Potentially revising the tax code

[SnowballCamper]

I like that too, a big standard deduction, pay x% over that, and no more deductions for anything. It's simple enough for everyone to understand, as opposed to the article that started the thread (which most of us get, but we're a bit above average here).

 

[Midpack]

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

Often more to the benefit of the few - many of the deductions only effect the wealthy and corporations "behavior." If anything, others (most likely middle income) overpay because they aren't aware of many credits and deductions. I looked but could not find data on effective tax rate vs marginal tax rate by bracket for individuals. The link showed corporations pay 13.6% vs a top rate of 21%.

 

[Rothman]

I guess I’m the only one who doesn’t like the plan, some elements like eliminating preferential treatment of capital gains, a new minimum and maximum Social Security benefit just hit me as penalizing those who worked to achieve more and saved and invested in our economy. I would like to see deductions eliminated as I think this would cut a lot of complexity in the tax code and distortion in the actual tax load borne by taxpayers.

 

[jebmke]

I guess I’m the only one who doesn’t like the plan, some elements like eliminating preferential treatment of capital gains, a new minimum and maximum Social Security benefit just hit me as penalizing those who worked to achieve more and saved and invested in our economy. I would like to see deductions eliminated as I think this would cut a lot of complexity in the tax code and distortion in the actual tax load borne by taxpayers.

Eliminating Schedule A and repealing S 501 of the tax code would go a long way to simplify some things. S 501 is riddled with abuse and expensive to enforce.

 

[Midpack]

...just hit me as penalizing those who worked to achieve more and saved and invested in our economy.

A little dated but still basically the same I suspect.

 

[marko]

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. (........)

Staying within this thread, I believe that a 100% estate tax would only create more generational wealth.

As noted in my post #20, this would be an estate attorney's dream and I could see people with even modest wealth resorting to finding ways to pass on that $500k or $1MM to family. Then what starts out as a small net egg continues to be tossed around through several more generations until it's notable wealth

Sadly, there's a workaround for almost everything and I could easily imagine those crafting such bills building in some quiet back doors.

While this discussion is academic, I'd find it hard to believe that someone who's built a $100MM fortune would just roll over and allow the government to take it all upon their death.

 

[MichaelB]

Staying within this thread, I believe that a 100% estate tax would only create more generational wealth.

As noted in my post #20, this would be an estate attorney's dream and I could see people with even modest wealth resorting to finding ways to pass on that $500k or $1MM to family. Then what starts out as a small net egg continues to be tossed around through several more generations until it's notable wealth

Sadly, there's a workaround for almost everything and I could easily imagine those crafting such bills building in some quiet back doors.

It seems to me your argument is estate tax won’t work because people can get around it. The whole ideal of this exercise is to have a simpler tax code that everyone has follow. Complexity enables tax avoidance, simplicity minimizes it.

 

[MichaelB]

A little dated but still basically the same I suspect.

I would qualify that chart on one way, The higher earning W-2 employees pay the bulk of taxes. There are many very high earners that are compensated differently and don’t pay those high rates.

 

[marko]

It seems to me your argument is estate tax won’t work because people can get around it. The whole ideal of this exercise is to have a simpler tax code that everyone has follow. Complexity enables tax avoidance, simplicity minimizes it.

I agree and in the ideal, it would be a wonderful thing.

However there are practical flaws elsewhere in the plan (or at least unpopular ones) that others have pointed out as well.

My point was more focused on the risk that a 100% estate tax could create unintended consequences and opposite outcomes.

As noted, I would prefer a much higher standard deduction ($50k?-$75k?) with a flat tax above that. What could be simpler?

 

[Midpack]

I would qualify that chart on one way, The higher earning W-2 employees pay the bulk of taxes. There are many very high earners that are compensated differently and don’t pay those high rates.

Good point, thanks for adding that. The articles does address some of those issues though.

I'll only add when I see people complaining about the wealthy paying lower taxes than seems fair - that fault lies with those who write the tax codes, not the wealthy or corporations who are only using the code legally. No one should be expected to pay more than required.

 

[Koolau]

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

Thanks for the reference. I respectfully disagree although I do think there probably should be some limits. I can think of too many disruptions that would occur if we adopted such an approach - but I do understand your view point.

 

[Flieger]

A little off topic, but I see a Bill in my State going through to change State Income Tax as follows:

Currently, any income over ~17,330 taxed at 6.1% (recent change from 6.2% to 6.1%):

I think a "snowballs chance", but interesting. SS is already not taxed in SC.

Flieger

 

[Qs Laptop]

As noted, I would prefer a much higher standard deduction ($50k?-$75k?) with a flat tax above that. What could be simpler?

Flat tax on what kinds of income? W-2 wages? Capital gains? Dividends?

Any way you look at it a flat tax would likely be a huge tax cut for the wealthy, result in lower tax revenues across the board, and create larger budget deficits and increase the national debt.

 

[Koolau]

I think a "snowballs chance", but interesting. SS is already not taxed in SC.

Flieger

Hey, it's winter. Even a snowball might have a chance. Good luck with this.

 

[audreyh1]

There have been so many tax reforms proposed during my adult life I don’t follow anymore.

Any time the tax code has actually been streamlined or brought closer to the spending, any “reform” has been undone within a decade, complicating the tax code yet again and generally preferential treatment to big lobby interests. Ad nauseum.

 

[Koolau]

There have been so many tax reforms proposed during my adult life I don’t follow anymore.

Any time the tax code has actually been streamlined or brought closer to the spending, any “reform” has been undone within a decade, complicating the tax code yet again and generally preferential treatment to big lobby interests. Ad nauseum.

Yeah, it's sort of a CPA full-employment kinda thing.

In this instance, I'm just gonna sit back and enjoy the show, I guess.

 

[Zathras]

A little off topic, but I see a Bill in my State going through to change State Income Tax as follows:

View attachment 54255
Currently, any income over ~17,330 taxed at 6.1% (recent change from 6.2% to 6.1%):
…

I think a "snowballs chance", but interesting. SS is already not taxed in SC.

Flieger

What I find interesting is that the range of values for the two rows is identical

 

[mwilson]

This has a snowball's chance but a few observations:

- I have never understood what is the point of taxing health insurance premiums. Switching to single payer, replacing the premiums with a tax just makes so much more sense vs. the crazy quilt health insurance regime we have now, which costs about $250-$300 billion annually in additional overhead vs. medicare for all, with no or negative benefit.

- Top rate capped at 28% is too low. This is readily apparent from table 4, which shows the tax burden increasing for the 80-99% income percentiles but decreasing for the 99%+.

- Eliminating step up basis and dividend tax breaks makes sense but will be certainly be politically unpopular with those affected.

 

[jebmke]

There have been so many tax reforms proposed during my adult life I don’t follow anymore.

Any time the tax code has actually been streamlined or brought closer to the spending, any “reform” has been undone within a decade, complicating the tax code yet again and generally preferential treatment to big lobby interests. Ad nauseum.

yeah; remember the Camp committee blue print? oldie but goodie. Actually some seeds of good ideas that had a fair bit of bipartisan support but got round filed along the way. Fiscally we are living in two-week increments now probably forever.

The continued decline in US life expectancy should give the SS trust fund some additional life though.

 

[38Chevy454]

I don't think generational wealth, or eliminating passing down anything with a tax benefit, will make it past any serious consideration.

Trying to alter long standing tax code is going to be an an incredible uphill battle.

My opinion is that gov't spending is the main cause of debt problems, not tax code.

 

[Koolau]

I don't think generational wealth, or eliminating passing down anything with a tax benefit, will make it past any serious consideration.

Trying to alter long standing tax code is going to be an an incredible uphill battle.

My opinion is that gov't spending is the main cause of debt problems, not tax code.

Likewise.

Too many examples to list (and likely political.)

 

[Car-Guy]

Like all potential legislation/rule changes, I'll wait until the final bills/rules are passed and signed into law before I get too upset or excited.

 

[oiseux]

I am generally in favor in simplification but pragmatically that change of this magnitude may not persist long enough for the benefits to be realized.

There are a couple of non-starter and third rails that ensure even if this proposal passed, it would not last:
* raising the FRA from 67 to 70. There is also a benefit reduction.
* See table 4 in the second link: the tax burden of the middle class and upper middle glass goes up. I anticipated this when I read the proposals but it was confirmed by the tables. By 2054, 20% to 99% of the population is worse off. Even by 2034, the people who fall in 60% to 99% are bearing the burden. (Is it severe enough to cause the populace to react? That is the open question)

A few of the concepts are in the 50+ proposals being tossed around the House now, but the core principal of capital gains and flatter brackets is not.

 

[RetMD21]

I didn't see no tax on tips in the article.

 

[EastWest Gal]

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.

I am perplexed by Gumby's statement too. Does the gummint want to be in the business of settling the estate of everyone? Selling houses, small businesses, etc.? Many people, especially in rural areas, live in the family home that they inherited. If one spouse dies, does half the home go to the gummit? How on earth would that work?