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Wednesday, December 14. 2011
Not All Taxes Are "Bad" Taxes
I'm opposed to any new income taxes. It matters little if they are assessed on my income or a much wealthier person's income. The average person is overburdened.
I feel the same way about corporate taxes, too. The oddity, in both personal income and corporate taxes, is how little people actually pay and how few of us pay. There are a myriad of reasons for this. Loopholes, primarily, but also the manner in which taxes are assessed. After all, capital gains and investment income are not taxed in the same fashion as earned income, for many good reasons. It is money at risk, and money at work. It must be treated differently.
My personal belief is that a flat income tax, with no (or very few) loopholes is transparent, easy to employ, and would reduce the need for a large bureaucracy chasing the average citizen. It would generate more, or at least equivalent, revenue but not cost the government as much. All told, it's a money saver. This is a preference that I'm unlikely to ever see, as many people don't fully understand the benefits of a flat tax, in particular its very 'fairness' (a vague term, but defensible in the manner I'm using it).
A flat tax alone probably isn't enough, though. To truly have an impact and get people focused on longer time frames, I've always felt a Tobin Tax would be useful. Capital gains taxes would be eliminated and replaced with a Tobin Tax on currency trades and a Transaction Tax on investments. There are many reasons to not like this, given the nature of Wall Street behavior today. However, as part of a broad tax overhaul, it would probably yield tremendous results. Bruce Krasting disagrees, as does the House of Lords. It's possible this is because the current concept would be to implement a Tobin Tax in addition to the existing tax structure, rather than as part of an overhaul. As part of a complete restructuring of the tax code, these taxes would focus investors on longer buy and hold periods, reduce High Frequency Trading, stabilize currency exchanges, and generate considerable revenue for the government. The problem, of course, is the level at which the tax is set. .03% is perhaps too high. Then again, OWS would complain it's too low.
It would be intriguing to see someone elected who is willing to alter the tax code so it more naturally meshes with the way business is done today.
Posted by Bulldog in Our Essays, Politics at 11:15 | Comments (22) | Trackbacks (0)
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I would prefer a flat tax to what we have and I would prefer a sales tax to to a flat tax. Of course part of the problem with a sales tax is which sales are taxed? Services? Houses? I think a reasonable system can be set up that is much less intrusive and expensive than the current system. As I say, right after that, I'd prefer a flat tax (but I still have 4th and 5th amendment concerns about it as I do with the current income tax). Either way, there would be massive resistance to wholesale reform because of all the people who benefit from the current system (politicians mostly).
From the little I read about it, I'm against the Tobin tax as I think it would hamper commerce but I'm sensitive to the problem of high frequency trades. I wonder how Hong Kong or London handle them...
Forgot to say that I oppose all corporate taxes. Those are just hidden taxes on the customers.
Exactly, but good luck trying to explain that to a libtard.
We'll never see a flat tax. Not enough opportunities for politicians to extort "donations" by tax/loophole adjustments. Same with regulations.
Lawrence Lessig spelled this out on The daily Show last night
Tim Worstall has reported on very good studies showing the harm of Tobin Tax including a UK report saying (for the UK)
"...is likely to induce a loss in GDP between five and 20 times larger than the revenues raised from the tax,”
with the net result is that total tax revenue decreases. NO TOBIN TAX!
I can accept direct taxes to fund the government’s “referee” functions. The current SEC tax is an example. Although it collects far more than the SEC requires these days…maybe that overage should go toward more vigorous prosecution of fraud and lax rating agencies.
To fund general gov’t operations, George’s Land Value Tax is the morally superior alternative. It runs against the American psyche, but I wish it would become part of the discussion if we’re going to install a less-corrupt tax system.
Generally, I'd agree. But George's tax has too many flaws to really be 'morally superior'.
First, the value of land is very subjective - a corrupt official valuing land could essentially create a KELO situation, without getting courts involved, simply by engaging unfair valuations.
Second, the taxes would overwhelmingly punish urban and suburban dwellers. This could be considered a 'good', in the sense that it would probably force many people to rethink about where they live, but would damage land values tremendously.
Those are just two very big problems with the land value tax. I'm not arguing that this is a 'bad' tax - actually it has much to recommend it. But it's wide open to corrupt practice and completely shifting current markets.
Tex mentions some issues with the Tobin Tax. The question of its effect on the economy is wholly dependent on the level at which the tax is set. If you believe in a consumption or sales tax (as someone else here suggested), then a Transaction Tax is just another version of it.
A Tobin Tax, as it was originally devised, was only against currency trades - and is actually a very sound concept.
A tax on currency trades is why I am opposed to it. It just raises the cost of doing international business. After all, that was on reason for the Euro (of course on the other hand, look where it's getting them! :-) ).
I'm not sure what you mean when you refer to the Euro, but the idea of a transaction tax on currency trades is not terrible and wouldn't really increase the costs of international business - IF other trade tariffs were lowered. What it would do is impose a tarriff on those who trade currencies for a living and limit their ability to profit heavily from manipulating weaker currencies (Soros).
I agree completely that instituting the LVT would cause tremendous disruptions. I say it is morally superior because I find no flaw in George’s logic that the value of unimproved land is completely and necessarily the product of people living in society. Title to land is the one communal good, which all people should share in.
If it became part of the discussion, I am confident we could work through the valuation and other technical problems. OTOH, base the tax on a trailing value while requiring adverse buyers to make full escrow deposit with offer.
Another feature of the LVT is its bottom-up nature. The landholder owes to the local gov’t, the local to the county, county to State and State to FedGov. It is payment for services through an overseeing body. The 10th Amendment would gain teeth. Residents of a spartan Yankee town would not be subsidizing a national GLBT museum in San Francisco.
Every tax has problems we hope we can work through. The real issue with LVT is the subjectivity of how the value would be assessed and the possibility of corruption on the part of those doing the assessment.
With income, at least, there is nothing subjective about a salary or capital gains. And the only 'crime' that may occur would be on the part of someone seeking to avoid paying (basically it's up to the government to coerce the funds effectively, so there is a reasonable balance between the citizen's power and the government's).
With the LVT, all the power resides with the government - setting the value, setting the rate, coercing the payment, etc.
Morally, land is a 'public good' of sorts, in theory. On the other hand, private ownership and management of land has produced better results than public management and administration. As a result, it's hard to make a strong real life case for the moral superiority of LVT.
There's also the issue of non-owners engaging in 'free rider' behavior.
You are losing sight of why taxes were instituted in the first place.
They are a 'simpler' way to pay for services shared by all.
The only solution is to charge people directly for ALL the services which the government is providing. It would not be difficult to send you a tax bill itemizing exactly where your money is going. You should be able to dispute or cross-off items that you don't want to pay for.
The current tax scheme disconnects the payment from the service and makes any economic decision impossible.
You and I would agree 100% on this point.
Try to convince the rest of the population.
That said - what's the least objectionable solution?
We need to connect the taxes we pay directly to the services we consume. Tax bills should come with a detailed breakdown of where the money is going. Each item or category should have a choice. Pay more, same or less.
It should also include a breakdown of where sales taxes are being spent, since companies pay a large part of the taxes.
Services that compete with private businesses or that could be replaced by private business should have an opt-out choice. Their budgets should match the revenue that people are willing to pay.
All financial information should be open, online and searchable.
This would be easy to implement at the local/municipal level, and slowly move to state and federal levels.
A flat tax is NOT the solution. It would reduce much of the complication, but would not make the government more responsible. What would prevent them from making the flat tax rate 60% ?
I've been getting RGGLLC and a blank screen when I try to get to Maggies Farm for several days now. Whats up?
I would support a flat tax with few, if any, deductions. I'd even support it if it had several levels (i.e, was graduated and "progresssive") provided the levels were reduced.
I believe we have what is effectively a land value tax now, its just build into the standard income tax code. And it would be increased by removing deductions such as property taxes and state income taxes. Generally speaking, if one lives in an area where land values are high one has - because one needs - relatively higher income. As far as I'm concerned that is the only valid reason for property & state tax deductions from federal income tax.
The tax industry - accountants, lawyers, various advisers, etc - will never let flat tax with no deductions happen. Think of all the unemployed tax experts!
The first step to getting the public seriously on board with tax reform would be to stop payroll deductions and have the governments at all the various levels bill taxpayers. If we saw our bills and had to write and mail checks (or do the equivalent online) the pitchforks and torches would be coming out in no time at all.
The need for tax reform was recently brought home to us in a nasty way.
We had several hundred thousand dollars stolen from us by fraud. A lawsuit (civil) ensued and we won a judgment replacing about half of what we lost. The IRS, however, views litigation as just a means of earning money and therefore our judgment is taxable to us, INCLUDING the contingency fee paid to some attorneys in an attempt to collect it (still pending).
Apparently to compensate for the double taxation inherent in this situation, we can deduct attorneys' fees paid to collect the judgment (the contingency fee) and possibly those paid to prosecute the suit, as miscellaneous deductions. However, should we receive the judgment all in one year, it would trigger the Alternative Minimum Tax for which the deductions for attorneys' fees are not applicable. So the judgment is not worth much.
There are 2 exceptions to a judgment being treated as income - discrimination (both race and sex) and physical injury, exceptions granted in 2004, I think.
We find this whole business appalling. It would be interesting to know how this section of the tax laws developed and who benefits. Clearly not victims.
Oh, and the perp, should he pay, gets to deduct the payment of the judgment as a business expense.
Makes one want to consider fraud as a lifestyle choice, doesn't it?
".03% is perhaps too high."
Is this a transcription error? Three cents on one-hundred dollars is high?
No, not a transcription error.
Perhaps some tongue-in-cheek humor, though. The idea is there are so many transactions taking place in the markets, .03% would generate many billions.
However, as several comments note, these many billions could create a drag on the economy.
Personally, I have no problems with a Tobin Tax as part of a complete overhaul. It would hit guys like George Soros, who make all their money from trading, very hard. But if people think it's a drag on the economy, then maybe .01% is better. Or maybe not.
.03% isn't enough off each trade to limit larger traders from doing what they do. It is enough to slow down High Frequency Trading, the trades which are damaging our markets (mainly because they are based on algorithms designed to jump ahead of other retail trades which will move markets), without hurting the average investor.
No taxes are the best answer. Let's not try to justify any %!
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