How simple can tax reform get? (from the comments)

by on October 26, 2017 at 12:23 am in Economics, Law | Permalink

The corporate income tax could be reduced to zero if all corporations were treated as pass-thru’s. However, for a variety of technical and practical reasons (too lengthy to discuss here), that is not feasible. Under the current regime, many businesses have the option to be treated as pass-thru’s (e.g., LLC’s and partnerships) and thus taxed only once at the individual rate, but for most publicly traded and very large entities, entities with foreign shareholders, etc., that is not possible or practical. One could also consider an imputation system such as used by the UK, but that is also messy.

The ideal system should treat all income at the same rate, regardless of the form of business. Currently, corporate income (including distributions) is subject to a higher rate than income from non-corporate entities. The federal marginal rate is currently 48 percent (35% + (.20 x .65) = 48%) compared with a marginal rate of 39.6% on ordinary income. These rates should be equalized and, preferably, the rate of corporate tax and the rate on distributions should also be roughly equal in order not to discourage corporate re-investment over distributions or vice versa and therefore avoid undue distortion regarding decisions on the allocation of capital. Thus, at the current marginal rate of 39.6%, the current proposal of a corporate rate of 25% would roughly achieve this with the current dividend marginal rate of 20% (25% + (.20 x .75) = 40%). Progressivity can be achieved (as it currently is) through progressive rates on the dividends/capital gains.

As someone who spent an entire professional career in the business, I find it amusing and naive that economists who lack any detailed knowledge of the Code or practical experience with its administration think it’s easy to radically “simplify the tax code”, make it “fair” to everyone, eliminate all tax avoidance, all at the same time! The three are simply not feasible simultaneously. As a wise man once said, “the life of the law has not been logic, but experience”.

The experience has also been that we need more than one type of tax in order to prevent the inevitable tax planning around one or the other. The system is complicated, but it is a result of a considerable amount of trial and error and political compromises. It can be made better, yes, but Trump’s promises are more credible than those who promise a one page tax code.

That is from Vivian Darkbloom.  And from another Vivian comment:

1. “…so just tax that person”. Please explain how, absent a corporate income tax, the US is going to effectively tax foreign investors, if they invest via a US or foreign corporation. This is a major practical problem of eliminating the corporate income tax completely. It would be very difficult to get one’s ounce of tax flesh out of non-US investors and put them on equal footing with US investors (the same issue arises with a system relying solely on consumption tax). It would be very impractical to abrogate the 68 or so bilateral tax treaties the US is party to today or the treaties of friendship and commerce.

On the mark.

1 John McDonnell October 26, 2017 at 12:42 am

Not that I’m arguing against the broader point that taxes are complicated, but why would we want to tax foreign direct investment? That seems unambiguously good, not the sort of thing we would want to discourage. Why is it important to put domestic investors on an “equal footing” with non-US investors who presumably pay appropriate tax in their home countries?

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2 Ray Lopez October 26, 2017 at 2:03 am

Because the US has a foreign account deficit, meaning too many foreigners can already buy assets in the USA, which for political purposes is discouraged (except when buying US govt paper). Hence whenever China tries to buy a US business they are slapped down.

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3 StrossTalebBot October 26, 2017 at 5:14 am

Concur. Also it’s only 700B of income that could be taxed — in 2012 according to https://www.irs.gov/pub/irs-soi/soi-a-init-id1602.pdf

That said, the status quo seems unlikely to change:

1) Legislators like complexity because they can log-roll in breaks for their peoples.

2) There’s a natural lobby for complexity via tax lawyers and accountants, and no natural lobby against complexity.

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4 mulp October 26, 2017 at 6:32 am

Simplicitly would be eliminating tax dodges like deducting labor costs, thus eliminating the complexity of expense vs invest when paying workers.

A VAT is much simpler business tax than trying to figure out true profits.

Is paying workers to figure out a trademark an expense? Or a capital investment with no depreciation? Is IBM or Amazon or Google depreciated from original trademark cost investment?

With VAT just tax all revenue at 17% in China or 19% in Germany, deducting VAT paid to outsourced production. Don’t tax overseas revenue.

No need for figuring depreciation, invest vs operating costs, etc.

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5 Tim October 26, 2017 at 6:12 am

…what’s ‘important’ to Congress is to fund its spending habits. All else is lesser detail. All sources of revenue are fair game to an insatiable US Congress.

Once we accept that Congress “needs” $4 Trillion from us, the only question is how it will be collected. The current answer is the labyrinthine tax code, which pits taxpayers (including foreigners) against each other in a bizarre political scramble to make sure the other guy pays.
Truth is that Congress does not need $4 Trillion this fiscal year, or anything close to it, to fund the proper functions of the Federal government.

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6 anon October 26, 2017 at 9:37 am

Big spenders and tax cutters have a curious common purpose in keeping things separate. If they could some how be tied, a moderate tax and budget might result, but that would not please either the big spenders nor the tax cutters.

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7 anon October 26, 2017 at 9:33 am

“why would we want to tax foreign direct investment?”

On the theory of a use tax? US companies depend on a lot of infrastructure, physical, legal, and social.

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8 Misha Saul October 26, 2017 at 12:56 am

Dividend imputation does *exactly* this – coroporates are effectively a pass-thru for Australian investors and foreigners pay the corporate tax rate. Super elegant

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9 Ray Lopez October 26, 2017 at 2:06 am

VD says: “As someone who spent an entire professional career in the business, I find it amusing and naive that economists who lack any detailed knowledge of the Code or pratical experience with its administration think it’s easy to radically “simplify the tax code”, make it “fair” to everyone, eliminate all tax avoidance” – how about a Jack Kemp flat tax? Fits on a postcard. Simple, fair, and as to tax avoidance, well, I guess you can always do stuff ‘off-the-books’ but that’s fraud and true even today.

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10 Mike October 26, 2017 at 9:00 am

Personal pet peeve … the “Flat tax” has effectively NOTHING to do with tax simplification or fairness. Progressive brackets are not complex (fairness is a political debate) and can be summed up in a paragraph or two of the tax code’s thousands of pages. I’ve never understood why otherwise apparently intelligent people fall into this trap.

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11 anon October 26, 2017 at 9:38 am

Tax rate = mx + b

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12 Mike October 26, 2017 at 10:14 am

Or even ax^2+bx+c. Math is elegant, politics isn’t.

13 byomtov October 26, 2017 at 5:18 pm

the “Flat tax” has effectively NOTHING to do with tax simplification or fairness.

Exactly. The whole thing is a completely fraudulent argument. It has no purpose other than to generate a smokescreen for other motives.

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14 TMC October 26, 2017 at 8:22 pm

Flat tax is usually paired with a big reduction of deductions, simplifying preparing taxes.

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15 Mike October 26, 2017 at 11:55 pm

So then the catch phrase “Flat Tax” as it’s typically used is, at best, disingenuous since the primary selling point has always seemed to be reduction in complexity. Especially true given that for the overwhelming majority of individual tax payers complexity is a non-issue.

16 tjamesjones October 26, 2017 at 6:03 am

so this means the shares are worth more to an Australian tax payer than to the foreign investor, at the time the dividend is paid, right? I don’t think this is ideal either – it essentially means that it’s not worth owning Australian shares if you are not an Australian tax payer (or, you have to sell before the dividend and buy back afterwards). No simple solution there.

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17 A clockwork orange October 26, 2017 at 12:58 am

Less is always more. FDI is complicated. It’s sent back in remittances. It’s puts weight on the dollar. FDI killed the manufacturing industry. And the blowback is necessary.

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18 Maximilian October 26, 2017 at 1:23 am

Who is Vivian Darkbloom?

Is there a case for taxing corporate income above partnership or ordinary income, given it’s more likely to be a result of rent-seeking behavior?

What are the complications around an imputation system?

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19 Moo cow October 26, 2017 at 1:26 am

Vladimir Nabokov.

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20 BC October 26, 2017 at 2:05 am

“Please explain how, absent a corporate income tax, the US is going to effectively tax foreign investors….the same issue arises with a system relying solely on consumption tax.”

Let’s not forget that nominal (statutory) incidence does not equal economic incidence. We tax transactions — both buyer and seller — and nominal incidence has no impact on economic incidence on each party. A consumption tax simultaneously taxes the consumer and the labor and capital providing the good to the consumer. Why would we think that the economic incidence of the consumption tax is different on foreign investors than on US investors?

I agree that complexity is the result of political compromise, but complex systems actually make taxes easier to avoid, or at least give tax experts more of an advantage in avoiding taxes over non-experts. Public choice suggests that the complexity arises not out of trial and error to thwart tax avoidance but rather as a result of concentrated interests’ efforts to defeat the dispersed interests of the rationally ignorant. The more complex the system, the more to be rationally ignorant about.

The main potentially positive role of complexity seems to be to allow political compromise precisely because complexity hides economic incidence. That may be useful in some cases when making transparent political choices proves too tough. In our present situation, though, my own personal belief is that complexity serves mainly anti-libertarian ends. Taxes constructed to be nominally incident on disfavored groups (corporations, employers, “the wealthy”, etc.) are tolerated much more than they would be if voters were aware of the economic incidence. The fact that economists’ consensus about the economic incidence of the corporate tax is that there is no consensus would seem to be a strong argument against it. How can we make a reasoned political judgement about the wisdom and fairness of the tax if we don’t even know who actually pays it?

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21 Benjamin Cole October 26, 2017 at 2:46 am

I wonder if Vivian Darkbloom is a tax lawyer, which might explain some of the attachment to complexity.

And could not most Americans send in a tax postcard?

How about raising the standard deduction to the point that most people could point at their income, then the standard deduction, and send in a postcard?

The US could also switch to federal property taxes, fossil fuel taxes, pollution taxes, Pigou taxes, national sales taxes, and tariffs, and again reduce even further income taxes to where the bulk of filers send in a postcard.

Besides all that, complexity and transparency do not go together. There are 75,000 pages in the tax code. If a tax cannot be simple and aboveboard, perhaps it should be foregone.

On top of all of that, I think income now is largely evading taxes anyway. Offshore accounts, and legal loopholes etc. Profits are made in Ireland, on global operations.

They can’t hide land. Tax that.

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22 mulp October 26, 2017 at 6:09 am

Note enough room on a postcard to give your name, address, SSN, income, bank routing number for refund, dependents on a post card. Look at 1040EZ used by single and couples with no kids. If kids, then 1040A. Both can eFile simply.

85% of tax returns are eFiled.

Tax code complexity is to deal with cheaters in 98% of cases.

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23 Ricardo October 26, 2017 at 7:26 am

The “postcard-sized tax return” thing is mostly a red herring. Making taxes simpler for most Americans has nothing to do with cutting corporate taxes, cutting the top marginal rate, etc. Congress could easily simplify tax filing for 85% of the population but the tax preparation lobby opposes it.

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24 anon October 26, 2017 at 10:50 am

I have thought about this. It seems an obvious inefficiency. Perhaps many of us would agree that it is a corrupt inefficiency.

But I sense a support for government rents, sort of a “it is good when people make money.”

What would be another example .. well the whole system of special accounts for retirement, education, and health savings. Those too could be struck by a simple rule exempting investment income below a floor, a working class level.

But is is good when 401k, ESA and HSA managers make money?

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25 byomtov October 26, 2017 at 5:23 pm

It actually is simple for most individuals.

And it could be made even simpler by letting the IRS do the calculation and filing for those whose income is all on W-2’s and 1099’s.

You submit a form listing your dependents, and the IRS uses standard deductions to tell you who owes what to who. Want to itemize or do something else? Then reject their number and do it.

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26 Art Deco October 26, 2017 at 11:12 am

I think she’s referring to business taxes, not personal taxes.

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27 clockwork tangerine October 26, 2017 at 3:01 am

Filters are fun

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28 clockwork tangerine October 26, 2017 at 3:02 am

But not always all that effective

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29 austin October 26, 2017 at 3:42 am

The marginal tax rate for investment income should be 23.8%, not 20%. It’s actually impossible to be subject to the 20% rate and not the 3.8% “surtax”.

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30 Vivian Darkbloom October 26, 2017 at 4:07 am

Yes. I mentioned that in a reply to my own comment (not quoted above).

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31 byomtov October 26, 2017 at 7:31 pm

Currently, corporate income (including distributions) is subject to a higher rate than income from non-corporate entities. The federal marginal rate is currently 48 percent (35% + (.20 x .65) = 48%) compared with a marginal rate of 39.6% on ordinary income.

I don’t wholly understand this calculation. First, even granting the assumption that we should calculate a combined rate, which seems doubtful to me, why not use the effective corporate rate, rather than the top rate? Second, to the extent dividends flow to untaxed entities of all types, the second part of the calculation does not come into play at all.

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32 Cyrus October 26, 2017 at 5:42 am

The commenter dismisses imputation in a single sentence. Yet it works in Australia.

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33 Vivian Darkbloom October 26, 2017 at 10:00 am

And, you advocate it without reservation in an even a shorter sentence. This is the comment section to a blog, not the Journal of Taxation.

But, let me address the point in more detail. An imputation system promises far more than it delivers. As a couple of others have hinted, the term “corporate income tax” is a bit of a misnomer. “Corporations” don’t pay income tax any more than my kitchen table does, in that neither bears the burden of it. That said, if the promise of an imputation system is to eliminate “corporate income tax”, it really does not do that in practice nor does it simplify the administration of the tax system. First, under such a system, corporations still have to do all the accounting, calculate earnings and profits under tax rules, file income tax returns and remit tax to the government (in Australia’s case, 30 percent). It is only when dividends are distributed to shareholders that an imputation credit can be claimed against personal income tax (and this creates additional paperwork for corporations, shareholders and government tax administrators). How many corporations actually pay, in cash, all their “earnings and profits” as dividends to shareholders (even if they theoretically could–earnings and profits is not equivalent to cash flow)? The current rate of distribution in Australia seems to be about 70 percent. In the meantime, mountains of imputation credits for taxes already remitted pile up at the national Treasury. While the goal of imputation systems might be to eliminate double taxation on corporate earnings, in practice it does so only in theory. It also fails on being less complex. Two layers of taxes are still assessed and tax on dividends and capital gains is not eliminated. In order to get a refund, lower-income taxpayers need to file returns, even if they otherwise owe no tax. Further complications arise when dividends are partially paid from foreign earnings that were not subject to the domestic income tax. Etc. Etc.

I’m glad the system is working, or seems to work so far, in Australia. However, the experience elsewhere seems to be different. As far as I know, Australia and New Zealand are the only two major countries that currently use a “full imputation” system. I mentioned the UK in my earlier comment; however, they more or less abandoned the system completely in 2016 (I’ve been retired a while now). As did previously Germany and France. Perhaps a question would be: Why, if the imputation system is all that is promises to be, those with the most experience have abandoned it?

Finally, a reasonable rate of corporate income tax combined with a progressive rate on distributions and capital gains both designed, in total, to roughly equal the individual tax rate on ordinary income, would achieve much the same goal without, in my view, the same level of complexity. Not to mention the complexity the transition to such a system would entail. Mountains of unclaimed tax credits are not piling up under the current system, like unconsumed European butter, in the national tax credit warehouse. There is no reason to abandon the current framework for something that is likely not any simpler or better, and is arguably worse.

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34 JB October 26, 2017 at 4:26 pm

You seem to be better informed on this issue that I am, but I’m still not convinced. Is there any justification for corporate taxes besides the desire to tax foreign investors? We don’t insist on taxing the labor income of non-residents. Why should we insist on taxing their investment income? Since capital is mobile, shouldn’t we try to make the US an especially attractive place to invest?

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35 byomtov October 26, 2017 at 5:26 pm

“Corporations” don’t pay income tax any more than my kitchen table does, in that neither bears the burden of it.

This is commonly claimed. I don’t think it’s true. Corporations are persons. They are even allowed, per recent Supreme Court decisions, to have religious beliefs. Why shouldn’t we consider that they pay taxes?

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36 Radford Neal October 26, 2017 at 9:06 pm

I don’t know anything about Australia’s “dividend imputation” system beyond what is described above. But wouldn’t any complexities involved be greatly reduced by simply requiring corporations to _actually_ pay dividends equal to X% of their profits? This would have the added advantage of making it harder for entrenched management to divert corporate returns to their own pockets, never paying shareholders anything.

On its own, this would not tax foreign investors’ dividend income, though presumably one could impose a special tax if desired. But the only reason to do that is to bilk past investors. For _future_ investors, a lack of taxation on their dividends would (assuming such lack was believed to be permanent) result in the foreign investor paying more to buy the assets from domestic owners, who could (if desired) be taxed on this higher payment.

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37 ThrustVectoring October 26, 2017 at 10:21 pm

Profits are too easy to move between jurisdictions. Widgets Inc US transfers the rights to use their IP to a subsidiary in a foreign county and pays them their approximate profits.

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38 Radford Neal October 27, 2017 at 9:43 am

Maybe. But the ability to hide profits affects current corporate tax policy too, so I don’t see how this is an objection to my proposal. And for companies managed by people with some concern for shareholders, there’s a smaller motive to avoid paying a dividend (supposing they think it would be better to reinvest profits) than to avoid paying taxes. If a company really thinks they should retain profits to finance expansion, they can instead just issue new shares.

39 A Truth Seeker October 26, 2017 at 6:28 am

It is sad to se Americans can’t throw away the yoke of their fat cat masters in Washington. The America refime has become plutocratic kleptocracy writ large.

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40 Dan L October 26, 2017 at 7:31 am

Economists seek to model how the world works, presumably as accurately as possible and with some insight over the past 30 years.
Are those models more or less complex today vs 30 years ago? Why should tax reform go in a different direction? Why not have a continuously variable marginal rate? Why not distinguish types of income and expenses?

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41 bill October 26, 2017 at 7:32 am

Could we tax all corporations like we tax REITs? REITs avoid a tax at the entity level as long as they dividend out 90% or 95% of their taxable income.

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42 rayward October 26, 2017 at 8:12 am

A simple model makes simple explanations seem appealing, but the real world model isn’t so simple. Public companies (almost all of which are C corporations – meaning they are subject to the corporate income tax) are owned by a variety of stakeholders, including other companies and tax exempt organizations. Companies don’t pay the full tax rate on dividends they receive (they get what’s called the “dividends received” deduction). And tax exempt organizations (not for profit organizations, IRAs, pension plans, 401(k) plans, etc.) don’t pay taxes on dividends they receive. And this ignores the very large tax exempt organizations that operate very large businesses, such as not for profit hospital companies. Of course, they stretch the meaning of “not for profit” to the limit, with stakeholders paid enormous compensation and other benefits. And I will point out that “publicly traded partnerships” are taxed as C corporations not as pass-through entities, a provision in the internal revenue code that was adopted when enterprising folks started selling tax shelters to the public: tax shelters are fine for the 1%, but God forbid letting everyone in on the game. Again, my point is that real world complexity requires complex tax solutions, including complex solutions to achieve tax equity. You want tax equity, then you must accept tax complexity.

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43 dearieme October 26, 2017 at 8:14 am

“Please explain how, absent a corporate income tax, the US is going to effectively tax foreign investors, if they invest via a US or foreign corporation.” Not taxing foreign investors would be a wonderful idea, especially if adopted by foreign jurisdictions too. Soon every company of much size anywhere in the world would be owned by foreign investors.

Can you imagine a better machine to discourage wars? Peace, a pearl beyond price.

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44 rayward October 26, 2017 at 8:33 am

U.S. companies already avoid paying U.S. tax by creative use of the “controlled foreign corporation” (CFC) provisions of the internal revenue code. By shifting income to a CFC, no U.S. tax is incurred on that income (unless the income is repatriated). Thus, many highly profitable companies (e.g., Apple) have effectively shifted income to CFCs, CFCs that happen to be incorporated in tax havens, thereby avoiding almost all tax on such income. And these companies are highly creative. For example, they might transfer a patent to a CFC and then apportion lots of income to the patent. Such tax avoidance schemes might be frowned upon, but when the executives of companies engaged in such schemes appeared before Congress, they were greeted as heroes by the Republican members. Now, whether such schemes reduce the risk of war is another matter, but I doubt there is much risk of war against tax havens. But one never knows when we might be attacked by soldiers from Bermuda in their Bermuda shorts.

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45 Dick the Butcher October 26, 2017 at 8:42 am

The Trump proposed, low $24,000 standard deduction is closely related (intentional?) to the poverty income level – $24,600 for a family of four.

Anyhow, abolish credits, itemized deductions, etc. and only allow personal exemptions and standard deductions (calculated at say 150% of the poverty income level for that size family), and tax the net at two rates (say, 15% for up to 300% of the poverty level and 28% for all others – I know! Not enough progressive). The standard deduction/exemption would be based on family numbers and whatever the Washington elites determine the American family should keep of the government’s money.

Before “they” amended the Constitution, created the Code, and the IRS, the only native-American criminal class was Congress.

Not only complicated, income taxes are politicized, e.g., deductions protecting favored groups/industries.

I think the elites would oppose. The idea of putting in the equation the principle that a living wage/income should be exempt (sacrosanct?) from taxation would be anathema. The Congress/elites act as if they own the fruits of your labor/sweat and they deign to allow you to keep too much of it. Reversing that world-view is the most important tax reform.

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46 Larry Siegel October 26, 2017 at 11:47 am

That is sort of the Reagan plan, which makes it a good idea almost by definition.

I would keep the charitable deduction. Our nonprofit sector is the envy of the world.

Your plan is plenty progressive.

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47 LZ October 26, 2017 at 9:07 am

The current proposal does absolutely nothing to level the playing field. Why does Ms. Darkbloom mention “not to discourage corporate re-investment over distributions” and then proceed to ignore that point?
Undistributed corporate earnings would be taxed at 25%.
Distributed corporate earnings and non-corporate earnings would be taxed at 40%.

The correct approach is to tax non-corporate earnings and corporate earnings at the same rate (let’s say 40%), but exempt dividend income from taxation, just like how distributions from pass-through entities are not taxed a second time.

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48 B.B. October 26, 2017 at 9:21 am

A comprehensive value added tax to replace all federal taxes. Add an excise tax on carbon, if you will.

We can’t measure income, but we can measure spending.

Have a rebate for the poor.

Local governments can use a Henry George land tax.

There will always be those who will avoid taxes, but that seems besides the point. A VAT is easier. Donald Trump might have paid more taxes under a VAT than under the current system.

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49 Ricardo October 26, 2017 at 10:00 am

Denmark has one of the highest VAT rates in the world at 25% yet revenues from VAT only amount to 9% of GDP. If the U.S. were to adopt a similar VAT rate and earn an equivalent amount of revenue as a share of GDP, it would have enough to revenue to fund the military, interest on the debt and most but not all of Social Security.

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50 The Other Jim October 26, 2017 at 9:32 am

>Add an excise tax on carbon, if you will.

I will not.

Why do you hate trees? They need CO2, you know. Jerk.

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51 rayward October 26, 2017 at 10:31 am

About 35% of U.S. equities are owned by foreign residents; hence, a major part of a corporate tax cut will inure to the benefit of foreigners. And I thought Trump supported an America First agenda. Who knew? https://krugman.blogs.nytimes.com/2017/10/25/trumps-700-billion-foreign-aid-program/

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52 Bastiat1 October 26, 2017 at 10:50 am

All income is eventually consumed. Taxing consumption is much easier than taxing income and compliance easier to enforce. How’s Trump going to hide buying all that gold leaf? It stands to reason that we should just move to a consumption tax with a relatively high ($20,000?) initial exemption level.

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53 Ricardo October 26, 2017 at 11:44 am

Plenty of rich people spend money out of the country and have been known to dabble in illegal goods and services (e.g. hookers and cocaine). A consumption tax is fine but it has obvious holes and needs to be coupled with other taxes to make evasion or avoidance more difficult.

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54 OldCurmudgeon October 26, 2017 at 4:00 pm

>coupled with other taxes to make evasion or avoidance more difficult.

The traditional argument is that lower rates (made possible by the broader base) will make evasion/avoidance less desirable.

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55 Donald Pretari October 26, 2017 at 11:59 am

One problem lurking in the tax avoidance shadows is using cryogenic freezing as a means of tax avoidance, as, for example, having yourself frozen in the hope that taxes might be far lower in the future. If you’re not definitively dead, then, from the point of view of taxation, you are still alive and subject to taxes. Before being frozen, a person needs to have provided enough funds to pay their fair share of taxes until resurrected. The excuse that is often heard in various situations about taxing someone, “But he/she is dead.”, is no longer viable.

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56 Mark Thorson October 26, 2017 at 1:15 pm

A court can always overturn that, and if there’s a claimant against you, you might not be available to make a strong defense.

http://loweringthebar.net/2017/07/frozen-guru-update-v.html

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57 Scoop October 26, 2017 at 1:46 pm

It wouldn’t simplify the tax code, but I think a popular proposal in these populist times would be to tax unrealized capital gains, above say million dollars, at the highest income tax level.

Under this plan, someone like Mark Zuckerberg could not be worth $70 billion without having already paid 40% of that — $28 billion – in taxes. I think that total would strike most people as far more fair than the &1 billion or $2 billion he has probably paid in real life.

Asset valuation is accurate enough at this point that you could extend the same mandates to people whose wealth comes from private companies, like Koch Industries, or real estate, like that Trump or any other type of asset.

Not only would such a policy prevent the super rich from being taxed at for lower rates than ordinary people, it would also be a nice check against asset bubbles because it would force people to sell rapidly appreciating asset to pay their taxes. (Note: I’d exempt primary residences. No one should have to move to pay the taxman.)

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58 Deepish Thinker October 26, 2017 at 2:01 pm

“Please explain how, absent a corporate income tax, the US is going to effectively tax foreign investors, if they invest via a US or foreign corporation.”

How effectively do we tax these investors now?

Corporations go to great lengths, and often have considerable scope, to minimize their effective tax rate, which becomes the effective tax rate paid by foreign investors on US profits to the US treasury.

Consider a possible alternative setup where US corporations pay no tax themselves, but do withhold taxes on dividend payments or repatriation of profits to foreign parents. This is not quite the beautifully simple corporate tax code of myth, but would still be significantly simpler, more efficient and less distortionary than the corporate tax code of today.

The idea that the giant sprawling mess of a corporate tax code we enjoy today is somehow necessary because there would be no other possible way of collecting the relatively small amount of revenue we currently net from foreign investors seems oddly defeatist.

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59 JB October 26, 2017 at 3:54 pm

good point

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60 RPLong October 26, 2017 at 2:51 pm

I learn a lot any time Vivian Darkbloom writes a comment.

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61 JB October 26, 2017 at 3:53 pm

Why do we have to tax foreign investors? We’re happy to effectively tax them at a lower rate (because they don’t pay US capital gains/dividends taxes). Shouldn’t we want to attract foreign investment?

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62 Harun October 26, 2017 at 9:23 pm

I’m a foreigner with an investment in Taiwan . Witholding20% of distributions seems to work for them

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