The 47% payer problem
Howard Gleckman, of the Brookings/Urban Tax Policy Center, weighs in on the discussion of the number of Americans who pay no income tax. Give it a look here and check out my comments, which I will repost below:
There are some of us, like myself, Len Burman and Michael Graetz who would decrease the number of people filing even more, with the payment on their wage taxes going on other places. Burman would make filing unnecessary but not invisible by turning low rate income taxes into something more akin to a payroll tax (but with tax benefits paid by the employer). Graetz would eliminate the personal tax for most earners altogether, but would retain payroll taxes, which could be a vehicle for VAT offsets. I would simply shift the burden of both payroll taxes and low rate income taxes to employers (and VAT payers), who would distribute credits and lose their deduction for wage and salary income - leaving only the wealthiest to pay taxes but removing their most favored mortgage interest and property tax credits. Burman's higher 25%tax rate is only 10% over the general 15% rate (I don't recall what he does with the mortgage deduction). Graetz's surtax is higher at 20% to 25%, retains the home mortgage and charitable deductions and reaches lower to the $50K/$100K range. My proposal is for a broader base (only ESOP and charitable deductions - although I could be talked into a state income tax deduction) - including inherited income when cashed out, more progressive rates (from 3% to 20%) and a higher exemption $75K/$150K).
I would love to see you guys do a side by side of Graetz, Burman, Ryan and Bindner as to the distributional and revenue effects. May the best proposal win!
The issue of everyone paying taxes is key to those who support a Flat Tax, who desire totally proportional taxation with everyone paying the same rate. The Fair Tax is a varient of this, even with VAT offsets, since the rate charged prior to offsets is equal to everyone. This view is important to people who believe in equality in process rather than equality of result. Indeed, they believe equality of result rewards sloth and breaks down a sense of community sacrifice. Dick Armey is an extreme believer in this view - and not just because his funders also hold it.
This view is not uncommon in society. It's existence is why I propose a VAT along with a shift of wage taxes from individuals to an expanded business income tax. Making such taxes visible promotes at least some shared sense of sacrfice.
The desire for shared sacrifice also leads to the use of per capita debt statistics - even though such statistics are entirely inappropriate given our tax system. The real liability for the national debt is exactly the same as the liability for the payment of tax. They are one and the same, since the ability of a nation to borrow rests solely on its ability to tax. If anything, the national debt liability should reflect the distribution of wealth, which is much more skewed to the top than either the distribution of income or the distribution of taxation. Since wealth is harder to tax than income (even by an LVT - because of the liquidity problem), what each individual owes is a function of the amount on line 60 of their Form 1040, less the credits on lines 63, 64, 65, 66, 67, 69 and 70. This total, times 9 (which is roughly the ratio of federal income taxes to national debt) gives each individual what they really owe. We ended up owing roughly $5,500. Our share of the debt (aside from taxes owed) is roughly $50,000.
The tax changes I propose would essentially further limit the liability for the debt to the wealthy who pay an income surtax - however I would limit the surtax to debt repayment, interest payments and the payment for overseas deployments. Once such deployments are ended and the debt repaid, the reason for the tax would cease - as would the tax itself.
The other egalitarian feature I wish to emphasize is my proposed expanded child tax credit, which would be an offset to business income taxes and paid to workers as a component of wages. This would replace other family entitlements and is necessary on justice and efficiency grounds because small employers of low wage workers cannot afford to pay a living wage (which for me as a Catholic intellectual is non-negotiable doctrine) if mandated without some kind of tax support. Lacking tax support would either drive small firms into bankruptcy or result in business size exclusions that defeat the purpose of living wage mandates.
There are some of us, like myself, Len Burman and Michael Graetz who would decrease the number of people filing even more, with the payment on their wage taxes going on other places. Burman would make filing unnecessary but not invisible by turning low rate income taxes into something more akin to a payroll tax (but with tax benefits paid by the employer). Graetz would eliminate the personal tax for most earners altogether, but would retain payroll taxes, which could be a vehicle for VAT offsets. I would simply shift the burden of both payroll taxes and low rate income taxes to employers (and VAT payers), who would distribute credits and lose their deduction for wage and salary income - leaving only the wealthiest to pay taxes but removing their most favored mortgage interest and property tax credits. Burman's higher 25%tax rate is only 10% over the general 15% rate (I don't recall what he does with the mortgage deduction). Graetz's surtax is higher at 20% to 25%, retains the home mortgage and charitable deductions and reaches lower to the $50K/$100K range. My proposal is for a broader base (only ESOP and charitable deductions - although I could be talked into a state income tax deduction) - including inherited income when cashed out, more progressive rates (from 3% to 20%) and a higher exemption $75K/$150K).
I would love to see you guys do a side by side of Graetz, Burman, Ryan and Bindner as to the distributional and revenue effects. May the best proposal win!
The issue of everyone paying taxes is key to those who support a Flat Tax, who desire totally proportional taxation with everyone paying the same rate. The Fair Tax is a varient of this, even with VAT offsets, since the rate charged prior to offsets is equal to everyone. This view is important to people who believe in equality in process rather than equality of result. Indeed, they believe equality of result rewards sloth and breaks down a sense of community sacrifice. Dick Armey is an extreme believer in this view - and not just because his funders also hold it.
This view is not uncommon in society. It's existence is why I propose a VAT along with a shift of wage taxes from individuals to an expanded business income tax. Making such taxes visible promotes at least some shared sense of sacrfice.
The desire for shared sacrifice also leads to the use of per capita debt statistics - even though such statistics are entirely inappropriate given our tax system. The real liability for the national debt is exactly the same as the liability for the payment of tax. They are one and the same, since the ability of a nation to borrow rests solely on its ability to tax. If anything, the national debt liability should reflect the distribution of wealth, which is much more skewed to the top than either the distribution of income or the distribution of taxation. Since wealth is harder to tax than income (even by an LVT - because of the liquidity problem), what each individual owes is a function of the amount on line 60 of their Form 1040, less the credits on lines 63, 64, 65, 66, 67, 69 and 70. This total, times 9 (which is roughly the ratio of federal income taxes to national debt) gives each individual what they really owe. We ended up owing roughly $5,500. Our share of the debt (aside from taxes owed) is roughly $50,000.
The tax changes I propose would essentially further limit the liability for the debt to the wealthy who pay an income surtax - however I would limit the surtax to debt repayment, interest payments and the payment for overseas deployments. Once such deployments are ended and the debt repaid, the reason for the tax would cease - as would the tax itself.
The other egalitarian feature I wish to emphasize is my proposed expanded child tax credit, which would be an offset to business income taxes and paid to workers as a component of wages. This would replace other family entitlements and is necessary on justice and efficiency grounds because small employers of low wage workers cannot afford to pay a living wage (which for me as a Catholic intellectual is non-negotiable doctrine) if mandated without some kind of tax support. Lacking tax support would either drive small firms into bankruptcy or result in business size exclusions that defeat the purpose of living wage mandates.
posted by Michael Bindner at 7:34 PM
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