What Would Progressive Tax Reform Look Like?


#1

I’m a Liberal and I am not opposed to reforming our tax system. But I know that my inclinations are different from the GOP and other conservative groups. Assuming that having a counter-proposal is better than blind opposition, what would a Liberal/Progressive tax reform proposal look like? To get any discussion going, I’ll just toss out this:

Taxes do distort economic activities. For a small number of taxes, like tobacco and alcohol taxes, that is their primary purpose. But in general, economic distortions are an unwanted side effect of taxation.

It is for that reason that I believe that 80% of taxes from income is too much. Tax avoidance is too lucrative when 80% of taxation is from a single source. The obvious missing tax source is consumption and the most workable system of taxation is a VAT. A VAT is regressive while an income tax tends to be progressive, but regressiveness is not an insurmountable hurdle.

Any other ideas?


#2

Because you put up a federal tax chart I assume we are speaking of federal taxes. Before we can actually have any real discussion about the ‘tax system’ we must truthfully define the limits of Federal powers with regard to what it can and cannot raise money for. Progressives seem to have totally wiped the words ‘enumerated powers’ from their vocabulary. The states were given sovereignty for a reason and each state should tax in a way and by such amount that is necessary to conduct the business of their residents…


#3

It seems to me that a threshold question has to be: what kind of economy are we likely to have in 10 or 20 years? If the answer is, one in which there are much fewer jobs, due to AI, automation, and globalization, then that must drive the tax regime.


#4

I would have to say that hasn’t restrained liberals in the past… we are after all $20 trillion in the hole… with unfunded liabilities 5 times that much…


#5

Ha…I guess the two wars Little Bush started did nothing to increase the debt…


#6

Well, while one can agree or disagree with either or both of those engagements, they were both voted on by Congress and I would add that whether you see them that way or not “Provide For The Common Defense” is one of the few definitive responsibilities defined in the Federal job description. The results of those wars notwithstanding, they pale in comparison to the $20 plus trillion spent on the Great Society and by many measures aren’t considerably different in results.

I don’t really see ‘Bush’s Wars’ as being a particularly noticeable bump on this exponential slide into national poverty… as a matter of fact I would say that Big 'O’s shopping spree was much more… exuberant… and other than inflaming the entire middle east and race relations in the US he doesn’t even have two wars to show for it…


#7

It’s not even all that difficult.;

Remove cap on FICA taxes to include ALL income. Poof, SS is fixed.

Tax Wall Street transactions @.1%. Use to replace cash taken from Medicare/SS

Make small boosts to get the energy neutral economy into gear. There’s your growth.

These are just three really good moves we could make. There are actually dozens.

It’s not like these things aren’t known…


#8

Nor the 10 trillion Obama spent.


#9

Globalization seems to have run its course according to Krugman.

This, I think, is what happened after 1990, partly because of containerization, partly because of trade liberalization in developing countries. But it’s also looking more and more like a one-time thing.

Likewise, automation has been going on all my life and yet the labor force absorbed more women during that time and labor force participation climbed with automation. Labor employment and automation do not seem to be irreconcilable.

As for AI, I’ve been waiting for that since the 1960s and, personally, I’ve given up hope.

It would seem that today’s economy is going to be representative of the future. The uncertainty of forecasting structural changes that may or may not come to past is an unnecessary layer of complexity to an already complex discussion.


#10

Poof, People los their jobs as SS taxes that the employer is also raised.

A beter solution, return SS to the original design, eliminate the kiddies, the spouses that never worked and of course the disability for those that are not truly disabled. Poof, you don’t raise the tax and it’s also fixed.

And why would we need to pay more in taxes to cover what YOUR government did???


#11

We have raised the minimum wage and now Mc D’s is installing terminals at all locations.

Yep, the response to government over reach.


#12

This is what productivity enhancements is all about right… getting rid of the tasks we just don’t want to do?.. and we get shed of imported workers that send our wealth back to Mexico anyway… win/win…


#13

Rather than a VAT (Value Added Tax) we could design a CAT (Carbon Added Tax), where at each step we value the greenhouse gas usage of each step and add a tax on that- It could in effect be levied as an energy tax with the difference that it taxed that energy based on the amount of gasses released. So Wind generation would have no tax, coal generation a higher tax. But it would extend to agriculture, as well, with chemical fertilizers and pesticides having a tax, while organic methods would face a lesser or no tax (depending on the inputs). Obviously, it would also make shipping a more significant point of friction in the economy, which I actually think might be a good thing, increasing sales of locally produced food and manufactures.

We also need to end the favorable treatment of Capital Gains and Dividends. There was a theory behind taxing them at lower rates, that it would lead to greater investment and higher economic growth. That theory did not pan out.

Removing the FICA cap is a probably good idea.

We have a very badly designed tax structure from a behavioral point of view - behaviors that are actually anti-social are tax advantaged (avoidance strategies, as you mentioned). We really need to look at how Wall Street hedge funds are taxed, as well as real estate loopholes.


#14

Raising axes is stupid until spending is addressed.

Obviously not an investor.

Removing FICA caps would raise taxes on employers resulting in fewer jobs.


#15

An interesting idea, but fraught with political opportunities (perhaps that’s why you suggested it). What would constitute something to which CAT would apply? Cars (gas) are a no brainer, but how about good old windmills- no tax?

Not so fast, there is a lot of carbon in steel production, and a windmill has a lot of steel- so- tax tax tax! Let’s not forget electric cars, whiz bang Elon Musk torque your butt into the seat Tesla, and others. Would it not violate the liberal credo to ignore the horrifying pollution from lithium mining?

But let’s leave the esoteric and stumble back into the mundane world the left desires for us: farming (that which after the civil wars over ever shrinking goods and services would be one’s mode of survival) - tractors don’t move themselves, they need gas; also cows produce vast quantities of methane- we’ll need to tax them heavily, and let’s not forget broccoli, and sauerkraut- and your CAT would be a cruel blow to seniors on a fixed income, who have flatulence (but after the civil wars few of them will be left alive).

And after the companies that make fertilizer are gone, crop yields will spiral sown to where that head of broccoli will be $60 anyway, so the taxes might be moot.

Not as well as you hoped, yet I can assure you that heavily taxing capital gains will cause even more job losses and even less investment- you can bank on that.

Don’t get me wrong, I’m all for fair taxation, yet isn’t it funny that liberals always point to those who have sacrificed for success as the ones who should pay ever more, and bums like themselves who should never more pay.

It is actually a very unfair idea.

FICA is capped because it is based on what one might use in benefits- like any other insurance. It was not designed to carry tens of millions of freeloaders with phony ‘disabilities’ (yes I know there are thousands of Americans with legit disabilities, just not tens of millions).


#16

I think you should study the production and placement of a wind turbine and of course count the decomposition of the tens of thousands of birds each year. Tons of concrete and pig iron (used to make steel in coke fired refineries) Have you seen the number of cars that sit idling on the side of the road to let trucks carrying these turbine blades pass, one per truck,to their placement site? As for your organic farming operations… do you have any idea how many people in the world aid do-gooders keep alive every year with high density agriculture? Next you will be screaming about the needless deaths in third world countries(but it would be excellent for population control… something near and dear to the liberal heart) P.S. count up all of the devices in your home that have electronics in them and consider the rare earth elements that go into each one… and even the most basic of cars that one would drive… the steel, the plastic, the aluminum and copper… talk about regressive…


#17

My apologies to you… I just read down the thread until I came to @Dani and just started typing… your answer though slightly different was far more complete but I didn’t see it until I had posted…


#18

I agree, but most adjustments to a carbon tax are structural, not behavioral. By that I mean that homes need to be insulated if they are under-insulated. Or at the extreme, people need to move to climes that require less heating and cooling. Likewise with auto usage. If mass transit doesn’t exist or is minimal, then it needs to be built out or workers need to move closer to their place of employment.

Unlike a VAT which applies to everybody equally, a carbon tax will have many big losers (rural people in the South and Southwest) and many minor losers (urbanites in the North East). There is no way to soften a carbon tax other than delayed introduction; give people a chance to make the adjustments before the hammer falls.

A VAT and a carbon tax could both be used to minimize the use of income taxes, but the carbon tax needs an extended phase-in. What that time period is, I’m not sure, but it will take decades to fully adjust to the highest carbon taxes we may want to implement.


#19

There is a risk when most revenue comes from a possibly avoidable tax, although any tax seems in principle open to gaming. But we have had higher income-tax rates before and widespread evasion was not a problem. The main evasion is the legal form, e.g. General Electric’s tax division comprising something like a thousand lawyers.

There is always a calculation re getting agreement in Congress.

Social Security has a cap because its payouts have a limit. This makes it more palatable, or at least protects it from looking like straight wealth redistribution. Removing the cap without allowing uncapped payouts makes it more like welfare. A cap lift needs to be matched with a payout increase, but that can have a progressive differential. That is, we can increase the amount of taxable income by X amount while increasing the payout by less than X proportionally. Or we can try for a slight rise in the cap while leaving the payout alone.

An income tax, or profits tax, is the best revenue generator because the goals of the taxpayer and the government align. Both want more (or at least enough), and when more income or profit is generated there is also more revenue. Because profit taxes don’t impede investment or R&D, it’s hard to listen to arguments they are bad for business.

If there were one major reform I would consider, it would be replacing the personal income tax with a personal profits tax. This would allow individuals to deduct all their living expenses (rent or mortgage, bills, food costs, school costs, medical costs, wardrobe, cars, etc.) as do businesses. The result would be at least somewhat progressive, in that the majority of people spend the majority of their money on regular outlays for the above expenses, while the wealthy can’t easily find enough allowable deductions for living expenses to escape taxes.

This looks simple, but like any tax the definitions are the source of complexity. What is income? What is profit? The first question leads to all the provisions for this and that deduction or exclusion. The second also requires complex definitions for what is an allowed expense.

Even the supposedly simple “flat income tax” needs a starting point, as to what is the level of taxable income. So it begins with at least a semblance of variable-rate action.

Because the tax question is complex and tends to be driven by ideology (at least for the anti-tax crusaders) we should always reference previous tax regimes and how they correlated with the economy’s performance and the appropriate social indicators. A significant number, for me, is the large decline in the portion of revenues that come from corporate taxes. It has been as high as 40% during WW II, and still as high as low 30s when Eisenhower was elected. But it has declined steadily since then, going as low as about 5% in 2008 (crash), and returning to about 13% in 2013.

David Foster Wallace did a short stint as an examiner for IRS. His research for his last novel “The Pale King” includes the policy shift that occurred under Reagan, which required IRS to yield more revenue with less expert staff. This led to switching the scrutiny from large businesses to smaller ones and individuals, and may account for some of the decline in business tax contributions.

But in general I warn against thinking of taxes as punitive, because that delegitimizes taxes, and makes it easier to argue they impede business, kill jobs, etc. Taxes are contributions, and are best configured when they are scaled to the source appropriately, and align with positive outcomes and not perverse incentives. The latter is exemplified by a business-tax provision that allows retraining staff as a deduction, but can be applied to training offshore labor. Adding an exclusion that prohibits taking the deduction for offshore labor or automation is one of ways taxes get complicated, but without that the perverse incentive prevails.

The complaint that taxes are complicated is weak because one can always take the simple approach, trading what might be reduced taxes for ease of filing. Profitable business always depends on watching the details and not being casual about expenses. Somehow certain people think they can argue taxes should be simple when life is not.

Filing could be easy, however, if the IRS simply sent you a pre-filled form, which you could OK or alter. All payments that call for a W-2 or 1099 are recorded at IRS, and disbursements such as dividends or interest payments are likewise known to IRS. This would require more staff at IRS, which means a larger budget, so is another difficult sell in the current environment.

Side note: a carbon tax would not hurt New Yorkers much, as their individual carbon footprint is much lower than most of the country.


#20

Actually the taxing regime in the US has far more to do with the ideological stance of the left than it does the right. The US federal government was never meant to be a for profit kind of government in the first place… the taxing was suppose to cover the cost of government expenses within the limited scope of federal business. That scope remained relatively intact until FDR. States and local governments held the right to provide services tailored to their communities. Progressives broadened the scope of federal involvement to almost every area of a persons life. Understand that tax is the forcible taking of someone’s personal efforts so those ‘anti’tax’ crusaders are only antitax at the federal level… they are also crusading against federal overreach in most cases. Now with purely fiat money, the federal government has lost all sense of fiscal responsibility… at least state budgets are constrained by the fact that they can’t mint money out of the air…

You bring up the corporate tax rates decline as a portion of federal tax as if we could push those tax rates up that high again and suffer no consequence. I don’t mean to be condescending but do you not understand that the US was the ONLY viable economy standing after WWII? We had no competition and we certainly didn’t have ‘free trade’ deals that pushed industry out of the US in an ideological effort to enrich the rest of the world with what Americans worked so hard to create and save. You could push tax rates to 90% and a business could still make a good profit while doing its bit to pay off the war debt and make America financially stable again… Their was as much patriotism in those taxes as anything… You can’t get blood from a dehydrating turnip… Currently, no one sees an end to federal spending… hell no one sees an end to the imagination of other people to confiscate and spend your hard work on their idea of a perfect union.

This goes back to my comment about a more perfect union… We did not assign to the federal government the roll of designing that union because their is a huge difference in the two words ‘Provide and Promote’. The comment above comes from rather greedy people who have taken the federal government from one of rather narrowly enumerated powers to one of unlimited powers… so you tell me who the crusaders are.

P.S. Your comment about the carbon footprint… take a look at a night picture of the US from a satellite view… you guys suck energy… hell, times square alone would light 5 small towns. But then again, its how you would define carbon footprint in the progressive tax code… the northeast has always found a way of taking care of itself…