top 40 percent of households were able to pay more than 100 percent of net federal income taxes in 2010 because Americans in the bottom 40 percent actually paid negative income taxes, according to the CBO study entitled, “The Distribution of Household Income and Federal Taxes, 2010.”

“When refundable tax credits, such as the earned income tax credit and the child tax credit, exceed the other federal tax liabilities of the households in an income group, those households are said to have a negative average tax rate,” said the CBO study. “In its analysis, CBO measured individual income taxes net of refundable credits,” it said. In 2010, the CBO determined, American households in the bottom 40 percent paid negative amounts in income-tax dollars and a negative average income-tax rate.

Much of the progressivity of the federal tax system derives from the individual income tax,” said the report. “In 2010, the lowest quintile’s average rate for the individual income tax was -9.2 percent and the second income quintile’s rate was -2.3 percent.” “A group can have a negative income tax rate if its refundable tax credits exceed the income tax otherwise owed,” said the CBO report.

The households in the top 20 percent by income paid 92.9 percent of net income tax revenues taken in by the federal government in 2010, said CBO. The households in the fourth quintile paid another 13.3 percent of net income tax revenues. Together, the top 40 percent of households paid 106.2 percent of the federal government’s net income tax revenue. The third quintile paid another 2.9 percent—bringing the total share of net federal income tax revenues paid by the top 60 percent to 109.1 percent. That was evened out by the net negative income tax paid by the bottom 40 percent.

And that skew, the wealth transfer, is going to tilt even more that way when Obamacare goes nuclear on our sorry asses. if you think this sort of highway robbery is a good thing, you are a moron. And why can’t we ever get a breakdown that shows the actual money these people get vs. how much of the money collected gets pissed away by Leviathan’s bureaucracy?

Look at it this way: we have a system where out of a group of 50 people in a room – broken down by the tax demographic shown by the numbers in the CBO above – one of these people pays more than all the others combined. But the injustice doesn’t end there. There are 25 people that not only don’t pay any income taxes, but they get to take away money. So the person getting ripped off and the others that pay some or taxes, but get nothing back, are basically outvoted by the people getting money back. The Greeks figured out that was going to be the end of their experiment with democracy over 2500 years ago.

A system where people that not only don’t pay taxes, but they get to collect money from those that do, and that gives them equal representation when electing the scumbags that put these sorts of systems in place, is not just evil, it is downright destructive in the long run, because it is simply not sustainable. And we are seeing that happen finally as most modern western nations with such progressive tax & spend collectivist systems are slowly running out of other people’s money to keep them afloat.

That’s why the democrats are turning us into a banana republic. If you have no skin in the game, you don’t care if the game is wrong. That’s why I feel that people that don’t pay taxes, or worse, get money back from those that do, shouldn’t get a vote when it comes to policies that allow them to get even more money from others. We need a flat tax. Everyone should have to pay. It will fix most of our problems with the tax & spenders and their agenda.

Sunday Six Pack

NPR recently had group of economists discuss policies that they think are great for the country but that politicians consider radioactive. The group of economists was actually quite diverse, ranging from George Mason libertarian (and frequently linked Cafe Hayek blogger) Russ Roberts to Cornell liberal Robert Frank. What six policies could that group possibly agree on? And why wouldn’t politicians embrace policies that enjoy such a broad consensus?

One: Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

One thing they don’t talk about: the mortgage interest deduction is a lot smaller than most people think it is. People see they can deduct $10,000 off their taxable income and think that’s pretty big. But mortgage interest is deducted only if you throw out the standard deduction, which is $12000 for a married couple. For most people, if their home costs less than about $250,000, they are gaining little, if anything. The host says the deduction saves him $5000. Assuming he’s calculating that correctly (i.e,. what it gives him above the standard deduction), that means he’s paying off a half million dollar mortgage.

The home mortgage interest deduction has its destructive aspects, too, distorting the real estate market. As noted above, it mostly subsidizes the purchase of large and expensive homes, driving up that end of the market. But even worse is that by creating the perception that the government is paying up a third of your mortgage, in induces people to buy more home than they can afford. Ironically, this drives up the cost of housing for the poor and middle class.

I don’t think the market can take the shock of an immediate cessation. But phasing it out would be a great idea. Even better, as we’ll see later, would be to scrap the entire tax system.

Two: End the tax deduction companies get for providing health-care to employees. Neither employees nor employers pay taxes on workplace health insurance benefits. That encourages fancier insurance coverage, driving up usage and, therefore, health costs overall. Eliminating the deduction will drive up costs for people with workplace healthcare, but makes the health-care market fairer.

Have the tax deduction for all health insurance or have it for none. Encouraging people to get insurance through their employer has been one of the biggest drivers of healthcare cost over the last few decades, pushing consumers further and further away from the actual costs. The Wyden-Bennett bill, one of the things I hope becomes part of the “replace” part of “repeal and replace”, would have done this.

Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.

Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

The Fair Tax is one of the more coherent plans on this subject. I’ve detailed before why I oppose it. A VAT would work much better but only if it mostly replaced the existing system. A lot of libertarians oppose the VAT because they see it as a gateway to big government. My opinion is that we already have big government and, given our commitments to seniors, it’s not going to get small anytime soon. The question is how to pay for it without crippling the economy and a VAT has the minimum of deadweight loss.

I lived in Texas, which does not have an income tax, for four and a half years. It was awesome. You weren’t taxed until you spent money. I would love to see the entire nation enjoy that freedom and empowerment.

Note also something important in the broadcast: the most ardent advocate of eliminating the corporate tax? The two liberals on the panel. They know how destructive corporate taxes are to our economy.

Five: Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

This is the one that will cause the most disagreement on the blog. I don’t want to open another global warming debate. I would support a carbon tax but if and only if it came with steps three and four of eliminating our current tax system. It is infinitely preferable to the cesspool that would be cap and trade.

Six: Legalize marijuana. Stop spending so much trying to put pot users and dealers in jail — it costs a lot of money to catch them, prosecute them, and then put them up in jail. Criminalizing drugs also drives drug prices up, making gang leaders rich.

We’ve talked about this before. No need to rehash.

Here’s where the NPR segment falls on its face: they imagine a politician putting forward the above platform and being rejected by the public. There’s some validity to that. If you cornered politicians, they would probably agree that most of these ideas are sensible but fear the public backlash. However, I think that if you polled the American people on that platform, they wouldn’t be too opposed either. Oh, they might have reservations about one or two policies but they would probably accept it over the current system.

No, I don’t think the problem is necessarily one of marketing. I think the problem — a problem that NPR glosses over — is that our politicians and political class are simply too invested in the current mess. Part of it is special interests that would rather have a tax system tailored to them or a booming prison industry or a booming housing market. Part of it is simple inertia in favor of policies we have pursued for decades. Part of it is spinelessness — the unwillingness to propose policies that, as NPR noted, can be easily demagogued.

But the largest problem is that our politicians like the system we have. The system we have — especially the tax system — keeps titans of industry, atlases of production and prometheii of invention groveling to them. The system we have keeps special interests on bended knee, constantly asking for and getting favors from politicians. Remember how, earlier this year, Apple had to start ramping up their political contributions and lobbying under threat of regulation and lawsuit? Politicians love that.

The system outlined above isn’t actually libertarian. It sounds like it, because I’ve cast in libertarian terms. But steps 1-4 would be accomplished by replacing our tax system with a VAT — versions of which have propped up some of the most socialist countries in the world. That and step 5 just detail how taxes are collected, not how much are collected. It would create a tax system that was essentially “Dial a Revenue” — capable of supporting either an expansive welfare state or a limited federalist state. Opposing those changes and supporting the current system is not an issue of big government versus little government. It is an issue of just how much of our lives and our industry Washington can control.

Even step 6 isn’t a necessarily libertarian issue; it’s more a matter of common sense. I’ve heard support for marijuana legalization from all parts of the political spectrum. My mother has never voted Democrat. My best friend from college has never voted Republican. Both think marijuana should be legal.

So, no, it’s not that the above platform would necessarily be Republican or Democrat. Or conservative or liberal. Or libertarian, for that matter. The problem with it is not that it would produce smaller or bigger government but that it would produce less invasive government, less powerful government. It would disperse the groveling lackeys and toadies are politicians have grown used to. It would produce a government less besieged by special interests and lobbyists. It would produce a government that spends a lot less time looking over shoulder and poking through our underwear drawer.

And that’s the reason it can’t happen. Our establishment enjoys the genuflection too much.

The Other Way

As I’ve said before, I don’t think we can balance the budget without raising taxes. Of course, tax hikes have to be conditional on even larger spending cuts (a 3-1 ratio at least). And they should be real spending cuts, not phony-baloney baseline cuts or giving ourselves credit for ending the war in Afghanistan.

Given that, you might think I see Obama’s tax proposal — which mainly involves setting higher marginal rates for millionaires — as the beginning of a “Grand Bargain”. But I don’t. It’s a perfect example of how not to do tax policy. It’s built on the Warren Buffet complaint about not being taxed enough (even though Berkshire-Hathway owes hundreds of millions in back taxes). It then institutes a series of escalating marginal rates that, incidentally, will not tax Warren Buffet since his salary is actually small.

It’s crap. It’s the same mentality — we must tax X! — that gave us the abomination that is the Alternative Minimum Tax. That creature was started because of hysterical media reports about millionaires not paying any taxes because deductions wiped them out. The tax burden of the AMT is bad enough, but the deadweight loss — the time, energy and money burned to comply with it — is death.

Our hideous and destructive tax code has been built by bullshit like this. No one sat down and said, “What’s the best way to raise the money for our government while minimally impacting the economy?” Instead, it’s been built of a series of things we should subsidize (kids, home ownership, charity) and things we should punish (rich people). It’s been built on they hysteria-of-the-week. And it’s a simple fact that you will not create a good tax system this way.

Taxing Warren Buffet more is not the basis of good policy. Taxing Warren Buffet more should not be our goal (although it may be the result). Narrow aims like that are what have given us the current mess in which the IRS can’t tell you whether your tax return is right or not. Narrow aims like that distort markets and create unintended consequences. Narrow aims like that result in stories like this, where ex-pats in foreign countries are being threatened for not filing tax returns because someone got a bug up their butt about it.

There are a number of viable alternatives. Milton Friedman proposed a flat tax calibrated to provide negative tax to poor people, the negative tax replacing the welfare system. Simpson-Bowles outlined a number of proposals that the GOP is currently favoring that would eliminate most deductions in favor of a lower overall rate. The Value-Added Tax is a possibility and would be far better than the Fair Tax. One change I would like to see: eliminate the corporate tax completely but tax capital gains and stock income at normal income rates.

All of these are viable options. Any is preferable to the system we have now. And while none would stimulate the economy right away, the long term effects could be dramatic:

It will make U.S. multinationals more competitive and more likely to increase employment here in the U.S. It will shift employment away from the tax avoidance industry of lawyers and accountants to skilled workers who actually produce goods and services. It will cut down on the roughly $2 trillion U.S. multinationals have stashed overseas to avoid high U.S. taxes. It will stop rewarding U.S. multinationals for carrying debt and building financial services subsidiaries and will make them less vulnerable to financial crises. It will increase dividend payouts. It will lower the cost of capital and increase investment. These benefits only arise after firms change the way they operate, and that will take time, like many years.

On the individual side of the income tax, tax reform will reduce the excessive subsidies for housing and redress the disadvantage of renting. It will reduce health benefit subsidies which drive up health care costs. It will reduce the complexity which forces most taxpayers to use a tax preparer. With some extra effort, we could go to a return free system for most taxpayers.

Tax reform is the definition of long-term thinking. It will take years to do (Reagan had to fight for two years to get even mild reform) but will pay off over decades. If Obama were serious about both the deficit and the economy, this would have been the subject of his speech this week.

It wasn’t. Campaigning for 2012 was.