Death and Taxes
William Burton has a good piece on the way he thinks taxes ought to be. It’s interesting reading and does detail some of the complexities and inequities in the current tax system. He details a five step plan here. I have some reservations about his ideas but think he may be onto something. My reservations are:
1) All income treated the same, whether it came through labor, through investments, or even through inheritance.
Excluding or capping tax limits on certain items serves the purpose of encouraging some types of behavior. For example, municipal and governmental bonds are typically excluded from adjusted gross income to encourage people to invest in their government. Capping capital gains also encourages people to invest for the long term. In my opinion, death taxes are a load of shit. Someone who works and amasses a decent estate should die knowing that their hard work will ensure that their children (or other beneficiaries) will be taken care of in perpetuity. You should not spend the sum total of your life working for the government to take what it wants from your estate before you’re even cold.
2) A personal exemption from taxes for all income to well above the poverty line.
The poverty line is difficult to define (one definition is that if you spend 1/3 of your income on food, then you’re below the poverty line, or a fat ass). I think defining the poverty line would be the first step but otherwise I do like this idea.
3) No other exemptions or deductions for anything other than charitable contributions.
Again, see 1). Exemptions and deductions are designed to encourage behavior. You get a deduction for student loan interest, which encourages some to go to school. I would also suggest that charitable contributions count as tax credits to encourage contributions to charities. Also, remove the caps of contributions. For individuals, you can give up to 50% of your income and claim it on taxes. For corporations it’s about 10 – 15 %. Up the corporate max to encourage corporations to give to charities.
4) A steeply progressive tax code, with brackets starting at 5% for income just above the personal exemption, going up at 5% intervals from there. I’d probably cap the brackets at 45% . . .
These brackets seem kind of arbitrary but I see Mr. Burton’s points. The current tax rates are just plain goofy. However, steeply is what I take issue with. We’ve all heard the argument that something like 1% of people pays 60% of taxes or something ridiculous. I find this to be a bit silly. However, defining the rates would be tough.
5) Corporations and LLCs would be subject to taxation as if they were people, same rates and everything. If income was distributed as dividends, it would be taxable at the individuals rate but the corporation wouldn’t have to pay taxes on that portion of income. Stock owned by overseas investors would still be subject to taxation in America and so would income earned in America by overseas corporations.
I like his idea of removing the double taxation of dividends and throw stocks in while you’re at it. Taxing overseas stuff gets into several complex issues and discourages overseas investments, which I don’t think is a particularly good idea. I read in Maxim that in FY2000, PepsiCo paid $0 in cash for taxes. So I think some care needs to be taken to eliminate corporate loopholes.
What would SayUncle do? A couple of ideas I’ve come up with center around the following goals:
a) Avoiding manipulation of the tax code – accountants make a fortune doing tax work. I forgot the exact number but several billions are spent by individuals and corporations in tax preparation fees (which are deductible) each year. I’m an accountant so this would likely affect me at some point but I think it should be a goal to simplify the system so that people don’t have so many loopholes available.
b) Allow individuals options in which they can engage in certain desired activities (charitable contributions, saving, house buying) that will reduce their tax liabilities.
c) Keeping it simple.
Idea 1:
Federal sales tax. It immediately puts 15 – 39% cash money back into the pockets of laborers by not doing income withholding. Certain things should be exempted to encourage people to engage in certain activities and certain things should be exempted because they are necessities. Exempt food, clothing (unless extravagant), home purchases, automobile purchases, and other items to encourage and manipulate the economy. In addition, this plan encourages people to save. Something the current tax structure fails to do (short of 401(k)s and IRAs). If you save money, you don’t pay taxes on it. If things need to be discouraged, adjust the taxable rates for them (like tobacco, gasoline, etc.). Maybe even allow tax credits for home buying and charitable contributions. Since our measure of economic success (GNP) is essentially the amount of activity, the government’s revenue would be based on the activity of the economy which would encourage the government to encourage economic growth. Also, this would almost eliminate manipulation of the tax code.
Idea 2:
Flat tax rate. I read recently where if everyone paid 18% (not adjusted) of income as taxes, that would fulfill the tax needs of the government. This results in less manipulation of the system. It’s definitely ‘fair.’ However, I think the percentage would need to be evaluated in great detail. Currently, various deductions and certain excludable income allow people to adjust their actual rates by engaging in certain activities. Flat tax would eliminate that. The only way a flat tax could encourage individuals to engage in certain activities would be deductions for necessities and desired behavior. The sheer volume of counting food receipts would make this task cumbersome. But it is possible.
Idea 3:
We need to pass a law that mandates that all Senators, Representatives, and other elected officials are required by law to do their own fucking tax returns. I’m sure if these folks had to spend time figuring out all the complexities in the tax code and its 100,000+ pages on their own, they’d probably simplify the tax rules.
And that’s all I got to say about that!
