Scoring of "Millionaires Tax" proposal only brings in $47B over 10 years

[ERD50]

True, using this as an example would show less taxes... but both would not be earning a million dollars... also, how long can someone spend $1 million per year without earning something I would bet that this is an extreme example and not like the vast majority of rich folks... I also do not think we should make tax policy to try and 'get' the few who can do what your example shows...

Yes, I made those rather extreme to illustrate the point. But where I was going was, over the long run, couldn't someone keep selling assets each year that average ~ 10% gains, and only pay pay cap gains on 10% of what they spend? Balance losses against gains. 10%/year seems sustainable for quite a while, no?

I'm actually not trying to 'get' anyone - I'm trying to be fairer. Like my earlier post - someone might have a plan that would take considerable effort/risk but may payoff big for a few years, but they realize this is only good for a few years - so they live relatively modestly and amortize the big pay-off over their lifetime. Is it really 'fair' to tax them the same as someone who makes that money every year for 30 years? I do think, that on average, what a person spends is a better measure of what they should be asked to pay in taxes.

I screwed up a tax move one year and got hit with big taxes (wiping out credits deductions makes for a VERY steep curve, far steeper than what those marginal tax brackets indicate - almost a brick wall!). I wasn't any 'richer' because of this, I just ended up with a lot of realized gains in one year. But I was taxed like I made that kind of money every year, which would be nice, but it wasn't the case. My spending is much more level-loaded than that kind of income. That might be good for the Country too - a more stable source of revenue?

-ERD50

 

[Texas Proud]

so, this is the "other side of the aisle" playing the same card when someone mentions cutting a program or what not. They usually proclaim, "that is only 5% (or some small insignificant amount) of the budget" and we all keep our nose to the grindstone instead of fixing something. Quantity isn't a stand alone indicator for what is good or bad, right or wrong.

Without some major cuts in spending or major increases in taxes (or both), we will not be able to reduce the deficeit...

Sure, doing a little here or a little there will help, but without some big items we will still be hurting....

 

[ronocnikral]

No it isn't.

What this means is that soaking the rich won't do it. Ultimately it will be the middle class that pays more to and gets less from their government.

The concept that if only we'd make those rich pay more then life would get back to normal isn't valid.

I'm not endorsing the plan. I'm just saying it isn't fair to dismiss it solely based on "having little impact" or "not completely solving the problem."

Without some major cuts in spending or major increases in taxes (or both), we will not be able to reduce the deficeit...

Sure, doing a little here or a little there will help, but without some big items we will still be hurting....

I agree, but a step in the right direction would be nice as well. We go around and around without ever accomplishing anything. I also look at these things as if they are not mutually exclusive. A small cut here may lead to big cut somewhere else. Or a bunch of other small cuts. Sure, we should focus most of the effort on the big hitters, but if someone brings forward an idea that is a step in the right direction, it's sole evaluation shouldn't just consist of its overall budgetary impact.

 

[GrayHare]

Without some major cuts in spending or major increases in taxes (or both), we will not be able to reduce the deficeit...

Sure, doing a little here or a little there will help, but without some big items we will still be hurting....

Sufficient tax increases and spending cuts are already enacted to balance the budget, but it seems likely Congress will muck with them as Morgan Housel writes at
http://www.fool.com/investing/general/2012/02/01/congress-do-nothing-and-the-budget-is-fixed-.aspx

 

[MasterBlaster]

Sufficient tax increases and spending cuts are already enacted to balance the budget, but it seems likely Congress will muck with them as Morgan Housel writes at
Congress: Do Nothing, and the Budget Is Fixed

Apparently that solves the deficit over the next ten years. Cross your fingers...

Beyond that with all the Boomers entilements going into effect as they incresingly retire, sigificantly more cuts and more taxes will be needed. The really big deficits are more than 10 years out

 

[Texas Proud]

I agree, but a step in the right direction would be nice as well. We go around and around without ever accomplishing anything. I also look at these things as if they are not mutually exclusive. A small cut here may lead to big cut somewhere else. Or a bunch of other small cuts. Sure, we should focus most of the effort on the big hitters, but if someone brings forward an idea that is a step in the right direction, it's sole evaluation shouldn't just consist of its overall budgetary impact.

But if you can not even look at the big items, the small ones get fought over... and nothing gets done...

I think that what some were saying, and I agree with, is that all the hype on a few of the 'lets tax the rich' items seem to play to a certain group but in the end does little to fix the much bigger problem.. it makes it look like you are doing something when in reality you are not...

Heck, from what I read, we are paying almost $2 billion a year on cell phones for poor people... let's cut that and get real savings of $20 bill over 10 years (or more since the program is growing at a good clip)...

But someone would not want to make this 'small' cut for various reasons and say the rich do not pay their fair share...

BTW, I am not one who would be hit with this tax.... ever... I do not care one way or the other... I just know it is a wedge issue that is trotted out just like all the other talking points on both sides...

 

[Texas Proud]

Sufficient tax increases and spending cuts are already enacted to balance the budget, but it seems likely Congress will muck with them as Morgan Housel writes at
Congress: Do Nothing, and the Budget Is Fixed

I read the article... and would like to see more on this....

I would also like to get some of what I heard clairified.... I have heard that even under current law the debt will go up $9 trillion dollars over the next 10 years... if this is still true, then we need to do something right away, not wait 10 years and hope...


Edit... found this in the CBO

http://www.cbo.gov/publication/43083

It shows that the deficit never goes away... and increases from the 9th to the 10th year...

That under current law we would add $2.9 trillion, but with the proposed budget it would be over $6 trillion... still spending over 22% of GDP...

 

[Gone4Good]

A sales tax is not "hitting them as hard" only if we remain in the mindset that we ought to be taking a certain percent of their income. We should re-examine that. Step back and instead accept the sales tax for what it is--taxing consumption.

I think this falls under the category of "be careful what you wish for."

While I think most economists agree that a consumption tax is preferable to an income tax for a variety of reasons, it is also one of the worst possible taxes for the Early Retiree (generally low income folks who already paid high taxes on the earnings they used to build sizeable savings. With a VAT, those savings get heavily taxed again as they're spent).

If the income tax were replaced with a VAT, economists would cheer but many Early Retirees would probably need to head back to work.

 

[devans0]

I am putting large amounts into Roths. It is partially a hedge to whatever tax rate changes may be dreamed up, but mostly to leave a generational legacy.

VAT is the risk I assume by choosing taxes up front, rather than conventional wisdom of deferring as long as possible.

I'm not above taking my gold colored ball to another playground if taxes become too onerous. Therein is the rub that I see for any tax, the amounts hoped for will evaporate as the muppets hide their stores from the dreaded tax collector.

 

[MasterBlaster]

I am putting large amounts into Roths. It is partially a hedge to whatever tax rate changes may be dreamed up, but mostly to leave a generational legacy.

VAT is the risk I assume by choosing taxes up front, rather than conventional wisdom of deferring as long as possible.

You are also assuming/hoping that congress doesn't add additional taxes on your "excess" Roth account withdrawals. There is historical precident for large IRAs being taxed additionally for large withdrawals.

 

[samclem]

If the income tax were replaced with a VAT, economists would cheer but many Early Retirees would probably need to head back to work.

No doubt. OTOH, if those economists are right about the boost this would give US companies, at least some of the taxes would be offset by improved return on equity investments.

 

[ERD50]

I think this falls under the category of "be careful what you wish for."

While I think most economists agree that a consumption tax is preferable to an income tax for a variety of reasons, it is also one of the worst possible taxes for the Early Retiree (generally low income folks who already paid high taxes on the earnings they used to build sizeable savings. With a VAT, those savings get heavily taxed again as they're spent).

If the income tax were replaced with a VAT, economists would cheer but many Early Retirees would probably need to head back to work.

While it gets away from simplicity - I imagine some sort of allowance could be made for money in taxable accounts. In effect, you'd need to somehow register how much you have. Some portion of that would be considered 'spent' each year, and adjusted for through the 'pre-bate' system to offset (maybe only partially) your cach register tax payments. Maybe similar to the minimum withdrawals on IRAs today.

Of course none of this will happen. But if it were, even with adjustments, I think it would need to be phased in over maybe 10 years, where the taxes from FIT reduce each year, and the taxes from NST increase each year.

-ERD50

 

[ziggy29]

While I think most economists agree that a consumption tax is preferable to an income tax for a variety of reasons, it is also one of the worst possible taxes for the Early Retiree (generally low income folks who already paid high taxes on the earnings they used to build sizeable savings. With a VAT, those savings get heavily taxed again as they're spent).

If the income tax were replaced with a VAT, economists would cheer but many Early Retirees would probably need to head back to work.

Many proposals I've heard for a VAT or "national sales tax" usually include a "prebate" of the the assumed tax for the first $X of income.

For example, if a household with a $40K annual income was assumed to spend $10K of their income on taxable items and the VAT rate was 15%, you could "prebate" $1,500 a year to them to make up for the expected amount of tax they would be paying. If you provided this for (say) the first $50,000 of annual income, it would have little negative net effect on the poor and middle class, as they would be receiving compensation for the tax they are paying.

(It's not like this is new ground. The option to deduct an assumed -- or actual, if greater -- sales tax instead of state and local income tax has been on the books for a few years now.)

I don't think that would slam retirees on low to moderate incomes IF it were done the right way.

 

[samclem]

Many proposals I've heard for a VAT or "national sales tax" usually include a "prebate" of the the assumed tax for the first $X of income.

I understand the reason for this provision in the proposals ("fairness", progressivity, and political necessity in garnering support for the proposal), and I even agree with the goal. But the practical impact will be 100% of American households receiving a government check every month. Seems like a way to increase (real or perceived) dependency on "the government." And since the size of the check is subjective (based on the bureaucratically-defined poverty level) it would become the ultimate political object. So, that's another problem.

 

[ziggy29]

I understand the reason for this provision in the proposals ("fairness", progressivity, and political necessity in garnering support for the proposal), and I even agree with the goal. But the practical impact will be 100% of American households receiving a government check every month. Seems like a way to increase (real or perceived) dependency on "the government."

Not necessarily. If this is combined with a corresponding income tax increase *above* these thresholds which cancel out the benefit of the "prebate" up to a certain level of income, the net effect doesn't have to be that Warren Buffett's purchases need to be effectively tax-exempt.

For example, you can set a "prebate" up to an assumed $50K of income with income tax changes that start phasing out at, say $100-200K. It would be similar to a flat income tax that exempts the first $X in income, except based on the expenditure side instead of the income side.

With respect to your comments on almost everyone receiving a government check every month -- sure. Buffett can collect Social Security. There is precedent.

As to the rest of your remarks which I didn't quote? Sure, there will be a game of political football to position to garner votes. Unfortunately, nearly everything they do is pretty much predicated on garnering votes.

 

[samclem]

Not necessarily. If this is combined with a corresponding income tax increase *above* these thresholds which cancel out the benefit of the "prebate" up to a certain level of income, the net effect doesn't have to be that Warren Buffett's purchases need to be effectively tax-exempt.

An interesting thought experiment. But any wee tiny political chance that a national sales tax would gain popular support and be implemented would almost certainly require the elimination of the income tax (through repeal of the 16th Amendment). I don't know about the prospects for a VAT.
An "instead of" tax would be an easier sell than an "in addition to" tax. And few would believe claims that the income tax would only be levied on high income earners--"Sure, just like they said in 1913"

 

[scrabbler1]

Sufficient tax increases and spending cuts are already enacted to balance the budget, but it seems likely Congress will muck with them as Morgan Housel writes at
Congress: Do Nothing, and the Budget Is Fixed

This is what I find most fascinating and hugely ironic about fixing our budget problems. Can we get our gridlocked Congress to actually remain......gridlocked and DO NOTHING and watch our budget problems simply fix themselves?

We need to set up a blockade around Washington and prevent our elected leaders from getting to the Capitol so these provisions can begin (or end)! We will then have a "do-nothing Congress" we can be proud of.

 

[Gone4Good]

This is what I find most fascinating and hugely ironic about fixing our budget problems. Can we get our gridlocked Congress to actually remain......gridlocked and DO NOTHING and watch our budget problems simply fix themselves?

While absolutely true, doing nothing also means fixing the budget problems mostly by increasing taxes. It's not the mix of policy most people would choose.

 

[samclem]

While absolutely true, doing nothing also means fixing the budget problems mostly by increasing taxes. It's not the mix of policy most people would choose.

And the few spending cuts that are baked into the mix (including elimination of the Medicare "doc fix") wouldn't be popular either.

 

[Gone4Good]

And the few spending cuts that are baked into the mix (including elimination of the Medicare "doc fix") wouldn't be popular either.

The sequester too, which falls heavily on defense spending.

 

[samclem]

The sequester too, which falls heavily on defense spending.

I guess a "freeze" would highlight all the deliberately deferred housekeeping Congress has accumulated. If the "Sword of Damocles" stuff (sequestration, etc.) and the "the price tag would scare them, just deal with the emergency every year" (Doc Fix, tax rates, etc) all came home to roost, constituents on both sides of the aisle would demand better work.

We can dream.

 

[audreyh1]

I just don't see the VAT happening as a replacement for income tax. The seniors would definitely holler about living off their savings that had already been taxed. It would change the story on those pesky IRA RMDs though.

 

[photoguy]

While I think most economists agree that a consumption tax is preferable to an income tax for a variety of reasons

I've never heard this before. Can you provide a pointer or rationale?

In my mind income tax is far preferable to sales taxes because of ease of collection and greater compliance.

 

[mh]

I've never heard this before. Can you provide a pointer or rationale?

In my mind income tax is far preferable to sales taxes because of ease of collection and greater compliance.

Here's what i think of whenever i see the phrase "most economists agree"

 

[Gone4Good]

I've never heard this before. Can you provide a pointer or rationale?

In my mind income tax is far preferable to sales taxes because of ease of collection and greater compliance.

Start with "ease of collection and greater compliance." Do you find it easier to figure and pay your federal and state income taxes or your state sales tax? Which do you think offers more opportunity for tax evasion? Clearly the sales tax wins hands down in terms of "ease of collection and compliance."

As a general economic principal, we should look to tax things we want less of. An income tax taxes savings, investment, and work - all things we want more of if our objective is to foster economic growth.

Taxes on investment income generally tax delayed consumption more highly than current consumption because it treats inflationary gains as income. Meanwhile sales taxes tax consumption uniformly regardless of when it occurs.

Taxes on capital gains create frictions in investment decisions where people decide not to sell assets to avoid paying a tax. Imagine an owner of a junky store retaining ownership even though he doesn't want the store any longer and the property could be put to better use by someone else. Ideally we want a tax system that doesn't bias these kinds of economic decisions.

Same too with marginal income taxes. The decision to work an extra hour shouldn't be biased by changes in effective tax rates.

Our income tax, as currently configured, contains thousands of preferences, deductions and credits that not only distort economic decisions but also require thousands of manhours and even entire industries of wasted effort to comply. Income taxes, with their mandatory filing requirements, are more susceptible to these kinds of uneconomic policies - although progressive sales tax schemes could be made equally bad.