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[RD] USA Tax Reform

Discussion in 'Off-Topic' started by onejayhawk, Feb 23, 2017.

  1. onejayhawk

    onejayhawk Afflicted with reason

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    This is a difficult topic. The Tax code is massive and literally every line has a constituency. However, the Trump administration may attempt an overhaul. The last one was Ronald Reagan in 1986.
    https://www.bloomberg.com/view/arti...-years-since-the-last-tax-overhaul-here-s-why

    Background.
    If someone has some expertise, a post and entry outlining what was done in 1986. Also cover been undone since. It was supposed to be a tax simplification but was referred to as the Tax Attorney and Accountant Full Employment Act. After the dust settled, did it actually make things easier?

    Current:
    What does Trump want to do?
    What should actually be done?
    What will eventually shake out?

    J
     
  2. civvver

    civvver Deity

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    I'm no expert but I believe pre Reagan the top brackets were far heavier but had way more deductions. I think he moved us towards lower brackets but with less deductions. You can check out the historical brackets here, in 1980 top bracket was 70%, though I believe no one actually paid that cus of loopholes and deductions.

    http://www.cleveland.com/datacentral/index.ssf/2011/02/historical_top_federal_income.html

    Also Reagan introduced deductions for mortgage interest. Since rates in the 80s were 3-4 times what they are today that's a pretty hefty deduction! Overall I'm not sure this was a stellar idea and kind of started the housing bubble ball rolling.

    It's hard to say what should be done about taxes, cus on the one hand the tax system in the US greatly benefits the rich. For example the difference on my taxes between taking the standard deduction and itemized is like 4,000 in deductions or maybe like 400 in taxes. For a super rich person it's going to be hugely more. At the same time at the end of the day my effective federal tax rate was only like 7% this year, almost laughably low, and certainly lower than someone really rich. I make good money but I am the sole earner, married with two kids and a house, I put money in a 401k and pay insurance premiums. So there's very little left to tax after all that. When you see those stats about how half the population pays nothing in income taxes it's very easy to see how that is true cus of the deductions and then credits for kids and other things like earned income credit (I don't get that, I make far too much).

    But of course that doesn't include state taxes (Michigan has a 4.3% flat rate), or fica. So in the end I still pay a quarter of my income in taxes with my employer matching fica.

    What I would do to fix social security and make payroll taxes actually progressive is instead of having a cap, have a bottom. Instead of not paying fica on income over $115k or whatever it is this year, how bout we don't pay fica on your first ~$20k of income, and then there is no cap on the high end? You'd need to adjust the numbers to whatever, but fica is by far the heaviest tax burden on lower incomes and it just doesn't make sense to me. I'd adjust it so it nets more overall than current but reduces burden on lower incomes overall.

    I'd do the same thing with gains as well, first ~$10k of capital gains are free, then phase in brackets after that, keeping overall revenue neutral.
     
  3. El_Machinae

    El_Machinae Colour vision since 2018 Retired Moderator

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    What fouled up the Canadian system was to have a ton of one-off exceptions made. The idea was to create a small incentive, and then each of them was given a unique ratio with which to apply. Want to help public transport? Well, it's deducted from your lowest tax bracket. Instead of from the highest. And then your dentist bills and charity donations all get slotted into different categories. And then it became confusing. As a one-off, it wasn't too bad. But it was something that was going to be constantly modified. Little piddly exceptions.

    And on the corporate side, it quickly becomes vastly worse.

    The States strikes me as being oodles worse. And afaict, you guys have no tax incentive to give to charity, which then prevents any type of leveraging.
     
  4. civvver

    civvver Deity

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    well my Michigan tax return takes about 5 minutes to complete, so flat rate has some advantages! If it wasn't flat and had charitable deductions and such I'm sure it'd be a lot higher base rate than 4%
     
  5. Cutlass

    Cutlass The Man Who Wasn't There.

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    Meaningful tax reform doesn't happen because of the vast Congressional-lobbyist complex. There's too much at stake for both the Congresscritters and lobbyists who are paid to feed them for either side to see a benefit in doing right by the country. It's a game: The Congresscritters get their campaign contributions. The lobbyists are paid far more than the Congresscritters get to keep the system in play. All the special interests line up to line the pockets of the lobbyists.

    Meaningful tax reform would put the lobbyists out of business. And so they do everything they can to make the Congresscritters oppose it as well. And since the big money has taken over politics, Congresscritters don't actually spend much time talking to people who aren't campaign contributors any more. And so don't really know both sides of the story.

    Reagan's 1986 tax reform, which only passed the House because of a one off legislative shenanigan by liberal Democratic House Speaker Tip O'Neil btw, failed in the long run not because it wasn't a good idea. But rather it failed because it left open the door to new deductions. And so the common practice of Congresscritters to do favors for people stopped being new spending, which was looked down on in the new political environment, but rather 'tax expenditures', which is what economists call all the new deductions that every special interest, and their uncle, now fight tooth and nail to get for themselves. It's the system of deductions which makes the tax system suck. But it's also the system of deductions that vast Congressional-lobbyist complex has built the way they currently work around.

    One current proposal is a significant lowering of the corporate tax rate, coupled with simplification. This is both the wrong idea, and it won't work anyways. Why it won't work is that all those deductions will not remain out of the code. There would be continuous efforts to put them all back in. And so you'd get lower base rates, with all of the same flaws the system has now. Whereas 19/20 actual economists would tell you that the only corporate tax system that makes the least lick of sense is...

    To eliminate the corporate tax entirely.

    And that comes from the liberals, the moderates, and the conservative leaning, economists.

    Now here's the kicker: If economists of the whole political spectrum tell you you should be eliminating the corporate tax entirely, why is "the party of business", which now has complete control of the government, and a business man running it, not proposing that? Something fishy in them waters. And that something fishy is that eliminating the corporate tax entirely would put a couple of million people out of work, and a very large number of them would be lobbyists. Also tax attorneys and accountants. But mainly the lobbyists. And many companies actually find benefits in having the tax, because the deductions can give them a competitive advantage over rival firms. And because interest expenses are a major deduction, and they want that deduction, so that Joe Sixpack is paying taxes to fund Megacorp's debt used to merge with Giantcorp.

    And none of that benefits the economy as a whole.

    So you want to fix taxes, first eliminate deductions. All of them. And eliminate the corporate tax. All of it.

    And then the hard part: Make it stick.
     
  6. Berzerker

    Berzerker Deity

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    the tax code is evidence of bribery on a vast scale
     
  7. onejayhawk

    onejayhawk Afflicted with reason

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    A progressive tax is inherently unfair and complex. One must appeal to a higher sense of fairness to even consider one. When you do, the complexity is considered trivial.

    For ten seconds. Then they would find something else to push. It's always about money but not always about tax money.

    I sympathize. Still, vast legions of special interest groups is more appropriate. Every line in the code benefits some group.

    J
     
  8. El_Machinae

    El_Machinae Colour vision since 2018 Retired Moderator

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    'Unfair' is a value judgement. And likely incorrect, if we play the odds
     
  9. civvver

    civvver Deity

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    Where would you make up the revenues? Use taxes, wealth taxes, personal income taxes?
     
  10. Cutlass

    Cutlass The Man Who Wasn't There.

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    Ideally, start with the Pigovian taxes. The carbon tax, things like that. Some people think the US should have a VAT. But I'm of mixed minds on the subject. I would put in a Tobin Tax. It has some drawbacks, but I think it's worth it overall. And from there go with a more steeply progressive personal income tax. One without most deductions. Something like $0-20k income, rate of 0%, $20k-$50k, 10%, $50k-$200k, 20%, and above $200k, whatever rate was necessary to have a balanced budget at full employment. Have to figure the math on actual rates, and it would likely change over time. A far more significant Earned Income Tax Credit, or Negative Income Tax, also gets a lot of support, as they could significantly improve the provision of welfare in the country. From the income tax, the only deduction would be dependent children. No other deduction is warranted, or a good idea in any sense.
     
  11. Cutlass

    Cutlass The Man Who Wasn't There.

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    A progressive tax is inherently fair, as the rich get vastly more benefit from the government than the poor do.
     
    Timsup2nothin likes this.
  12. civvver

    civvver Deity

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    I think the objections to that would be rich people hide their assets in companies to pay lower rates. It'd be harder to game the system if it was all personal taxes with no deductions.
     
  13. Gori the Grey

    Gori the Grey The Poster

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    I can only answer one of your questions, this one.

    And my answer is this: Something that favors the already rich more than the present code already does.
     
  14. JollyRoger

    JollyRoger Slippin' Jimmy Supporter

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    Reagan cut the marginal rates, but did away with many deductions, so it wasn't as big a cut as many made it out to be. He raised taxes in 7 of his 8 years.

    I really don't see much real reform going on. Reform would tax capital gains the same as ordinary income and to get rid of the deferral of tax on capital gains. A true flat tax system would do this, but most flat tax proposals seem to want a dual system - tax workers at one rate and don't tax investors at all.
     
  15. onejayhawk

    onejayhawk Afflicted with reason

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    That could be anything. It's more a comment on the ability of the rich to adapt than anything else.

    J
     
  16. Whomp

    Whomp Keep Calm and Carry On Retired Moderator

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    What will happen? I think you'll hear the term "dynamic scoring" quite a bit. This is not just the direct impact of tax cuts on the budget, but indirect effects through stronger trend growth. The argument that "tax cuts will pay for themselves" may drive the politics of tax reform but the reality is they will likely add to the deficit.

    House plan is more likely than a Trump plan but tax reform is hard because it impacts different people and companies.
     
  17. Bamspeedy

    Bamspeedy We'll dig up the road!

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    There is, but it has to be above a certain % of your income to get any credit (at least on some state returns, not sure if it's on the federal return), and then you have to itemize your deductions instead of taking the standard deduction.

    So if it's at say 10%, and you normally give 5%, you get no benefit. So one way around this is to give 10% one year and itemize, then the next year give 0% and take the standard deduction.
     
  18. Gori the Grey

    Gori the Grey The Poster

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    You're not wrong in your first sentence. Trump could do anything and the rich would be better advantaged to take advantage. So I'll rephrase for greater precision: Something designed and intended to make it easier than it already is for the already rich to become still richer.
     
  19. Cutlass

    Cutlass The Man Who Wasn't There.

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    That's probably true as well.
     

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