And of course when asked about how this would create a larger deficit, he never actually asserts that his flat 14.5% tax across the board would actually balance the budget.
But here's the crazy thing: his proposal isn't even a flat-tax policy! He agrees that the first $50,000 for a family of four shouldn't be taxed. That's a progressive tax plan. And it makes sense right - up to a certain amount of income, one makes so little money that need a bit more help than others to get by. Makes sense...but then you could logically assert the converse - that those making so much money need far less help than others to get by, and therefore could be taxed more without affecting their lifestyles.
And this is why a progressive tax plan works in the United States - there exists an income level based on the cost of consumer staples, housing, and transportation, that allows one to be a productive member of society. And so the further away from you get from that magic number (or delta of that number), the more that taxes have an effect either on the individual or the community as a whole. A family cannot get by on $1 a year. A billionaire simply does not need a billion dollars. The burden on them is far different - which is why their tax burden should reflect that.
>He agrees that the first $50,000 for a family of four shouldn't be taxed.
I live in an expensive part of Chicago. $50k for me has nothing in common with some rural Alabama family making $50k. This is one of the reasons why the flat tax is wrong. It lacks the flexibility and subtlety of a more complex tax system. In a nation this large with so many different wealth levels, a non-progressive tax is just asinine. But it engages conservative low information voters who just want easy cowboy-ish answers to complex problems, especially if they're the ones in he rural south who will benefit from this kind of plan more than northern Democratic urban dwellers.
The current federal system doesn't change thresholds based on where you live either, so that criticism seems a bit unfair? How would a system that did change the thresholds even work? If there were some tax benefit involved with owning or renting residential property in really expensive areas, prices for those areas would just increase even more to compensate.
Keep in mind, the income tax rate would still be marginal, so you'd only be paying tax on your income beyond $50k. (I don't recall this specifically from TFA, but it did say Arthur Laffer helped out and I really doubt he'd approve a system with a $7250 discontinuity.)
I think I speak for everyone in Alabama (which I'm not) when I say "if you want a cheaper apartment, move out of the Loop and ride the subway!"
I dont want to move, what I don't want is some redneck senator proposing raising my taxes so his, largely under 50k making, constituents don't pay ANY taxes. There's enough red state welfare as is.
>The current federal system doesn't change thresholds based on where you live either, so that criticism seems a bit unfair?
It does, in a way. I submit my mortgage interest, what I paid in property taxes, etc and a million other things itemized specifically about me and my income/expense level. A flat tax removes those things for that 14% which is fine, but it shouldn't be after 50k, it should start at 1 dollar of income.
Not to mention the rebates I get due to current law like adoption credit, electric car credit, home insulation credit, home office business expense, etc. Losing those incentives will have a non-trivial effect on society. It will, for example, make adoption financially impossible for most folks who current are able to do it and probably strangle the electric car in the cradle. For reference, our adoption was $40,000 out of pocket and x percentage will be returned to us over y years. How many people can drop that kind of money and not get any of it back? Its challenging for many as-is.
So you're complaining because you'll lose privileges that have been granted to you, that you get to take advantage as a upper-middle class individual. Boo hoo.
People in the bottom tier (making under 50k) are generally not taking adoption credits, electric car credits, home insulation credits, etc.
It's doubtful that the electric car will be strangled. Tesla owners are not buying teslas for the credit. Likewise, Prius/Insight owners were not buying those for the credit (when that existed) either.
The only electric cars that will die without the credit are the leaf and the volt.
People often complain about the rich using loopholes to avoid paying less taxes, but when laws are proposed that will effectively close all those loopholes, they balk at the possibility that their own loopholes would be closed too.
Actually, the kinds of people who adopt are often not well off. They borrow from friends, family, church, etc. Then they pay it back using these credits.
> electric car credits,
Lets talk in 5 years when even the poorest will be driving EV's. They'd be stupid not to considering how cheap electricity is compared to gas.
Not to mention in a country of high class mobility putting in "donut holes" in the tax code is just stupid. Now you'll be incentivized to not go past making $50,000 unless you suddenly want to be hit with taxes. Employers will cap salaries at arbitrarily $50,000 to avoid tax concerns. These kinds of "one fits all" caps are often economically destructive. Look at India, where if a company is larger than x employees, it is illegal to fire anyone. You need to petition the government to fire that person. That's why there are so many small companies there and why they struggle to compete with China and other nations in their development class who don't have weird one-size-fits all legislation.
> Actually, the kinds of people who adopt are often not well off. They borrow from friends, family, church, etc. Then they pay it back using these credits.
Yes, these people aren't helped by the process of taking deductions because they are basically covered by the standard deduction to have zero tax anyways.
>Now you'll be incentivized to not go past making $50,000 unless you suddenly want to be hit with taxes.
Huh? if you make 50,010 you're not going to be paying 14.5% of 50,010, you're going to be paying $1.45 in taxes.
>These kinds of "one fits all" caps are often economically destructive.
No doubt, and the US idiotically implements these, too, like in the ACA where small businesses are exempt below certain sizes, unless you are wal-mart and can obtain a backdoor administrative exemption.
Now, if you want to rail against "donut holes" the american welfare system has plenty of those, but that's a separate debate.
>Lets talk in 5 years when even the poorest will be driving EV's. They'd be stupid not to considering how cheap electricity is compared to gas.
If the lowered expense of the cars is matched by the cheapness of the electricity to make it economical for 'the poorest', then there would be no need for a credit. As it is, the credit (like most tax credits) only helps rich people.
If there is a 14.5% flat tax, then it wouldn't make sense to have a salary anywhere between $50,000 and $58,479.54. That still leaves a company free to offer a "competitive" $60,000 salary to lure employees away from a competitor who would cap salaries at $50,000.
This argument goes away if we only tax the money after $50,000.
Either way, salaries won't be arbitrarily capped at $50,000.
Yeah but that 50k income covers their entire mortgage, kids schooling, etc. 50k covers barely anything for us, so I'm being punished for living in and being part of a large economic engine (big city) that, frankly, makes the money this country runs on.
So their entire lives are tax free(even while they are using resources paid by tax), but for me income for private school/daycare, mortgage, etc aren't. I don't see how anyone can see that as fair. If we all moved to rural Alabama then economy would collapse, so telling me to move is a non-starter.
Regardless, flax tax is crackpot territory and Rand Paul's chances of becoming President are about the same as mine. I see that as a feature, not a bug in our system. Greece just voted in radicals hell bent of changing things, and now it looks like they're headed for financial doom. Just because the status quo has issues doesn't mean you're obligated to throw everything out. The nice part of our tax code is that its so complex, no one action can really ruin things. We can add/remove as needed without really breaking anything. Its congress-proof for the most part, under typical government gridlock (different parties holding power in different branches).
That is precisely what is necessary. Businesses have to continually cut complexity to keep costs down and stay competitive, but for a government, especially the federal government of the richest nation in history, the costs of steadily rising complexity are low, and personal consequences minor. Often times complexity is retained or expanded unnecessarily purely for political reasons, such as representatives of districts refusing to close redundant military bases that the Pentagon doesn't even want for fear of losing their seat in the next election.
One of the biggest problems in our government was never implementing a way to refactor without grand upheaval. Also they didn't really think about scale very well and campaign funding restrictions. I feel we are in a place right now where special interest is more important than public.
What significant law do you think is outdated and unnecessary, the repeal of which wouldn't be controversial? Let's limit discussion to the federal level since we're talking about a Presidential candidate.
Why the restriction on "significant" laws? Most laws are significant to some people, and a vast morass of insignificant laws is arguably worse than a single law that affects everyone, since they greatly increase the cost of doing anything without hiring expensive counsel and hoping that the courts and IRS will agree with his/her interpretation of your particular case.
If someone is spending money trying to comply with an outdated law, I'd call that significant. If there is a provision in the tax code that talks about how to properly depreciate horse-drawn carriages, that's not really increasing anyone's cost of compliance.
That's the thing. It wouldn't matter if repealing a law was controversial. They'd have to repeal one, if they wanted a new one. They'd obviously start with the least controversial...
Yes it does. A law that some people continue to support is not a valid example of a law that is "outdated and unnecessary." Blue laws and dry laws, for example. You may disagree with them substantively, but they're not just cruft someone forgot to take out.
That's the thing; we're in love with our code, even though we all know it's awful and needs to be refactored. No one has the time or motivation to do it, because we're all burnt out and trying to constantly push features :)
I like to see a law or amendment that evens the playing field by making it unlawful for government officials and officers to lie. A federal officer can lie to you but you can't lie to them. I think that's BS.
Absolutely. I've always thought all laws, sans the constitution & bill of rights, should be wiped out every so many years. That would also include the tax code.
I've always wondered exactly where the line is between ignorance and messaging for politicians. Like, when he says, "[Obama's] redistribution policies have led to rising income inequality and negative income gains for families."
He can't actually believe that is a strictly true statement. I'd think that any Republican politician with an understanding of economics would have to believe that a president's policies are at best contributory rather than a distinct cause. I get it as messaging; if one believes that progressive taxation has side effects that cause inequality, then they'd want to gloss over things to blame the presidency for it. So, I tend to believe that most politicians have private meetings where they talk about what they actually think is going on, and then translate it into brain-deadening messaging for the public. But sometimes I wonder if for a lot of these politicians, how much of what they say is actually because of willful ignorance rather than messaging.
Like that guy with the snowball that argued against global warming, that almost definitely has to be chutzpah rather than stupidity, right? Like, he would understand the concept that just because a stock price spikes down, it could still be true that the stock market is going up over time. So he has to secretly understand the argument about global warming, right? And then we waste our time trying to explain how a snowball doesn't disprove anything, and he doesn't care because he already knows that. There's got to be a term more accurate than chutzpah for someone that deliberately lies and plays dumb, knowing they can get away with it.
>most politicians have private meetings where they talk about what they actually think is going on, and then translate it into brain-deadening messaging for the public
Yes, sort of, but the reality of these things are so well understood all politicians that there's not often that much of a reason to discuss these things outright.
When a politician (and by "politician," I do not mean a single person. I mean an amalgam of the politician, their staffers, and their advisers) are weighing an issue, the actual merits of the arguments are just a part of the equation. They're weighing the interests of various groups and constituencies, they're considering coalitions and alliances and favors, and making a pragmatic decision. Usually a mix of their conscience, their constituents, their fundraisers, and their party.
Rand is a bit of an outlier on this front because he is a legitimate True Believer, but he's still a pragmatic true believer.
Then they hire someone like me to turn it into the soul deadening messaging.
But, yes, these people understand both sides of the issue. They are usually very smart. And if they don't understand the other side of the issue, their close advisers do.
It's too bad, really. The general public gets more engaged for presidential elections, and they start caring about the actual issues, but then there's no resource to allow the citizen to drill down into the actual argument as deeply as they'd like, so they can try to understand it to the depth that a close adviser would. So instead they hear a bunch of bull and they get disillusioned and go back to voting while uninformed. Which is really what the politicians want, anyway.
> there's no resource to allow the citizen to drill down into the actual argument as deeply as they'd like, so they can try to understand it to the depth that a close adviser would.
There are tons of resources [one example: http://www.vox.com/cards]. But the reason we have a republic is so that individuals don't need to become policy experts. They can rely on heuristics and the system is robust enough to handle it. This usually works pretty well
>go back to voting while uninformed. Which is really what the politicians want, anyway.
Most pols don't want this. Politicians want informed voters so people will be aware of the extreme efforts they go through to make their constituents happy. Election positions are determined based on polls, and extreme rigorous scientific effort goes into shaping candidates who are able and want to represent the policy desires of their constituents. (sure, the politicians might not actually believe these things, but to me that's usually irreverent. They want to be hired to do a job, which is representing the views of other people) The problem is, uninformed voters are more willing to switch sides based on emotion, ruining the math.
Informed citizens would be bad for some politicians (for example, blue state republicans who have to walk the line between the demands of their extremely conservative donors and their more moderate constituents). While some would do better with more informed voters (conservative red state democrats, for example, would be more able to shed the reputation of their national party and run on their conservative values if fewer people voted on policy as opposed to heuristics)
Maybe you could use the word "sophistry"? I don't agree for TFA, however. Paul didn't have much chance anyway, and in proposing this he pretty much drops out of the running completely. You can't get far without the corporate executive class bankrolling your superPAC. So, it's not perfect (he's keeping the mortgage deduction!), but relative to most politicians it's a good effort.
And every year the Internal Revenue Code grows absurdly more
incomprehensible, as if it were designed as a jobs program
for accountants, IRS agents and tax attorneys.
I think this is a point people across the political spectrum agree with. It does not follow, however, that simplifying the tax code would require a regressive flat tax. One could easily imagine a simplified tax code that still has progressive tax brackets.
The left will argue that the plan is a tax cut for the
wealthy. But most of the loopholes in the tax code were
designed by the rich and politically connected. Though the
rich will pay a lower rate along with everyone else, they
won’t have special provisions to avoid paying lower than
14.5%.
This would be a massive tax cut for the wealthy, unequivocally – a 25.1 % lower tax rate for the top bracket. The idea that this cut would be offset by closing unnamed loopholes is disingenuous at best. A 14.5% tax rate also conveniently matches the current maximum capital gains tax rate of 15%, which is the effective tax rate the ultra wealthy already pay.
> A 14.5% tax rate also conveniently matches the current maximum capital gains tax rate of 15%, which is the effective tax rate the ultra wealthy already pay
That's exactly the point. So now the middle class can pay what the wealthy already pay.
> A 14.5% tax rate also conveniently matches the current maximum capital gains tax rate of 15%
Well, except that 15% is the next tier down from the top capital gains tax; the top tier is 20%.
Plus the fact that 14.5% does not match 15%. If you don't believe me, I'll give you $14.50 for the "matching" $15.00 and repeat that until you're convinced.
Taxes aren't arbitrarily iterative (they only hit once a year), so your "repeat until you're convinced" is kind of a poor analogy. 14.5% is comparable to 15%, and lower (which incentivises people to quit using the capital gains cheat), but not much lower. That level of sophistication in and of itself shows that this is not total crackpottery, but at least somewhat well-thought out.
You seem to have read the part about 14.5% not matching 15%, but not the part about 15% not actually being the top capital gains tax rate to start with, 20% is.
14.5% doesn't match 15%, though maybe it "close enough" for some purpose, but it even moreso doesn't match 20%, and its not even particularly close.
Long-term capital gains are at 15%. If you know how to set up a corporation, you can basically strategically convert short-term gains into long term, by taking an equity position in your company and (I think, I have not done this myself) withdraw salary as 'dividends', and this is taxed as ltcg as long as you hold a stake in your company for longer than a year.
No, long-term capital gains taxes are on different rates based on the same brackets as regular income tax; for the top income tax bracket, the long-term capital gains rate is 20%. For other income tax brackets from 25% up, the long-term capital gains rate is 15%. For the income tax brackets 15% and below, the long-term capital gains tax rate is 0%.
This is the fundamental problem. Everybody wants a simpler tax system. But nobody can agree on which parts to remove, or how to change it. The current system is close to what you get when everybody tries to get what they want. Even if you blew it up and started over, I think you'd get back to the current state pretty fast.
Edit: everybody can stop replying to my comment proposing your favorite simplified tax system and explaining why it's great. You're missing the point here. If you want to discuss your favorite tax system, make a top-level comment.
Flat tax + basic income is the only sane way forward. Most other systems lead to stupid incentives, unjust inequality, and over priced accountants.
For example. Assume a household of two people. one earns $20k per year, the other earns $80k per year. With a 50% tax and a $10k (after tax) per year basic income you get the following:
2*$10k + 0.5 * ($20k + $80k) = $70k
Now if each partner earned the same you would get:
2*$10k + 0.5 * ($50k + $50k) = $70k
Which is exactly what you want. The problem with income splitting measure that try to replicate this is that they lead to a perverse disincentive to divorce. So in the first example, the person earning $80k would no longer be able to offload part of his income to the lower paying person, and the two persons effective income decreases just when their expenses double. Furthermore it discriminates against people that are single, which is politically expedient, but unjust.
It also solves the welfare and old age security paperwork problem. There are some other problems: like having a higher tax rate to pay for all this basic income, but ultimately I think it would unleash more minds on problems that matter instead of setting up family trusts for the wealthy.
Another way to go is get rid of income tax altogether and replace with a national sales tax. Nice thing about that is that you can exempt essential things like unprepared food. That way the effective tax rate is much lower if you're a low earner, since most of your money will be spent on essentials.
No more IRS is another bonus, and since most states already have a sales tax the infrastructure is already there.
Then the wealthy make all of their big purchases outside the country and import them in. If the country starts taxing purchases made outside the country, then those purchases become "gifts from a good friend."
There's also the fact that the ultra rich get unbelievably rich because they spend only small fractions of their income, meaning the rich would be paying pretty much nothing in taxes ever.
Eliminate the choosing of winners and losers (which items are exempted) by having pre-bates that cover the sales tax amount that we decide is the "poverty limit". Then we all only have one thing to decide: what is the poverty limit.
Your proposal sounds good, but I doubt it'll fly, because the people who like the idea of basic income and the people who like the idea of a flat tax have almost no overlap.
My point is that everybody agrees on simplifying the tax code but nobody can agree on how, so it probably can't happen.
Actually, there's quite a lot of overlap. Milton Friedman, who is worshipped by much of the right, advocated a "negative income tax", which is basically the same thing.
"It also solves the welfare and old age security paperwork problem. There are some other problems: like having a higher tax rate to pay for all this basic income, but ultimately I think it would unleash more minds on problems that matter instead of setting up family trusts for the wealthy."
A basic income is unsustainable. As more and more people become dependent on it, taxes will only increase over time and we will run out of tax dollars. In addition to this, there will be massive inflation.
"instead of setting up family trusts for the wealthy."
I see where this is going now: the wealthy need to be punished for earning more money than the rest of us. This has never really been a good strategy historically for creating a happy and free society.
The ironic part is that the more rules you impose on the public in terms of taxes and money, the less mobility the lower and middle classes actually have. The rich can just leave the country and still make a killing with new laws in place like what you propose. The middle and lower class don't have the luxury making it that much more difficult to start and run a company (which is really the only way to have true economic freedom).
Paul, I'm broadly libertarian. I don't want taxes to asymptotically approach 50%, I'd prefer if they were lower. But what we have now is taxes that asymptotically approach 50% unless you have clever tax planners, like I do.
Furthermore the rich can leave the country, I'm personally of the opinion that taxes should be based on land and resource usage, but very few people share this view, so I talk about how to reform income taxes over switching tax systems.
What I'm saying though would be much better than we have right now. Right now we have massive inequality in treatment for families that earn identical amounts.
Furthermore, a basic income is not unsustainable. What we are doing now is unsustainable because robotics are going to replace people in low skilled areas of the economy, like trucking, taxi driving, and construction. The system of taxation we ultimately use will be able to tax the wealthy that leave the country if they derive economic benefit within the country they left. For example, sales taxes.
I think that some people have a childish view of libertarianism, so I shy away from straight out calling myself a libertarian these days. I recognize the need for expediency in things like food labelling and even immigration and healthcare; but I don't view healthcare as an innate "right" I view it as something that is necessary to keep the economy efficient and something that almost everyone would want if something bad happened to them. I'm very against wars of aggression, but I'm not so libertarian as to deny the need for things like nuclear weapons or a realist influenced foreign policy (even if my international relations view is much more strongly influenced by liberalism). I don't think most libertarians are correct on the environment, since they aren't practical enough to admit that pollution is currently unavoidable, and strong treaties are needed to keep the oceans clean and full of biodiversity.
I call myself a geolibertarian, but I clarify it because I don't want people thinking I want to tear everything down. I just want to tear down some things, like grants for the arts, corporate welfare, militarism, and complex bureaucracies.
"Things would be better if we did away with the system."
"But what about when things go wrong?"
"Well, there would be agreements in place to handle that."
"Yes, that's called a 'system of government.'"
Or, "The government shouldn't tell me what to do."
"The word 'govern' literally means 'to conduct the policy, actions, and affairs of people.' That is, in fact, the whole point of government: to tell you what to do."
I remember a comment on HN a little while ago which went something like, "Why does the government need to get involved? Why can't people just come together and figure out how to deal with it?" I replied pointing out that this is what government is.
That's just playing with multiple definitions. When people say "government" they mean the government, that is, the representative bodies that form our current system, not the abstract concept of any system by which a state is governed.
Governance is certainly necessary. Having "a government" is just one possible way of achieving it.
"Taxes are complicated" translates to: "People don't understand the rules for tax brackets that don't apply to them and think they are getting screwed over. So let's change the tax laws to save those(people or businesses) making more than $100k a year some money while doing nothing to help those making less."
I'm not in favor of any of the flat tax proposals... but this is the tax system where receiving a 1099 for from-home software development means you literally have to get out a tape measure and measure the room where you did the work. The exemption allowance worksheet on the W-4 is similarly insane. There's a lot that could be done to make the tax system here less complicated without touching the tax rates themselves.
There's some interesting bits like the earned income tax credit for the working class stays, and the first 50,000$ of income of a family of 4 wouldn't be taxed.
Capital gains are left unmentioned (probably because they're being abolished, and this is most likely going to reduce the effective tax rate on capitalists to ~0.0% -- no capital gains, no estate tax, no gift tax, so in essence taxes will finally be 0% for the oligarchy. Policy like this helps pave the way for what we all know is true: we're going to meet the first trillionaires in our lifetime).
The other critical problem they don't mention is:
* $2 trillion dollar tax cut = $2 trillion dollar revenue cut.
There is no mention of cutting spending, and there IS mention of "growing economy", so there is only one conclusion: "Liberal Stimulus". When you cut revenue by $2 trillion and leave spending the same, you end up issuing debt to cover the deficit. It's the same debt-driven tax scheme literally every republican has proposed since Reagan (who did the exact same thing perfectly: tax cuts + spending increases = growing economy and growing debt).
Debt isn't that bad for a state. A state isn't a company and has to make a profit. It's there to provide infrastructure, stability, and security.
As long a state can afford to pay the interest rates, how high the debt is matters less. Especially for the major economies in the world today it's even less problematic. The USA, China, Japan or any other G7 state is basically safe from bankruptcy, because it would disrupt the world economy too much. Just look at the banking crisis and the bailouts there.
I wouldn't mind so much if they would be honest about it. "We will cut taxes and increase the deficit and thereby stimulate the economy." OK, cool. But instead what people like Paul say is, "We will cut taxes and this will result in a net increase in revenue by stimulating the economy."
Capital gains tax is mentioned:
"I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest."
There is a mention of cutting spending towards the end:
>And because the best way to balance the budget and pay down government debt is to put Americans back to work, my plan would actually reduce the national debt by trillions of dollars over time when combined with my package of spending cuts.
Of course, anyone can claim their unworkable tax system is great when coupled with unspecified spending cuts.
Oh, another right-wing "flat tax" guy. Somehow, these simplified tax schemes always result in lower taxes for rich people.
The tax code is complicated because of lobbying for exceptions. Propose removing some of those exceptions, and the lobbyists will line up in the House and Senate office buildings. (There's a book about that, "Showdown at Gucci Gulch". The cover picture is of lobbyists lining up.)
I love the idea of a flat tax, but flat taxes don't get rid of the complexities of the tax code. The tax code is definitely full of random cruft, but the bread and butter that keeps the IRS and all those tax attorneys busy are a few principled features of the system: taxing net rather than gross income, deducting the value of depreciating capital assets over an amortization schedule, taxing income internationally, taxing capital gains differently than income, not taxing certain intra-familial transfers, etc.
Most of the complexity of tax accounting is complexity that's intrinsic to accounting itself.
> flat taxes don't get rid of the complexities of the tax code
Most flat tax proposals don't allow for exemptions. You pay your taxes off your gross salary, full stop. That would eliminate 99% of the tax code complexity for most individuals.
The median individual return is under $50,000, and more than 80% of filers in that group just take the standard deduction. Not to mention, they get free use of most electronic preparation services.
> Gross income isn't income for purposes of taxing.
It is for personal income (business income is different.)
Well, strictly, adjusted gross income is income for purposes of taxing, but AGI is gross income after deductions allowed in the tax code, and "flat" tax proposals -- including Paul's -- almost without exception call for eliminating most deductions or all deductions (Paul expressly states that he will eliminate all except for charity and mortgage-related deductions.)
(Keeping one of the complexities of the current tax code, Paul continues to allow more deductions for businesses than individuals.)
I might add as a former lobbyist, everything he said in the article about my former profession is absolutely correct. Every day we analyzed policy to find ways for our clients (corporations) to increase profits, decrease costs, and eliminate taxes. On the other hand we did a lot of good for small and medium sized business. Unfortunately working for small and mid-sized businesses, and average citizens, doesn't pay the bills. I just bought my first house, and I'm starting to save and budget wisely for my family. Anything anyone - be it the President, congress, or otherwise - can do to reduce my tax burden, reduce government involvement in my life, and increase money for my family, is a good thing in my book. Like I said in my last comment: I'm so sick of both parties that I'm less interesting in "Republican" or "Democrat" and more interested in the actual person.
Observation 1: Nice idea, but what remains to be filled in is why people who earn 1M per year will want to give $145,000 to the gov. every year, instead of continuing to use N levels of ownership indirection and contribute-money-to-the-budget-like-right-now-this-year half of this amount? Or maybe even less if Investment gains or holding company? Not sure how income from rent counts.
So in terms of "let's cleanup the API" its a great idea, but how do you make the real estate owners and corporates pay all of a sudden? [1]
Observation 2: the minimum income before you start to get taxed, is a very interesting number. A half-step towards having a guaranteed minimum income for everyone, is to set this "target number" as the income where taxation starts. Thought experiment. If the tax-exempt portion of your income were increased to $15k, or $20k, how would that affect people's choice of occupation? The Hipsters will definitely be in---they're like "$20k tax-free, I'm like a lunberjack/lumberjess living out in the wilderness who pays no taxes; that's my beer and bike money and I don't need more." (Such an increase in the "personal amount" will make a big hole in the budget, but ask your self this, why are we taxing people who make $14k per year?)
United States tax complexity isn't because of the shape of the tax(income) function. That function is the most important part of tax to most Americans, but the complexity comes from two other places:
1) Some people will game the system for economic advantage. Of the 321M Americans, a certain portion are both extremely clever and amoral. A lot of the code is a response to "They did what‽"
2) Americans tend to have an inbuilt belief that everyone should make it on their own which manifests into the government not "giving" things to people, even if it is to induce a person to accomplish the government's goal. Since it is politically difficult for the government to use payments to change people's behavior it is easier to "not take as much" instead and accomplish the same end with a tax credit. This pushes all sorts of policy and governance into the tax code.¹
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¹ As an example, I have in the past claimed "historic building renovation" tax credits. I have never renovated a historic building. My state wants to spend $X to preserve historic buildings, but they politically can't give $X to people preserving buildings. So instead, they give transferable tax credits worth $X to the renovators, who probably aren't paying much tax (because they are in the business renovating historic buildings, like that pays) and don't have a use for the credit. If you know the right finance person, you will find there is a quiet market that connects sellers and buyers, so you can buy credits and split the savings with the seller 80/20 if I recall. It's a stupidly complex system that only puts 80% of the state's cost into what it wanted done, but at least they didn't give anyone money to preserve buildings.
I say we axe income tax completely. Two reasons: 1) even a progressive income tax is highly regressive when one considers that the wealthy mostly don't even earn employment income and therefore don't pay tax on it, and 2) taxation on income is the source of most discontent with redistributive policies.
I propose a multi-layered tax code operating in coordination at each level of government.
1) Land Value Tax collected by local governments, with land valuations determined at the state level and the revenue redistributed as Universal Basic Income by the Federal government (your SSN becomes your UBI account number). Local governments may in turn add a percentage to the LVT to replace property tax revenues. Minor recipients of UBI (below age of 18) receive their income as a school voucher. The LVT replaces income and payroll taxes as the majority of aggregate national tax revenue, and the UBI replaces SS, EITC, and a host of other safety net programs.
2) a Progressive VAT to be collected by the states with Federal revenue sharing. This becomes the second largest source of tax revenue and funds the majority of state functions, with the Congress taxing a portion of state VAT revenues to fund the Federal government. Most domestic spending programs would be devolved to the states to fund and manage directly rather than redistribute as block grants. The VAT would be progressive in that it would primarily target non-essentials (not food, for example).
3) the rest of Federal revenue sources would come from taxing financial instruments (capital gains, etc), as well as its traditional sources like corporate tax, tariffs, duties, etc. It would also have the option of increasing its share of the VAT. The Federal budget would be significantly smaller than it is today but would be free of the large domestic spending programs (which it would still regulate), as well as from pork barrelling which would instead never leave state borders to begin with. Federal spending would instead focus on interstate and international commerce, defense, national initiatives (nasa, nih, etc).
Flat tax benefits the top incomes more than the bottom ones. But we now know for certain that trickle down just doesn't work and that increasing income for the poorest benefits the economy the most.
Getting rid of exemptions and special rules is a good idea to reduce bureaucracy. You can replace tax exemptions with direct subsidies to make the amount spent on it more transparent.
A progressive income tax makes a lot of sense and has lots of configuration levers.
Flat tax benefits the top incomes more than the bottom ones.
Not under Paul's proposal...."I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest."
Take a look at what tax rate the high-earns are paying. It can often be a small percentage than lower income earners. If the rate was flat at 14.5% for all income (also removing a lot of the current exemptions), I think you'd see high income earner's overall tax rate increase.
Interestingly, the 14.25% tax rate is not new. Donald Trump proposed in his 2000 presidential bid. At the time, 14.25% one -time wealth tax on personal wealth with $10MM or more would collect $5.7 trillion, which wipe the ENTIRE U.S. debt.
"One-time" taxes feel a bit like theft, though, don't they? The follow-on effects wouldn't be pretty either, after the billionaires realize how foolish it is to keep their money in USA accounts.
Paul proposes a 14.5% rate, so, even if novelty or lack thereof was relevant, I'm not sure what the relevance of the novelty of a 14.25% rate would be.
> 14.25% one -time wealth tax on personal wealth
Yeah, not only is 14.25% different from 14.5%, but a one-time wealth tax is different than an income tax. So, again, what's the relevance?
I like this guy more and more each day. I've grown so weary of the political parties that I'm desperately seeking a really different candidate who can push a more libertarian agenda. I just hope he sticks to his word.
This is good spin-doctoring. The financial sector always wants to point the finger at taxes. The problem is still the banks. Declare debt amnesty, regulate the banks. Watch the economy soar.
> So on Thursday I am announcing an over $2 trillion tax cut
Apparently, Rand Paul thinks he's a dictator, not a Senator: he is proposing, not announcing a tax cut.
> The plan also eliminates the payroll tax on workers and several federal taxes outright, including gift and estate taxes, telephone taxes, and all duties and tariffs. I call this “The Fair and Flat Tax.”
Which is odd, since the proposal is neither fair nor flat.
> The Fair and Flat Tax eliminates payroll taxes, which are seized by the IRS from a worker’s paychecks before a family ever sees the money. This will boost the incentive for employers to hire more workers, and raise after-tax income by at least 15% over 10 years.
Abolishing payroll taxes might be a good idea, though since federal payroll taxes are dedicated levies to support certain programs, one needs to address whether this is abolishing the programs (Social Security and Medicare) or changing their funding source to draw from general revenues. Any evaluation of the proposal to eliminate these taxes is obviously strongly affected by this, which Paul does not address.
Eliminating the employer share of payroll taxes (combined with the minimum wage, which limits the minimum payroll cost before payroll taxes) does increase the incentive to hire workers at the low end of the pay scale, and increase the nominal pay level that employers can offer for employees that they would already be fully incentivized to hire at higher levels; eliminating the employee share has no impact on incentive to hire or nominal wages, but does increase after tax income at any nominal wage level.
The claim that doing this would raise after tax income by "at least 15%" over any time period is in serious need of some justification; certainly, at the low-end of the scale, that seems to be well within the direct effect, but for employees at the higher-end of the wage scale (after the Social Security cap), it would have a much smaller direct effect; so, what does this number really refer to and how is it justified?
> I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed.
While I like the idea of eliminating distinctions between different sources of income -- particularly capital income subject to reduced capital gains tax, labor income subject to normal income tax plus payroll tax, and miscellaneous income subject to normal income tax but not payroll tax, these sentences also reveal that the proposal is not flat, and also (unless major features related to what is described here exist that are omitted in the description) its also not fair.
Its not flat, but a two-tier progressive tax system, because it has a range with a 0% marginal rate, and a range with a 14.5% marginal rate. That's progressive, not flat.
Its not fair (with the caveat above) because its a progressive system in which income earned over several year period but realized at a particular point is treated the same as income earned in the period realized. This is a fairness issue that is addressed (poorly, to be sure, and a better mechanism is definitely needed) by the existing distinction between other income (including short-term capital gains) and long-term capital gains.
The current system is roughly fair (ignoring the disparate impact of payroll taxes and payroll tax supported programs, just considering income/capital gains taxes) between pure wage earners and those who supplement wages with some long-term capital holdings but who don't have enough long-term capital to structure trades to derive substantial continuous year-over-year income from different batches of long-term holdings, but unfair between both those groups and those who are major capitalists, who are favored over both the other groups.
Rand's proposal (assuming it doesn't have major relevant features that are not described) is roughly fair between workers and large-scale capital holders, but unfair between both those groups and small-scale capital holders, who are disfavored compared to either other group. As such, it is most unfavorable to the group moving out of the laborer category into the capitalist category.
> The left will argue that the plan is a tax cut for the wealthy.
Because it is, enormously.
> But most of the loopholes in the tax code were designed by the rich and politically connected.
As, for that matter, was Rand's plan. The people he refers to helping him right it are both rich and politically connected, as is Rand himself. So what?
Who designed it is a different question than how it distributes tax burden relative to Rand's plan. And while the present system may have been predominantly designed by the "rich and politically connected", and may even excessively favor the rich, Rand's plan is still a tax cut that disproportionately favors the rich.
> Though the rich will pay a lower rate along with everyone else, they won’t have special provisions to avoid paying lower than 14.5%.
The rich won't be able to control legal entities outside US tax jurisdiction that are the actual recipients of income and expend it for the benefit of the owners? Because that's one of the main ways they have of evading tax now -- not being the legal recipient of income. No matter how you structure a tax on income, as long as people can benefit without being the legal recipient of income, they can avoid it. I'll trust claim that you've actually got a plan that eliminates all avenues to evasion when the details of how you plan to do that are subject to scrutiny. Until then, its just puffery.
Also, both the mortgage and charity deductions are tools for evading taxes, particularly the charity deduction. But Paul plans on keeping those. He also addresses only deductions, but not credits -- many credits are popularly seen as loopholes used for evasion by the rich, and other credits are distinctly major tools of aiding those on the lower end of the income distribution, particularly EITC. Is he using sloppy language and meaning deductions and credits when he talks about deductions, or does he plan to leave credits alone preserving the "loopholes" that take that form, or has he just omitted an explanation of how he would handle existing credits?
The handwaving here that the elimination of "tax loopholes" would somehow shift this from the obvious disproportionate pro-wealthy tax burden shift into something more fair needs some quantitative support.
> The immediate question everyone asks is: Won’t this 14.5% tax plan blow a massive hole in the budget deficit?
Well, duh, of course it will.
> Here’s why this plan would balance the budget: We asked the experts at the nonpartisan Tax Foundation to estimate what this plan would mean for jobs, and whether we are raising enough money to fund the government. The analysis is positive news: The plan is an economic steroid injection. Because the Fair and Flat Tax rewards work, saving, investment and small business creation, the Tax Foundation estimates that in 10 years it will increase gross domestic product by about 10%, and create at least 1.4 million new jobs.
While the Tax Foundation is a "non-partisan" right-wing think tank that hasn't ever seen a tax cut for the wealthy that it doesn't like, I'll note that even Rand's claim about the Tax Foundation's findings actually doesn't address deficit/revenue claims at all.
> my plan would actually reduce the national debt by trillions of dollars over time when combined with my package of spending cuts.
Over how much time? And, of course, if your only statement of deficit impact one way or the other is "when combined with my package of spending cuts", I then can't even begin to consider the merits of your tax plan without first having bought into your particular package of spending cuts.
And of course when asked about how this would create a larger deficit, he never actually asserts that his flat 14.5% tax across the board would actually balance the budget.
But here's the crazy thing: his proposal isn't even a flat-tax policy! He agrees that the first $50,000 for a family of four shouldn't be taxed. That's a progressive tax plan. And it makes sense right - up to a certain amount of income, one makes so little money that need a bit more help than others to get by. Makes sense...but then you could logically assert the converse - that those making so much money need far less help than others to get by, and therefore could be taxed more without affecting their lifestyles.
And this is why a progressive tax plan works in the United States - there exists an income level based on the cost of consumer staples, housing, and transportation, that allows one to be a productive member of society. And so the further away from you get from that magic number (or delta of that number), the more that taxes have an effect either on the individual or the community as a whole. A family cannot get by on $1 a year. A billionaire simply does not need a billion dollars. The burden on them is far different - which is why their tax burden should reflect that.