Sara Elizabeth commented on Wealth & Income Disparity Solution
2012-06-09 08:41:49 -0600
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Some think tax reform can be done just by cleaning up the tax exemptions in the income tax code, some think a small VAT is needed to broaden the base to get the corporate rates lower (like the one Rep. Ryan supported), and really low individual tax rates can certainly be accomplished with the nuclear option of tax reform â the net wealth tax (that you never heard of). Why
From a social science perspective Washingtonâs lack of serious study of âallâ tax reform options is unconscionable. Given the scope and magnitude of our economic malaise, this scholarship should be pushed like the 1939 Manhattan Project. Instead, President Obama appointed the Simpson-Bowles Commission but they were not permitted to consider a VAT or net wealth tax. From a political perspective however, it is understandable why the leadership of both parties might want to avoid documenting the unintended consequences of their respective failed approaches.
When the economy is askew, Democrats see the wisdom of creating better consumers (and votes) by borrowing money for entitlement programs which do not create sustainable jobs. Republicans see the wisdom of lowering the tax rates and other tax expenditures (instead of direct spending) to encourage investment by business (even without a solid consumer base). The tax incentives (âloopholesâ) yield little because there are few consumers (although a few businesses may be able to export). At least businesses are able to profit (and continue political contributions) during the economic downturn. The tax expenditures also keep many business going that should fail for the greater good of making their competitors stronger (rather than making all a little weaker).
In years past, the invisible hand of the market (whatever that really is), caused the economy to recover with, or is spite of, the partisan assistance and the basic monetary policy adjustments by the Federal Reserve. The old economic fixes no longer work due to a few social and tax code changes that began about 40 years ago.
1. The steady entry of women into the labor force has supplied business with quality workers and kept salaries low.
2. Family planning and abortion have reduced the sheer number of consumers by over 50,000,000 with negative improvement in the consumer confidence of most families.
3. Tax exempt retirement plans have slowed the transfer of wealth to the top but add nothing to much needed consumer spending (because IRA and 401k money cannot be withdrawn without penalty).
4. Elimination of the tax deduction for interest on consumer loans has made borrowing more expensive and obviously reduced consumer spending.
5. All businesses have been weakened by government subsidy instead of letting the weak fail and letting the market strengthen the survivors. (Only the best of the best can export in todayâs weak global economy).
6. In total, the regressive payroll taxes and the income tax expenditures (a/k/a âloopholesâ) combine to drain the middle class of about $2 trillion dollars a year – most of which has simply been redistributed to the well-to-do over the last 20 years. [The tax code, and not the skill of the business entrepreneurs, can account for almost all of the substantial individual wealth held by Americaâs millionaires].
A consumption tax is regressive and will not heal consumers, even though a small VAT is admittedly an optimal means of fairly taxing business (and used by every developed country in the world except the arrogant USA). Economic recovery requires a net wealth tax – the nuclear option in tax reform (efficient, fair, powerful [i.e. $55 trillion base] and controversial) as an essential component. In one sentence:
Tax individual and corporate income at a flat 8% rate (with no deductions, credits or loopholes), tax individual net wealth at 2% (excluding $15,000 cash and retirement funds) and impose a 4% Value Added Sales Tax (VAT) on business.
The 2-4-8 Tax Blend has the lowest rates and will produce about $500 billion more than current federal revenue [around 18.5% of GDP] with no need for payroll, estate, and capital gains taxes or deferral of foreign income. A typical family would have an after tax take home boost of about $641 per month. An individual earning $61,500 (paying 30% in income and payroll taxes) would bring home more than $1,000 in additional cash each month. The economy would recover quickly and remain stable.
Eugene Patrick Devany, JD, MPA
From a social science perspective Washingtonâs lack of serious study of âallâ tax reform options is unconscionable. Given the scope and magnitude of our economic malaise, this scholarship should be pushed like the 1939 Manhattan Project. Instead, President Obama appointed the Simpson-Bowles Commission but they were not permitted to consider a VAT or net wealth tax. From a political perspective however, it is understandable why the leadership of both parties might want to avoid documenting the unintended consequences of their respective failed approaches.
When the economy is askew, Democrats see the wisdom of creating better consumers (and votes) by borrowing money for entitlement programs which do not create sustainable jobs. Republicans see the wisdom of lowering the tax rates and other tax expenditures (instead of direct spending) to encourage investment by business (even without a solid consumer base). The tax incentives (âloopholesâ) yield little because there are few consumers (although a few businesses may be able to export). At least businesses are able to profit (and continue political contributions) during the economic downturn. The tax expenditures also keep many business going that should fail for the greater good of making their competitors stronger (rather than making all a little weaker).
In years past, the invisible hand of the market (whatever that really is), caused the economy to recover with, or is spite of, the partisan assistance and the basic monetary policy adjustments by the Federal Reserve. The old economic fixes no longer work due to a few social and tax code changes that began about 40 years ago.
1. The steady entry of women into the labor force has supplied business with quality workers and kept salaries low.
2. Family planning and abortion have reduced the sheer number of consumers by over 50,000,000 with negative improvement in the consumer confidence of most families.
3. Tax exempt retirement plans have slowed the transfer of wealth to the top but add nothing to much needed consumer spending (because IRA and 401k money cannot be withdrawn without penalty).
4. Elimination of the tax deduction for interest on consumer loans has made borrowing more expensive and obviously reduced consumer spending.
5. All businesses have been weakened by government subsidy instead of letting the weak fail and letting the market strengthen the survivors. (Only the best of the best can export in todayâs weak global economy).
6. In total, the regressive payroll taxes and the income tax expenditures (a/k/a âloopholesâ) combine to drain the middle class of about $2 trillion dollars a year – most of which has simply been redistributed to the well-to-do over the last 20 years. [The tax code, and not the skill of the business entrepreneurs, can account for almost all of the substantial individual wealth held by Americaâs millionaires].
A consumption tax is regressive and will not heal consumers, even though a small VAT is admittedly an optimal means of fairly taxing business (and used by every developed country in the world except the arrogant USA). Economic recovery requires a net wealth tax – the nuclear option in tax reform (efficient, fair, powerful [i.e. $55 trillion base] and controversial) as an essential component. In one sentence:
Tax individual and corporate income at a flat 8% rate (with no deductions, credits or loopholes), tax individual net wealth at 2% (excluding $15,000 cash and retirement funds) and impose a 4% Value Added Sales Tax (VAT) on business.
The 2-4-8 Tax Blend has the lowest rates and will produce about $500 billion more than current federal revenue [around 18.5% of GDP] with no need for payroll, estate, and capital gains taxes or deferral of foreign income. A typical family would have an after tax take home boost of about $641 per month. An individual earning $61,500 (paying 30% in income and payroll taxes) would bring home more than $1,000 in additional cash each month. The economy would recover quickly and remain stable.
Eugene Patrick Devany, JD, MPA