Tax Reform: The Wheels Are Beginning to Turn
Tax Reform: The Wheels Are Beginning to Turn by TPC Director David Marron
My response:
The biggest exclusions in Corporate Income Taxes are the fact that only corporations pay them, while other firms pay them as part of personal income taxes, and the fact that labor is not taxed.
If labor were taxed in business revenue taxes (Larry Linsey’s term) rather than personal taxes the base would be a lot broader and the rates could potentially be a bit lower, although not too much lower if we want to pay for health care in the long term. Any revenue increases should happen slowly, in time with needed spending, rather than collecting too much right away to build a trust fund – as this eventually requires higher income tax collections to repay the fund.
An income surtax should still be charged on the highest incomes to avoid undertaxing the rich and overtaxing the nonrich and to avoid requiring that high income individuals share all of their financial information with their employers and business interests. For their own confidentiality, it is better that the government act as the information clearing house, rather than any one business entity. Any such surtax should be earmarked to the payment of interest and repayment of debt, rather than using a more general levy for these purposes. Theoretically, if wealthier taxpayers were to transfer some of their investments into “tax futures” bonds that simply expire in a future tax year, then the national debt could be paid off fairly quickly – provided the Federal Reserve was willing to find another set of assets to back the currency – such as mortgage backed securities (marked to market).
Social Security reform also enters this equation – both because the income cap needs to be increased and because there is a desire to make the program more progessive. While some have floated the idea of making the bend points even harsher than they are, a better alternative is to begin crediting the employer contribution equally (as in, without regard to the amount of the employee contribution). This moves redistribution to the front end and makes the development of personal accounts possible. The more liberal of us could even see doubling the employer contribution and dispensing with the employee contribution entirely – adjusting gross but not net wages in the process. Gross wages would also take a hit with the aforementioned business revenue tax reform, although net wages would go up to compensate for any VAT component to business revenue taxes – with VAT’s being visibile and BRT’s staying hidden.
As to the composition of personal retirement accounts – they should hold employer voting stock rather than traded equities or corporate or government bonds. This would allow a shift in equity ownership to workers from the wealthy, government bond ownership from retirement funds and the Federal reserve to the wealthy and private and mortgage bonds from the government and retirment funds to the Fed. Indeed, the only non-employee holders of equities would be a fund holding shares in a third of every firms fund to act as insurance and leverage to back employee groups who claim mismanagement. Such a fund could investigate and join 1/4th of employee stock holdings in controlling any company in order to avoid bankruptcy. It could be either private or held by the Federal Reserve System (if needed to back the currency).
Somehow, I don’t think this Administration or this Congress will go quite that far – even if they adopt comprehensive tax reform. If populists on the left and the right form a coalition like they did on the second engine for the F-35, however, the main features of this plan could very well see the light of serious debate. It would be nice if the TPC would score them, by the way. They are in more detail in my submission to the Fiscal Commission, which was copied to TPC but never commented upon – since TPC was working for Domenici Rivlin rather than scoring the options before the Fiscal Commission.
I can forward them to you if you wish to make up for lost time, including a model that allocates spending to various taxes.
My response:
The biggest exclusions in Corporate Income Taxes are the fact that only corporations pay them, while other firms pay them as part of personal income taxes, and the fact that labor is not taxed.
If labor were taxed in business revenue taxes (Larry Linsey’s term) rather than personal taxes the base would be a lot broader and the rates could potentially be a bit lower, although not too much lower if we want to pay for health care in the long term. Any revenue increases should happen slowly, in time with needed spending, rather than collecting too much right away to build a trust fund – as this eventually requires higher income tax collections to repay the fund.
An income surtax should still be charged on the highest incomes to avoid undertaxing the rich and overtaxing the nonrich and to avoid requiring that high income individuals share all of their financial information with their employers and business interests. For their own confidentiality, it is better that the government act as the information clearing house, rather than any one business entity. Any such surtax should be earmarked to the payment of interest and repayment of debt, rather than using a more general levy for these purposes. Theoretically, if wealthier taxpayers were to transfer some of their investments into “tax futures” bonds that simply expire in a future tax year, then the national debt could be paid off fairly quickly – provided the Federal Reserve was willing to find another set of assets to back the currency – such as mortgage backed securities (marked to market).
Social Security reform also enters this equation – both because the income cap needs to be increased and because there is a desire to make the program more progessive. While some have floated the idea of making the bend points even harsher than they are, a better alternative is to begin crediting the employer contribution equally (as in, without regard to the amount of the employee contribution). This moves redistribution to the front end and makes the development of personal accounts possible. The more liberal of us could even see doubling the employer contribution and dispensing with the employee contribution entirely – adjusting gross but not net wages in the process. Gross wages would also take a hit with the aforementioned business revenue tax reform, although net wages would go up to compensate for any VAT component to business revenue taxes – with VAT’s being visibile and BRT’s staying hidden.
As to the composition of personal retirement accounts – they should hold employer voting stock rather than traded equities or corporate or government bonds. This would allow a shift in equity ownership to workers from the wealthy, government bond ownership from retirement funds and the Federal reserve to the wealthy and private and mortgage bonds from the government and retirment funds to the Fed. Indeed, the only non-employee holders of equities would be a fund holding shares in a third of every firms fund to act as insurance and leverage to back employee groups who claim mismanagement. Such a fund could investigate and join 1/4th of employee stock holdings in controlling any company in order to avoid bankruptcy. It could be either private or held by the Federal Reserve System (if needed to back the currency).
Somehow, I don’t think this Administration or this Congress will go quite that far – even if they adopt comprehensive tax reform. If populists on the left and the right form a coalition like they did on the second engine for the F-35, however, the main features of this plan could very well see the light of serious debate. It would be nice if the TPC would score them, by the way. They are in more detail in my submission to the Fiscal Commission, which was copied to TPC but never commented upon – since TPC was working for Domenici Rivlin rather than scoring the options before the Fiscal Commission.
I can forward them to you if you wish to make up for lost time, including a model that allocates spending to various taxes.
posted by Michael Bindner at 12:03 AM
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