AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (11 comments)

  1. Good to know there is at least one defender of the current tax code — which is longer than the Bible, requires 6 billion hours of labor per year to comply with (think of how much lost productivity this entails!), averages at least one change per day (making it impossible for the average person to comprehend), creates a billion dollar industry for tax compliance (paying to comply w/ the law is basically wasted capital), and distorts the market in almost every sector of the economy.

  2. we argue endlessly about what to do about tax policies, spending, etc but how about looking at it from the actual revenues side?

    To wit: right now our current tax policies bring in about 1.5T to pay for entitlements, DOD, National Security and other govt.

    It’s about 1.0T – 1.5T short of expenses.

    how much more in revenues would we need?

    Basically we spend right now about 1.4T for DOD+National Defense, probably about 1.4T for entitlements and perhaps another 400 billion for the rest.

    I’ve yet to see any truly balanced budget that lives on 1.5T in revenues.

    If the discussion about changing tax policies is really about getting more revenue – how much more are we seeking?

    or are we not seeking anything – just a revenue-neutral re-ordering of existing tax policies to result in winners and losers in the shuffle and no new net revenues?

    the one thing one can say about this issue is that there are a cacophony of voices and ideas but they are all over the map in terms of what we’re trying to achieve.

    we SAY it’s about balancing the budget but in reality it does not really seem serious because there are no realistic scenarios where 1.5T could be cut out of the current budget without cutting in half entitlements as well as cutting in half DOD/National Security OR just getting rid of entitlements all together.

    Like I said – those options are so fantastic and off in the ozone they’re never going to happen.

    But actually getting a realistic cogent proposal to do cuts plus increased revenues is not forthcoming as a compromise approach from the fiscal hawks.

    if we’re not talking about more revenues from tax policy changes, it almost seem to be clouding the actual deficit cutting issues.

    so basically, we are nowhere except for the continual threats to do something to further muck up govt if one side does not get it’s way.

  3. SeattleSam

    A consumption tax is not regressive unless you posit that income earned will NEVER be consumed. It may be regressive with respect to a snapshot time period, but ultimately income will be taxed when it is consumed.
    This is the fundamental reason older people will resist a shift. You taxed my income heavily while my income>my consumption. Then in retirement when my consumption> my income you want to shift the tax to consumption.

  4. A consumption tax or an income tax where everyone pays the same exact amount to the penny regardless of income…

  5. I vote for the simpler code and no loopholes. Everyone pays, no special breaks.

    but a simpler code won’t fix our problem on spending if we cannot agree on how much to spend and how much we need to be taxed to pay for it.

  6. A VAT tax, as cumbersome as that sounds, is the only fair tax for everyone’s skin is in the game, even and especially illegals who are now mooching off millions of people by taking billions of dollars from taxpayers and not paying a dime. Americans that are poor can then get an offset in a new tax form with this new system.

    1. I agree. The VAT is the way to go.

      1. You say VAT but surely you mean the Fairtax, applied once, at the retail level. VAT is added at each stage of production, transportation and re-sale. The Fairtax unmasks the true cost of government. With the “pre-bate”, the Fairtax UNTAXES the poor.

        1. yes, I probably misspoke. Like the GST in Canada.

  7. A concept not discussed in this article or in the comments above is perhaps a change in the way we tax corporate (C Corp) income can allow our economy to grow and produce more tax revenue, even at the same or lower rates. I suggest we consider either 1) taxing C Corp income in a similar fashion as an S Corp (but without the income characterizations passed on to the owners of an S Corp), or 2) eliminating taxes on the C Corp entity completely, but then taxing the dividends as regular income to the individual shareholders. In number 2 we would need strick enforcement of the undistributed income provisions to preclude companies from distributing their profits. Alternatively, we could 3) elimate taxes on the C Corp entity completely but then tax dividends and capital gains as regular income. In number 3, the value of the shares would increase as the amount of undistributed profits accumulated. However, in number 3 a problem of excessive tax deferral might cause revenues to be reduced.

    1. Edit: In number 2 we would need strick enforcement of the undistributed income provisions to preclude companies from NOT distributing their profits.

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