Potentially revising the tax code

[Gumby]

The link here is the text of an interview with Marc Rowan, CEO of Apollo Global Management, about possible revisions to the tax code, which will be a big issue as this year progresses. Called the Penn Wharton Budget Model, I think he has many good, and balanced, ideas. This a a shared article link, so it bypasses the New York Times paywall. I'll be interested to hear what you all think. An Unconventional Plan for Fixing the Federal Budget

Also

Principles-Based Illustrative Reforms of Federal Tax and Spending Programs — Penn Wharton Budget Model

 

[MichaelB]

The link here is the text of an interview with Marc Rowan, CEO of Apollo Global management, about possible revisions to the tax code, which will be a big issue as this year progresses. Called the Principles-Based Illustrative Reforms of Federal Tax and Spending Programs — Penn Wharton Budget Model, I think he has many good, and balanced, ideas. This a a shared article link, so it bypasses the New York Times paywall. I'll be interested to hear what you all think. An Unconventional Plan for Fixing the Federal Budget

Interesting ideas, and I think they make a lot of sense. One thing he doesn’t consider is that his proposals to make the tax code simpler would have a positive impact on productivity.

I also note he doesn’t seem to be tied to any particular ideological view of tax reform.

 

[aja8888]

I like it.

 

[SecondCor521]

I really like a lot of the elements of his proposals as outlined in the NYT interview article. I emphatically agree about removing distortions that the tax code creates, which to me just lead in general to a lot of non-productive activities and, effectively, GDP drag.

Philosophically I have never agreed with the idea that health insurance and income taxes should be intertwined, and I would go the opposite direction and work to separate them. However my ideas in this area are too libertarian to become mainstream in this country and I hold no elected office, so my opinion doesn't matter much.

There are a couple of areas that I won't bother mentioning where my ox gets gored due to the effects of transitioning from the existing tax structure to this new one. So even if I intellectually agree with the idea, I might not like it personally. I think my family would survive such transition effects fine and the beneficial effects of the new system would accrue enough to probably more than compensate, but it's of course hard to figure without seeing what the actual fine print is.

At the end of the day, I don't think we have the political will and gumption to do something this radical even as I wish we did. (I'm also in favor of a grand bargain along similar non-polarized bi-partisan restructuring of SS/Medicare, in case anyone is asking, but I am similarly not optimistic that we'll do so.)

I will wait and see and watch with interest.

 

[Koolau]

I basically see where he's going with this and it seems generally sound. I like that he recognizes human nature (like rich people just move if they believe they're being over taxed.)

He also recognizes that, left to their own devices, congress won't do anything. They'll need some push and pull.

At the risk of sounding political (not my intent) I would like to see emphasis on cutting spending before raising revenues but I suppose that ship has already sailed.

 

[yhoomajor]

As I'm learning the hard way - you can't outrun your mouth. At some point we have to control and be responsible with what we feed ourselves.

Same applies to budget, spending, taxes and deficits. Rest is up to folks to infer.

 

[Gumby]

One the problems always with cutting spending is that every one of the dollars you cut comes out of someone else's paycheck, and they're going to be motivated to fight harder to keep that dollar than any amorphous group of people interested in fiscal restraint is willing to fight to cut it.

One of the things I like about this guy's plan is the give and take so that everyone has to give a little but will also get a little. If we can cut down on pointless and unproductive work caused by the complexities of the current system and remove some of the friction from the economy, that can benefit everyone.

 

[GrayHare]

I don't see how it stops Congress from overspending, or voters from voting themslves largesse from the public treasury. Furthermore, to avoid withdrawal, any change that involves weaning from the gov't teat needs to be done slowly because the public is addicted to that milk.

 

[JohnnyBGoode]

Fundamentally, I like the idea of getting rid of all the noise of the different special deductions and just having the actual tax rate be close to the effective tax rate we are currently paying. You would save a ton on accountants' fees, and we wouldn't have tax considerations clouding up personal and business decisions.

However, it is missing the fact that most of the deductions, etc, are really a feature, not a bug, of the system. Do you want to encourage people to save more for retirement? Increase the limits on IRAs and 401K contributions, which are exempt from income tax. Want to encourage people to buy houses? Ensure mortgage interest is tax deductible. Want to encourage companies to invest in R&D in the US? Offer a tax deduction for R&D expenses.

I'm not saying any of these deductions actually accomplish what politicians set out to do, but frankly, tax policy is one of the few levers of control that politicians have over our behavior. The fact we change our behavior to chase favorable tax treatment (and thereby save money) is intentional.

 

[Koolau]

Fundamentally, I like the idea of getting rid of all the noise of the different special deductions and just having the actual tax rate be close to the effective tax rate we are currently paying. You would save a ton on accountants' fees, and we wouldn't have tax considerations clouding up personal and business decisions.

However, it is missing the fact that most of the deductions, etc, are really a feature, not a bug, of the system. Do you want to encourage people to save more for retirement? Increase the limits on IRAs and 401K contributions, which are exempt from income tax. Want to encourage people to buy houses? Ensure mortgage interest is tax deductible. Want to encourage companies to invest in R&D in the US? Offer a tax deduction for R&D expenses.

I'm not saying any of these deductions actually accomplish what politicians set out to do, but frankly, tax policy is one of the few levers of control that politicians have over our behavior. The fact we change our behavior to chase favorable tax treatment (and thereby save money) is intentional.

Exactly. Tax policy is structured to effect behavior changes of citizens.

 

[Gumby]

Exactly. Tax policy is structured to effect behavior changes of citizens.

Ideally, it would nice to break that link and have the tax system used solely to finance the government. If laws are needed to get people to do certain things, then pass laws instead of bribing the people with their own money.

 

[Koolau]

Ideally, it would nice break that link and have tax system used solely to finance the government. If laws are needed to get people to do certain things, then pass laws instead of bribing the people with their own money.

Absolutely agreed. I'm not a fan of gummint inducements of any kind - including tax rebates for buying the "right" car or electrical source.

 

[Closet_Gamer]

I like the simplicity and the fact that he’s saying “let’s focus on how we get money into the government efficiently and fairly” rather combining that with a spending cuts discussion.

 

[RetMD21]

I don't like eliminating the step in in basis at death.

 

[Gumby]

And I think the estate tax should be 100%, but it is most likely that neither one of us is going to get exactly what we want.

 

[marko]

Makes too much sense for those who can change things to consider it seriously. Lower corporate taxes? I can hear the howling now! Heck, my state just went in the opposite direction and implemented a millionaires tax.

 

[SnowballCamper]

Sounds like a pipe dream to me, and he even says so:


Honestly, how realistic do you think all of this is?
Washington, left to its own devices, will absolutely not do anything other than the status quo. They will shuck and jive and budget gimmick and they will achieve nothing. And the deficit will continue to go up. It is only if they get some amount of market pushback or it becomes politically infeasible to pass a status quo budget that they will consider an alternative.

 

[RetMD21]

Many heirs would be screwed because of lack of basis information but if the estate tax was 100% I guess it wouldn't matter.

 

[Koolau]

And I think the estate tax should be 100%, but it is most likely that neither one of us is going to get exactly what we want.

I'm sure I'll regret asking, but why 100% estate tax? In effect that means everyone's estate would go to the gummint rather than to family.

 

[marko]

I'm sure I'll regret asking, but why 100% estate tax? In effect that means everyone's estate would go to the gummint rather than to family.

Not "everyone's" estate.

A tax accountant and estate lawyer's dream! C'mon down! and everybody get your LLC!!

 

[Gumby]

I'm sure I'll regret asking, but why 100% estate tax? In effect that means everyone's estate would go to the gummint rather than to family.

Exactly. You can make and spend as much money as you like in one lifetime, but I think dynastic wealth is bad for our society. We had a very long thread about 4 years ago wherein I explained my reasoning and pretty much everyone disagreed with me. (You can find it if you search the word "dynastic"). I haven't changed my mind in the interim and there is no need to repeat the experience

 

[Midpack]

Very interesting article, with common sense changes. Though he’s raising taxes on the wealthy and corporations - nothing will change until campaign finance laws change.

We all know of many mathematically viable fixes, plenty of options, it’s the will to act. There’s no excuse for our current tax code complexity, but there’s no way our Congress will address it until they have no choice. I wouldn’t be at all surprised if our current Congress makes things worse (deficits) with their next revision, while claiming otherwise. You can always count on the Americans to do the right thing, after they’ve exhausted all other alternatives…

 

[Zathras]

I like his concepts, the details would need scrutiny.

The US did make significant changes to the tax code before. I don’t see the political will to do it today.

 

[FiveDriver]

All that Wharton School stuff is too dense for little ol' me to comprehend.

I don't see anything in that proposal that helps the married retirees with a decent nest egg, but bumping into the top of the 22% bracket. We really have no write-offs or tax dodges anymore. The IRS wants a slice of our pie from every angle.

Why such a big gap between the 12% and the 22% bracket ?
Why are my meager interest and dividend payouts plundered ?
The IRS cut corporate taxes from the high 20% down to the mid teens....to what benefit to regular folks ?

We're just lucky our State doesn't have it's hands in our pockets.

 

[marko]

All that Wharton School stuff is too dense for little ol' me to comprehend.

I don't see anything in that proposal that helps the married retirees with a decent nest egg, but bumping into the 22% bracket. We really have no write-offs or tax dodges anymore. The IRS wants a slice of our pie from every angle.

Why such a big gap between the 12% and the 22% bracket ?
Why are my meager interest and dividend payouts plundered ?
The IRS cut corporate taxes from the high 20% down to the mid teens....to what benefit to regular folks ?

We're just lucky our State doesn't have it's hands in our pockets.

The way I read it, the current $30k+ standard deduction is an example where those write offs went. It suddenly made chasing those dodges unnecessary.

Now, next year if/when it drops back to $15k your property tax, charitable etc might again make sense.

I'd like to see a $50k standard deduction, and no other write offs. "What did you make? Take $50k off of that and pay X% in tax. Done.