Tuesday, August 21, 2007


Kay Bell’s Sunday posting at DON'T MESS WITH TAXES brought to my attention the August 17th issue of the Citizen’s for Tax Justice “Tax Justice Digest”, which provides a quick review of the tax proposals put forth so far by the 2008 presidential candidates.

The CTJ puts its own spin on the proposals by grouping them, not by candidate, but by, in their opinion, “Bad Ideas” and “Good Ideas”. I thought I would weigh in with my 2 cents worth on the subject.

Here, with by my comments, is what they consider Bad Ideas:

· Make Permanent the Bush Tax Cuts. If George W’s tax cuts are allowed to “sunset” everyone will be hit with a huge tax increase in 2011. Doing away with the 10% tax bracket, the increased Child Tax Credit, and the partial marriage penalty relief would hurt lower and middle income families. Some of the tax cuts have already been made permanent, such as those that relate to pensions and retirement savings (by the Pension Protection Act of 2006).

· Repeal the Estate Tax. I am not a fan of the estate tax (I do not prepare federal or state estate or inheritance tax returns). My only concern with its total repeal is losing the “step-up in basis” on inherited property. It would be a nightmare for tax preparers if the original cost basis of the deceased is carried over on inheritance.

· National Sales Tax. While I have not embraced the Fair Tax proposal (I am not ready to retire yet) I will admit that replacing income and payroll taxes with a national sales tax has some things going for it. As I said in an item from the September 4, 2001 installment of TWTP - (1) “A national sales tax would eliminate the problem of the ‘underground economy’ which escapes taxation under the current system. Everyone, regardless of the source of their income, would pay sales tax at the point of purchase.”, (2) “A national sales tax would encourage saving and investing. As the tax is assessed on retail purchases only, income from investing activities would not be subject to tax.”, and (3) “If under the national sales tax system corporate and business income taxes are abolished, along with the need for expensive compliance costs, the savings would be passed along to consumers in the form of reduced prices and to stockholders in the form of increased dividends.”

· Flat Tax. I would support a flat tax, with minimal, if any, deductions. The goal is to “simplify, simplify, simplify”. It would not be bad for my business - as a tax preparer I would make more money, and experience much less “agita”, if all I did was prepare simple short forms all day than I currently do preparing complicated returns. Besides, I do not like the “progressive” tax system. Why should a high-income individual pay a higher percentage of his income? If everyone paid a flat 10%, or whatever, a person making $1 Million would obviously pay more than than a person earning $30,000.

· Increase Revenue by Cutting Taxes. I do believe that reduced taxes may result in economic growth, given the right circumstances. I seem to recall reading that tax revenues have historically increased after cuts in capital gains rates have been enacted.

· Tax Breaks for Health Care. The cost of health insurance is prohibitive for many individuals, especially those of us who live in New Jersey. Something has to be done. I do agree with CTJ that a credit is “more better” than a deduction, and “if it's not refundable it still won't help those who pay federal payroll taxes but not federal income taxes.” But then I am opposed to refundable credits. The bottom line is that the answer to the problem will not be found by using the 1040.

· Eliminate the IRS. There will always have to be an IRS in some form, although a simpler tax system would be easier to administer. My September 2001 posing also said, “A national sales tax would also be relatively easy to administer. Almost of the 50 states already have a state sales tax, with all the appropriate collection and auditing functions in place. The national sales tax could be incorporated into the collection and compliance process of the various state sales taxes, with the states receiving a ‘commission’ from the federal government.”

The Citizens for Tax Justice think the following are Good Ideas:

· Repeal Bush Tax Cuts to Fund Other Priorities. See my comments above on making the Bush Tax Cuts Permanent.

· Stop Taxing Work More than Wealth. I do not want to see an end to preferential capital gains tax rates. I want to encourage investment. And, as I have said above, I seem to recall reading that tax revenues have historically increased after cuts in capital gains rates have been enacted.

· Close the Loophole for Carried Interest. I will agree that there may be some merit to this idea. I rarely, if ever, come across this tax break with my clients, so I have not followed this issue.

· Taxing Carbon Emissions. Again, I have not followed this issue and do not have enough information to form an opinion at this point. I do agree with CTJ’s comments of concern that the resulting “added cost would likely be passed on to consumers in the form of higher prices that disproportionately burden low-income families.”

So it looks like the Citizens for Tax Justice and I disagree on many of the candidates’ proposals. What do you think?

As a final comment - I am surprised the review did not address the dreaded Alternative Minimum Tax (AMT). Have the candidates been silent on the AMT?

FYI, Kelly Phillips Erb posted interviews with several Republican candidates on tax policy at her TAX GIRL blog a few months ago.


1 comment:

Anonymous said...

Naysayers, like CTJ, railing against the FairTax are, ipso facto, defenders of the an INCOME TAX system.

Prof. Larry Kotlikoff believes that the current tax system IS bringing the country to nothing less than an "economic meltdown" by virtue of the invisibility of actual taxes paid. If Americans do not understand the true cost of their government, they're unlikely to hold Congress accountable - thus the enabling mechanism to continued profligate spending.

Even with the foregoing notwithstanding, do FairTax naysayers really believe:

• Workers love having their pay confiscated, hourly, through gov't withholding and don't mind getting their money back by involuntary servitude - to the tune of 50 hours/year (on average) - preparing an annual tax return?

• That certifying the number of persons in your family (annually, and, ancillarily, upon change in household) is an abrogation of our freedom - more intrusive and complex than filing a tax return every year subject to threats and intimidation by theIRS.

• It's better to have theIRS fishing through citizens' income transactions (complete with audits, interest, penalties, and threats against individuals, families, businesses as well as confiscation of their homes, property, and bank accounts) rather than - Gawd forbid - issuing a gov't check to an individual (while pretending that Social Security payments disbursement logistics really can't work for "prebates")?

• That an monthly advance tax rebate is the same thing as "being on the dole" ? (Only lobbyists, special interests, and business deserve "handouts" ? - the politician gets a payoff from a lobbyist, the lobbyist gets a payoff from its client, and the citizen gets higher taxes and/or prices that pay for it all.)

• "Hidden taxes" in higher prices are fine because they're not "taxes," per se? (Hey, forget that families are really paying business's costs for complying with a business income tax code - staff, consultants, submittals, etc.)

• It's far better to have a gargantuan tax collection "service" in Washington, than to have 50 decentralized, smaller, leaner state collection agencies collecting taxes from fewer sources?

• That the work by notable economists (paid tens of millions of $'s by Americans for Fair Taxation) doesn't carry weight because it was paid for by private funds instead of some gov't / quasi-gov't enterprise?

• That FairTax's backing by many economists doesn't carry any weight because (the Brookings') Wm Gale's testimony before the President's Commission on Tax Reform is - somehow - above all that?!

(NOTE: The Commission/Gale made up their own "consumption tax" requirements, as if that constituted a legitimate rebuke of the FairTax plan. Dr. Kotlikoff has requested - but never received - Gale's technical "modus operandi" which would definitively explain just how Gale's conclusions can be reconciled with Kotlikoff's well-documented technical work.

Let us work, together, to end the enslavement of the Tax Code and to restore Liberty to America's working families.

America's working families are paid because the companies they work for sell goods and services. Let's pay for government the way America's families are paid - when something is sold.