Naturally, both candidates have a plan for tax policy – Obama promises a tax cut to 95% of working Americans, while McCain offers a continuance of George Bush’s tax policy. Today, Business Week compared the two.
Len Burman, a former Treasury tax official who is now a senior fellow at the Urban Institute, says if Obama’s proposals-which include plans to rescind the Bush tax cuts on couples making more than $250,000, close corporate tax loopholes, and tax private equity earnings known as “carried interest” as ordinary income-were adopted in 2009, for example, married couples with earnings in the lowest quintile of the population would see their aftertax income rise 5.8%. Those in the next quintile would see an increase of 4%. Those breaks would be paid for by those with high incomes: the top 1% of taxpayers would see aftertax income fall 8.4%.
Under McCain’s proposals, by contrast-including an extension of the Bush tax cuts for all taxpayers, a corporate tax cut, and a larger reduction in estate taxes than Obama would support-far more of the benefits would go to the top. If his plans went into effect in 2009, married couples in the bottom fifth of the population would see aftertax income go up just 0.2%, while those in the next quintile would see a 0.7% hike. But those in the top quintile would see a bump up in aftertax income of 2.7%.
“It’s just flat wrong” to say people would do worse under Obama, says Burman. “Most lower- and middle-class people would pay less taxes under Obama than they would under the proposals being put forth by McCain.”
Want to see how much of a tax cut you can expect to see under Obama’s plan? Click here:
http://alchemytoday.com/obamat…
So for everyone interested in a real discussion of a real issue, please comment. Please be honest and respectful, no pie fights – if this works out, we can cover health care, or the economy, or Iraq, or…
Just kidding…
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p>Washington Post, put up a neat graphic with some percentages. Top 1%, top 0.1%, group that represents 60% of taxpayers.
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p>What you immediately notice is that the Top 1% (and top 0.1% for that matter) get hit on capital gains. This is pretty much the basis of George Bush and John McCain’s policy, the trickle down effect. Money will just trickle down from the skies folks, it will rain money if we give those who make the most additional tax breaks. While their taxes will increase, I see this more of an adjustment. Look at the end result for Ohama’s plan, the net effect is an decrease in taxes. What it also does it put the money into the pockets of those who need it the most. Likely it’s the ones who would spend it as well.
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p>For those who believe in trickle down, how’s Bush’s policies have worked for you so far? John McCain’s plan is continue the George Bush economic policy failure.
I’d take that one step further – it’s “Doodoo Economics”, and I don’t want any “trickle down” from that…
…, if I remember correctly, was brought up as a concept by Washington’s treasury secretary (historians feel free to chime in to correct me). This makes sense as a concept in the 18th century because there were not many vehicles money could ‘hide in’ other than in the consumption of the goods and services in your immediate community. That is, if you gave a rich guy an extra dollar, chances are it would find it’s way into a local store eventually. Problem is, now one is much more likely than then to utilize that money in ways that bypass the community. In this way it ‘breaks’ the ‘rising tide’ effect.
These figures assume that everybody has a W-2 job. There are billions out there self-employed, and they would see an increase, regardless of income level – which is ironic, as the small businesses are the greatest generator of new jobs.
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p>Second – the ‘tax hit’ on the rich assumes that increases in stocks, etc., are the purview of the upper class. Yet, millions of middle class Americans have 401-k plans which have a profitabiltiy dependent upon capital gains – indeed, even some of those corporate tax loopholes. The old view that only plutocrats are affected by such proposals dosn’t fly when sock market participation is at such a broad level.
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p>Just something to factor in.
I see that it’s based on family income, which I would take to mean all income that makes up your adjusted gross income on your tax form of choice. When I file my 1040, every bit of money I make and every exemption I claim go into that calculation, whether it was on my W-2, my 1099-DIV, 1099-G, 1099-R, the interest statement from my savings account, what have you. Please prove to me that this chart is based solely on W-2 income alone, and explain how the plan would then hurt the self-employed.
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p>As to money in 401K plans, that accumulates tax-free until distribution at either retirement or the death of the account holder. At that time it is subject to 20% withholding, if I’m not mistaken, and it is counted in the calculation of your AGI on your tax form.
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p>Please factor the above points into your estimations and continue the discussion…
very good. I was mid message elsewhere and just came back to finish the comment. But you detailed it well….
…but do they drink alike? I’m off to my bi-weekly Drinking Liberally meetup – see ya later!
I forgot I have a 6:00 conference call I have to stick around for
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p>It’s only an income tax calculator and, as you said, treats self-employed and W-2 earners equally.
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p>The chart doesn’t consider the effect of a change in SS tax and I can’t find a clear articulation of how Obama’s tax plan would affect SS/SE tax. 4a7d3d609129a9296bf7ac0608c2097
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p>A change in SS/SE would potentially impact self-employed and I think that’s the change to which PP is aluding.
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p>Again, there is nothing in that plan that would indicate a hit on self-employed people.
How brave; if you’re going to advocate a proposal, do it in your term; otherwise it’s not going to happen.
Social Security needs some tweaking around the edges to make it solvent for the next 75 years. One thing we can count on with Obama’s approach as described is that there won’t be some radical change (read: privatization) that trashes the whole system.
Many more good details here:
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p>http://www.barackobama.com/iss…
20% withholding applies to amounts not rolled over upon distribution. This has nothing to do with actual taxes paid on the distribution, which is counted as ordinary income.
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p>If you elect to not rollover a 401k distribution, you’re under 59 1/2, and say you’re in the 25% tax bracket, the employer is legally required (due to UCA ’92) to withhold 20% from the distribution before you get it. However, this has nothing to do with the taxes you would actually face when you file your 1040. In the above example, since you’re under 59 1/2, there is a 10% excise tax due, so your effective tax rate is actually 35% (25% marginal plus 10% penalty).
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p>When you retire, any distributions from a qualified plan/IRA are counted as ordinary income. Certainly counts towards AGI.
Peter Porcupine had suggested that an increase in capital gains tax would impact people who currently hold assets in their 401K plan. I disagreed, and pointed out that the money is only taxable upon distribution, at which point it is considered ordinary income.
I don’t see how self employed are negatively impacted. People aren’t taxed on their 401(k)s until they withdraw the money. When they do, it’s subject to regular income taxes, not capital gains taxes.
as a sole proprietor, it’s on Sched C and it’s considered income. If was incorporated or an LCC, I’d be drawing a salary from the business, also income.
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p>Since I do not have an employer, I pay all 12% of my FICA (SS/Medicare whatever) instead of the 6% an employed person pays with the employer kicking in the other half. As such, I do get taxed more on my income, or rather, I pay the full FICA because I am both employee and employer. It kinda sucks, but how can you do that any other way, really, if my productivity is to pay its fair share into SS/Medicare? And anyway, that’s always been the case, it’s not like that’s going to suddenly change with an Obama administration.
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p>I looked up our tax break on that website – according to it, it’d be almost $1000. That’s not a ton, but it’s better than a kick in the teeth…which is of course what McCain would give me.
Lynne, do you think that Santa Claus kicks in that employer contribution? Corporations kind of take that cost into account when they figure out employees’ salaries. Maybe you have your eyes opened as to the costs incurred by employers when setting payroll, but you’re not any different than a salaried employee from tax treatment. The SET deduction sets you back square with your W-2 brethren.
let’s assume that, tomorrow, employers don’t have to pay the Social Security payroll tax anymore. How likely to you think it is that all employers will immediately give their employees a 6% raise on their first $97,500 of income?
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p>I’d say the likelihood is zero, and you know I’m right.
reality is that is a cost born by your employer right now, however you want to spin benevolence/evilness on their intent.
take that 6% they save from several employees and create another job. Think that will happen? Absolutely not.
There are around 60 people where I work. No such thing here as “not my job.” We roll up our sleeves and get the job done. I know for a fact if we had a sudden lifting of our tax burden, it we would be hiring additional workers.
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p> I also know that when I was hired, the “boss-man” added my proposed salary, payroll taxes, cost of my health insurance, and some other trifles, before he knew if I was affordable. In my experience payroll taxes paid by the employer are thought of as part of the expense to compensate an additional employee.
Taxes are not a burden – they are our obligation, the price we pay for a civilized society. Fire and police protection, snow-plowing, roads, schools, etc – these are things we, as a society, have decided to fund with our taxes. That’s not a burden, that’s a responsibility…
The Demos Center for the Public Sector has done extensive research on America’s attitude about government and taxes, and ONE Massachusetts members are using those findings in their internal and external communications.
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p>How we all talk about taxes is very important indeed, and particularly so in the face of a reckless campaign to eliminate the state income tax.
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They’re not mutually exclusive.
Why would your company hire another worker if it can get the job done with its existing workforce? If you work for a publicly traded company, wouldn’t that be illegal, since the resp of the board and CEO is to maximize profit for the investors?
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p>As far as adding up the extra costs (we call them “fringe” in the public sector), I doubt if that is looked at in comparison to hiring another employee specifically. I would guess that it has more to do with ensuring it fits within the budget.
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We haven’t seen job gains or income increases as a result of capital from productivity gains, why should we expect any different with capital from tax breaks. Clearly the spending behavior on the part of employees doesn’t exhibit the characteristics (more jobs, higher wages) that some people claim.
We are fortunate to be both a manufacturer and growing.
I do think if FICA taxes were cut, and all other things remained equal, employers would hire a few more people, because their cost of hiring would go down. Or to look at it another way:
– They could pay people slightly higher salaries without paying more
– They could get a few more people for the same cost
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p>More employees, or higher paid employees, would give more value, and employers balance off the value they get vs. the cost to get those people, so change that balance a bit, and they’d likely hire a few more people.
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p>Of course, all other things aren’t equal: If social security weren’t funded, old people would go back into poverty. They’d move in with their working age children, who would be less productive. They’d stop travelling and spending money. As a whole, the economy would suffer, and employers would have fewer customers and lower productivity than otherwise, so the net effect would be that they’d hire less.
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p>However, if we could fiddle with the way we fund social security such as to keep it funded but move the burden partly off medium-income hiring, I think we’d see more jobs.
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p>Howard Dean suggested not only raising the cap (people with higher incomes would pay FICA), but also added a floor: no FICA on your first $X,000 of income (10k? 15k? depends on how high you raise the cap). I think that was a great idea, because it would shift the cost burden of funding social security in an interesting way: If an employer distributes the same pay among more people, they pay less FICA. It would encourage more jobs instead of super-high-pay jobs, to some extent.
…of the cost of doing business – I don’t think anyone has said they aren’t.
…when we started our business and figured out withholding for our employees on a pink laminated chart – withholding on the proprietor was 10.5%, on the theory that you were both employer and employee and were taxed as one and one half person. when they seperated out FICA, they jacked it up to the full amount – an additional tax for zero additional benefit.
Would you like to explain what capital gains have to do with 401k accounts, which are tax sheltered?
And when time comes to start taking withdrawals from a 401K, the withdrawals are taxed as income not capital gains.
was that capital gains taxes tend to reduce the capital gained, and thus operate as a lead weight upon everyone’s retirement, unless they work for the T.
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p>I agree that this isn’t necessarily relevant to the chart above.
…IF, in fact, the capital gains tax applied. In this case it doesn’t, so any mention of it is merely a red herring.
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p>Now, if we were talking about investments outside of 401Ks, then PP would have a point. The problem is, we’re not.
Sorry to continue something tangential to the original post.
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p>There is a capital gains tax. As such it tends to operate as a brake on capital gained on investment property, generally. You get less of the thing you tax, which is why enviros are keen for a higher gas/carbon tax.
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p>That is to say, the existence of the capital gains tax tends to depress, to some nonzero degree, the value of all investment property regardless of whether it is in a tax-deferred account such as an IRA. In other words your 401(k)’s present market value of X would likely be greater than X in the absence of the capital gains tax.
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p>In this respect, the capital gains tax affects everyone.
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p>Also, this is not particularly relevant to the comparison chart above.
OK. Fair point. I don’t really think that was what PP was getting at, though. But then again, I’m not him, so …
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p>I doubt that there are a billion people worldwide* who are self-employed. You missed the ‘m’ key two buttons to the left methinks.
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p>* 6 billion, one third kids. 4 billion left. You think 25% of all remaining are self-employed? In large parts of Asia and Africa, sure. In the Americas, Europe, Australia, no way.
I was getting ready to vomit up lipstick.
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p>What conservatives will point to is that by giving the rich these tax breaks, they will have more incentives to “create jobs”, which in turn will increase personal income, which in turn will get people to spend more, etc, etc., yada, yada.
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p>That whole “invisible hand” shit worked out great in the beginning, but now it just doesn’t. There is a much larger context to place things in that these neoclassical peeps miss.
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p>The thing that gets me is that whole theory that everybody from birth has the same chance as someone else. What a crock of crap. I was raised by a single mother who did whatever she could to give me every opportunity…not every child has that luxury. Is it the child’s fault? Of course not. Did the child make a conscious decision to pick which mother he/she wanted? Of course not.
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p>That is a rather simplistic view of things, but I hope it illustrates the point.
Have you ever read “This Modern World”? He’s done several strips on the invisible hand of the free market – check them out here:
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p>http://www.credoaction.com/TMW…
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p>and here:
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p>http://www.salon.com/comics/to…
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p>His comics are usually spot-on, and neither one of those missed their mark…
but those are pretty damn good!
His blog is at
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p>http://www.thismodernworld.com/
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p>The strip appears at Salon for the first week, you have to wait thru an ad to see it. It’s archived at a Credo site that’s linked from his menu, and new strips hit the archive every week. Some of them have been absolutely prescient – he has incredile talent.
Actually, and this has been mentioned before by those boring tax experts who actually analyze things, is Obama isn’t exactly talking a “small” tax increase on high earners when you factor his FICA doughnut hole extension to infinity over $250k. What he is contemplating is taking the marginal rate from the EGTRRA 35% to 39.6%, PLUS adding FICA taxes on wages over some number forever. Worst case, you’re talking about moving a marginal rate on income from 35% to 52%. Now you can say that is “only” an increase of 17%; if you look at the dollar rate paid, I’d say that is a contemplated increase over 50%.
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p>Of course this grand scheme is actually only targeted on those poor saps who actually work for their income, rather than living on Muni bond tax free income (hello Teresa Heinz).
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p>The smart money is that there won’t be a law firm left in the US that isn’t a Sub S corporation if this scheme goes through, with a nominal W-2 draw, the rest paid as Sub S dividends (not subject at all to SS taxes BTW – hello John Edwards).
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p>Speaking of law of unintended consequences, anyone ever look at OBRA ’93 (Clinton’s baby) with that old populist warhorse of corporations not being able to deduct salaries over $1 million? Notice any correlation with the rise of stock bonuses instead of income?
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p>Selfishly, being in a profession that offers tax advantaged savings (legit), higher marginal rates only help. Anyone ever catch on to the fact that those most opposed to the elimination of the estate tax were primarily estate attorneys and insurance salesmen? And for those of you who actually read beyond the business headlines, please note that the elinination of the estate tax also is coupled to the elimination of the step up basis. Not quite the giveaway portrayed in the papers.
Now if only we can get the media to cover these issues rather than horseraces and mudfights.
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p>As to the issue I’m going to deviate from party orthodoxy on this one. I would actually prefer a national sales tax rather than an income tax. I’m thinking 20%, but that’s really a guess as I haven’t done any calculations or anything. I would require that the tax be included in the listed price so people won’t get sticker shock at the register. I would use the same exemptions as Massachusetts regarding food and clothing to alleviate concerns about taxing necessities. If you assume, as I do, that the more you have, the more you can and do spend, this tax is inherently progressive. I would not tax things like cigarettes and gas separately, but simply apply the regular sales tax to those products. This is a simple tax to collect and record and we wouldn’t have to worry about various accounts and tax shelters. The other argument this answers is the one that taxation is coercive (which I don’t believe anyway) because you only pay if you choose to purchase something.
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p>The payroll tax for Social Security I would reverse. In other words, rather than pay only on the first 100K, I would exempt the first 100K and tax the rest.
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p>I don’t pretend to be an expert on this issue, but these thoughts have been circulating in my mind for awhile. By all means share your thoughts on this in further comments. Then again, if the intent was to stick to a discussion of the plans of the two candidates I apologize.
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p>The worst bred fruition of SS: elderly welfare. You do realize that SS taxes are only paid on earned income, not passive income? Let’s job the “rich” who actually work for their money, instead of living off of trust funds. That’s a sure winning proposal for sure (and do you know what incentives you would be throwing into the mix with that type of scheme).
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p>The whole benefit formula is pretty darn “progressive” as it is (in that the more you pay, the worse off your return) already.
The rich work for their money, and the rest of us live off trust funds? I work for my living – if I have a trust fund, I’d appreciate knowing the balance and what kind of disbursement schedule I can set up, maybe I can relax my work schedule…
He put “rich” in parenthesis for a reason. He was being sarcastic. His point is that by shifting tax burden to the salaries of those earning over $100k, you are exempting those people who don’t actually work for a living (those who live off trust funds) from paying their fair share. Granted, many people both work and have trustfunds, but that is a story for another day.
same can be said of “flat” taxes.
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p>Why? Let’s take $100 worth of gasoline. A 20% tax on that equals $20 dollars, right?
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p>OK. Guy making 35K buys $100 worth of gas. Guy making 500K buys the same amount of gas. Each pays the same amount of tax. However, that $20 is a larger percentage cut in the income of the guy making 35K as opposed to the guy making 500K.
I have actually made the same point about a flat tax. Currently the gas tax is basically a flat tax, though by gallon rather than cost. Don’t just look at one expense. I still think the rich would spend more overall.
We can apply the same principles to any basic necessity of life. Groceries, clothes, tires, etc.
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p>Your idea is not without merit though. The rich probably would spend more. However for the “basics” – which we all need – the people making less end up paying comparatively more.
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p>As a state, one option is a tax on internet sales. Massachusetts has lost a ton of revenue with the tech revolution. Many goods and services that used to be bought locally are now purchased sales-tax free across state lines. The catch however is getting all states (or maybe even just regionally) to agree to a tax rate shared by all the participating states. And you can probably see how difficult that would be.
People need to eat, and unless you’re willing to tolerate nudists walking around when it’s warm outside, I’d recommend keeping clothing tax free – if you’re going to tax me on it, you can’t force me to buy it…
but makes no logical sense. People need to eat, especially poor people, so food should not be taxable for anyone. Except that the exemption applies to everyone. If the goal is to provide assistance to poor people then it would be almost infinitely more effective to tax food for everyone and use the additional revenue to subsidize food for low income people.
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p>On top of this you have the administrative difficulties. Groceries are taxable but prepared meals are not. What is a prepared meal? Should candy be taxable? How do you define candy? What about baking candy items like chocolate morsels or marshmellows? Alcohol isn’t food, but what about cooking wine? What about beer that’s used to make chili or put in the batter for onion rings? What about ice? Should it matter if it’s consumed or used to chill the outside of bottles? Medicine is not food and is sometimes taxed (or exempted) at a different rate, but what about supplement powders or tonics? I remember reading an article a while back about a reporter who went to several different grocery stores and purchased the same items at each one. None of them imposed the same amount of tax, and none of them imposed the correct amount of tax according to the tax administration authority. It’s an administrative nightmare for the state and it opens up grocery stores to costly audits, all in the name of helping poor people eat, which is not even being accomplished.
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p>But you say it’s immoral because people need to eat. There was a recent thread complaining about how conservative pretend to “own the truth.” Point, counterpoint.
My own personal opinion is to not tax any consumables: no alcohol tax, no meals tax, no medicine, no supplements.
Televisions are consumed by watching them. Tshirts are consumer by wearing them. Why should only consumables that are consumed by going into your body be exempt? The whole point of the sales tax is to tax consumption. It would just be a whole lot simpler and, in my opinion, fairer if politicians stopped deciding what is bad consumption and what is good consumption by creating exemptions. Especially when exemptions are created in the name of helping poor people eat when they do a really lousy job of actually helping poor people eat.
T-shirts would be exempt as clothing, but the most recent comment seemed to be about food. At the most primitive level you need to protect and fuel your body to survive. Television? – not so much. I’m not taxing consumption so much as used wealth. If a multimillionaire is a miser then in terms of contributing the economy he might as well not have money. That way its only taxed if he starts using it. Of course it helps people to pay for food if they are not taxed on it. It’s not like this idea is original – it’s what MA already does.
Does all food fall within the category of a “necessity?” It seems like when people want to exempt food as a necessity they have in mind bread and milk, but what about people who go to the grocery store and buy fresh Dover sole or filet mignon? Or ice cream and candy? And if food should be exempt, then why not prepared meals?
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p>I don’t know what you mean when you differentiate between ‘consumption’ and ‘used wealth.’ Those just seem like synonyms to me.
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p>But the larger point remains, why should even necessities be universally exempt from sales tax? The exemption will, of course, cover people of all income levels. If the point is to allow low income people to buy necessities, then why not just impose a simple sales tax with no exemptions and create a program to subsidize food for low income people? That would result in administrative ease for taxpayers and tax administrators and be a much better fit to the problem of people who cannot afford to buy food.
As far as I’m concerned food is food. You need to eat something and contradictory studies keep coming out about what causes cancer in lab rats this week. I do support including prepared meals in the exemption. My plan is if you eat it or wear it it’s exempt – period. Otherwise we get into judgement calls I’m not comfortable with the government making. Whether your diet is filet mignon or bread and milk is of no concern to me in this context. Rich and poor alike need to eat. This isn’t about subsidies for me; it’s about not paying more for basic necessities. Do you live in MA? Except for not proposing a meals tax all I’m doing is nationalizing the MA concept of a sales tax.
It would help local stores compete against internet discounters, and be collected by the federal government that paid for the internet. I think 5% makes sense (no exemptions necessary, since no one buys food or shelter over the net, and only unnecessary clothes), and exempt internet sales from state taxes. This would also simplify collection, which is incredibly complicated for internet sales that have to collect different state taxes and local taxes depending on zip code and whether they have any brick and mortar presence in various states.
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p>Another idea is for all internet transactions to pass through a Federal escrow account for a day or so before being deposited in the seller’s account (minus the 5% tax). If all internet transactions spent 24 hours in the Fed’s bank account, the pool of money would be huge, and could be used to generate interest, right?
…just as sales tax is. As a percent of income, a wealthy person pays less tax than than someone not so wealthy, given that the not so wealthy person still needs to drive around for a variety of reasons. The wealthy person may use more gasoline, but only incrementally more.
I wish we could edit comments…
That begs the question, however. Why do so many progressives seem to want to increase the gas tax? I agree that taxing gas per se might be regressive, but again I am looking at the big picture of purchases. A rich person and a poor person may spend roughly the same on gas, but the rich person may well have paid mid-five figures for a brand new luxury vehicle, while the one less well-off may have paid four figures for a no-frills used vehicle. That is where the rich person will get hit harder.
It has nothing to do with the progressive or regressive nature of the tax. Higher taxes on gas makes gas more expensive and, by extension, auto travel more expensive. This makes other, less poluting modes of travel less expensive by comparision and shifts resources in those directions. More resaources for mass transit, alternative fuels, etc. leads to economies of scale, which further lower thier costs. Rinse and repeat.
Presumably, the wealthy guy takes his full tank of gas and goes to buy some stuff to put in the trunk; the other guy buys less stuff. Which makes it more progressive than you seem to set out. It isn’t fair to make such a judgment based upon one of many purchases.
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p>So, a sales tax or VAT would encourage savings and discourage consumption. If you exempt certain necessaries, like food and clothing, as is already done with the sate sales tax, I don’t have much issue with it at all.
that if you plot income on the x-axis and gallons of gas purchased on the y-axis, the graph is increasing.
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p>The poorest don’t buy any gas [directly]. They ride the bus, the T, a bike, etc. Of course, once you get to a certain point there’s not much more driving to be done by an individual [not a business].
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p>But, guy making $15K buys less gas than guy making $100K. Perfectly progressive? Nope. But since at low income levels gallons of gas purchased is positively correlated with income, it seems to be progressive at that part of the curve.
That is, at the low end of the curve, consumption is correlated with wealth, but at some point it flattens out.
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p>But, in the bigger picture, consumption is, I bet, rtaher closely correlated with wealth across the board.
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p>So while a gas tax, alone, might not be so progressive, a general consumption tax might be.
but I’d wager higher end earners save and investment more of their income, so a consumption tax wouldn’t at all be progressive.
Even if so, I would be willing to throw the entire notion that rich people have to pay more than their pro rata share out the window as warmed over Red tripe if it could achieve a true consumption tax, which would go a long way to discourage overconsumption, which might be good for environmental reasons and for the trade deficit, and would stimulate investment and productivity, helping ensure that more people are able to consume enough to achieve a certain standard of living.
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p>Nevertheless, I am not at all convinced that consumption, generally, doesn’t increase steadily with wealth (not income, wealth). Kerry and McCain have to furnish, heat, cool, and maintain all those houses, don’t they. And travel among them.
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p>Wealth in New England is noted for living in a big but modest house in Lincoln and driving a 25 year old Volvo, but this is the exception, nationally, and not the rule.
Keep thinking back to this book that my grandmother gave me awhile ago (hokey, but also the source of my comment about pro athletes/spendthrifts).
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p>There are indeed high earners who spend all of their money, for sure (and then some, anyone remember Jack Clark and his aborted drag racing team?) However, higher end earners tend to have more money left over at the end of the day to invest or save; they don’t spend it all (or they don’t end up rich at the end of the day).
Some points to consider:
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p>1. A national sales tax would have to be somewhere between 25% – 35%, from what I’ve read, to cover what the income tax does now.
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p>2. You could not levy such a tax at point of sale, because attempting to do so with a tax rate higher than maybe 10% or 15% would lead to a giant black market. When the difference in cost between selling off the books vs. doing it legally is so large, the incentive to go off the books and hope for the best is tremendous.
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p>3. So, the only way to implement such a tax would be by filing at the end of the year, as you do now. You record your income from various sources for the year, your assets at the beginning of the year, add them up, record your assets at the end of the year, and the difference is your consumption for the year: tax that.
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p>4. … which eliminates some of the perceived benefits of a sales tax. It’s not “simpler”, you still need an IRS and annual filing and all of that (and now you need to track assets too!), and there would obviously still be tax incentives and deferrals and loopholes and so forth.
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p>5. … but how do you handle “withholding” for such a tax? If you can’t take the money at point of sale, people would be responsible for their own withholding, and how good a job do you think they’d do? How do you prevent “tax shock” at filing time, and millions of people finding they don’t have enough in their accounts to pay what they owe?
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p>6. One major effect of a national sales tax would be to encourage saving, and discourage spending. You may consider that good or bad, but it is a major structural effect, so don’t leave it out of your considerations.
I’m really pleased that you posted this, since I’ve been looking for this graphic. I’ve also been looking for a New York Times graphic that displayed circles of various sizes to demonstrate the sizes of the tax cuts. However, I haven’t been able to find it using Google image search. Does anyone know how to find it?
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p>By the way, I was pointed to this post by the Obama MA grassroots coordinators message board, so it’s getting noticed!
Did you hear the one about Deval Patrick and how he was promising people that he would help them get property tax relief …. haw haw haw … Now that was a good one.
So what is Obama promising us, lets see, a chicken in every pot ‘cepting of course for them billionaires ,,, haw haw haw ….
7 to 3 odds that America would become sin tax hell with every possible personal decision being weighed by the almighty levy commiitee headed by Charlie Rangel. What is the approved food of the day? Anyone?
Well, now, I always thought Patrick’s property tax “promise” was a mistake, seeing as how he’s not in charge of the body actually levying the tax in question. He’s got no authority to do anything about property taxes, and it was a mistake to say he would or could. I’d no more trust Obama if he said he had a plan to repeal all state income taxes.
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p>Of course, Obama’s never said anything of the sort, and furthermore he is a completely separate person from Patrick. Beyond that, I don’t know what you’re getting at. I haven’t heard anything about chickens (just an awful lot about pigs), nor do I know what Rangel has to do with anything.
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p>Pretty disjointed comment. Care to try again?