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Posted at 10:49 AM ET, 12/10/2010

Time for tax reform?

By Ezra Klein

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That's the word out of the White House. It's also what the deficit commission recommended, and the incoming chairman of the Ways and Means Committee is talking it up, too.

But if you really want to see why we might have a tax reform fight next year, look at what we're doing to the tax code. The $858 billion deal Republicans and Democrats are kicking around extends the Bush tax rates -- which are already far beneath what's needed to fund the government we've chosen to have -- and adds a further cut in the estate tax, a payroll tax cut that might well get extended, and a variety of other breaks for both businesses and individuals. That is to say, it leaves us with a tax code that has little relation to the government it needs to fund.

Tax reform is seen as a solution to this: Rather than simply increasing taxes -- which is very unpopular -- we can broaden the base, reduce some of the social spending we've disguised as tax breaks (the mortgage-interest deduction, for instance), simplify the process, and modernize the structure. That's not a tax increase. It's a tax update. And updates are more popular than increases.

But it won't be that easy. On Tuesday, I asked Glenn Hubbard, one of the architects of the Bush tax cuts, how he'd reform the tax code. That was the wrong question to start with, he said. "First, you need to figure out the size of government."

And that's where tax reform will get complicated. Democrats and Republicans can agree on the need to broaden the base and lower the rates. What they can't agree on, however, is the basic question of "how much revenue should the tax system bring in," which could be rephrased as "how much government should we have?" If Republicans want to use the tax code to shrink government and Democrats want to use it to fund government, tax reform doesn't offer a way forward.

That leaves open the option of so-called "revenue neutral" tax reform. That is to say, tax reform where the way revenue gets raised changes, but the amount of revenue that gets raised doesn't. The problem there is that it's hard to agree on what "neutral" means. The proposed extension of the Bush tax cuts is set to expire in 2012, for instance. Does a reform deal that aims for neutrality mean the revenue the tax code will raise after the Bush tax cuts expire? Or, as the Republicans would have it, does it mean the revenue the tax cuts would raise before?

We should have tax reform, and the holes we're poking in the current tax code ensure that we're going to have some sort of tax reform conversation. But don't believe any politician who says this will be as easy as "broadening the base and lowering rates." This will be as hard as deciding how much government should do, and who should pay.

Table credit: Fiscal Commission.

By Ezra Klein  | December 10, 2010; 10:49 AM ET
Categories:  Taxes  
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Next: The White House's case for the tax-cut deal in one graph

Comments

Glenn Hubbard's comment that, "First, you need to figure out the size of government," is really not true at all. There is neither a reason, nor a way, to "figure out" how large we want our government to be - this will be an eternal fight that the tax code is going to have to keep up with over the ages. As it should be - different circumstances will call for different sizes of government.

There is no reason at all to believe that you can't design an efficient tax *structure* whose adjustable *parameters* can be changed to match the size of government at a given time. There's a difference between the structure and the numerical rates attached to that structure.

Posted by: reader44 | December 10, 2010 10:56 AM | Report abuse

The problem with tax "reform" is it just opens Pandora's box. Why should we assume that anything logical, fair, and progressive will be accomplished when we just witnessed the creation of a tax "compromise" that is nonsensical, immorally unfair, and hugely regressive?

Posted by: AuthorEditor | December 10, 2010 11:04 AM | Report abuse

3"If Republicans want to use the tax code to shrink government and Democrats want to use it to fund government..."

I would rephrase Ezra's last sentence there to say "...and Democrats want to use [tax policy] to GROW government".

Democrats (or, more accurately, the progressive-liberals among them) are ever-pursuing higher tax rates, more stuff to apply tax rates to, etc, because the statist's appetite for government spending can never be satiated.

I quote Ronald Reagan:
"Government does not tax to get the money they need; government will find a need for whatever money they can tax."

However, I don't think I could simultaneously agree and disagree with Ezra more than when he states above that we need to decide "how much government should we have?".

Progressives like Ezra continue to believe it's not yet big enough, and keep proposing more government involvement in things like our daily health care as a reason to keep making federal government larger.

I, however, think a lot of Americans are re-thinking how big government should be. Progressives think it's already been decided that our federal government should be a nanny-state. I don't think you would find widespread agreement if you actually drove outside the beltway and talked to a few folks on the street.

Posted by: dbw1 | December 10, 2010 11:12 AM | Report abuse

Gruber suggests the optimal tax structure is a demogrant and a regressive rate structure.

"In our final section, and in more detail in Gruber and
Saez (2000), we show that these findings may have important implications for the optimal tax
structure, suggesting a tax system which is progressive on average but not on the margin, with
a large demogrant that is rapidly taxed away at the bottom of the income distribution, but with
marginal rates that are
at or falling with income."

http://econ-www.mit.edu/files/107
http://www.econ.berkeley.edu/~saez/gruber.pdf

I think Gruber uses some crazy values - a world with a $22,000 Demogrant (in 2002, more like $25,000 today) with 66%-88% marginal tax rates is a world in which a lot of people don't bother to work. If doing nothing earns $25,000 and working a $20,000/yr job earns $31,800 (34% of $20k + $25k), I doubt many would bother working a low end job.

Posted by: justin84 | December 10, 2010 11:20 AM | Report abuse

"broadening the base" is just another way of saying realocating the incedent of taxes. As a first approximation, its all zero-sum, so why would anyone agree that their taxes should go up and someone elses taxes go down.

Posted by: sash64 | December 10, 2010 11:20 AM | Report abuse

Ezra, you're exactly right. The issue here, and the underlying issue in the Bush tax cut fracas, is whether to "starve the beast." Thanks for the reminder!

http://www.post-gazette.com/pg/10054/1037783-109.stm

Posted by: jsmith09 | December 10, 2010 11:25 AM | Report abuse

deficits don't matter. 0% tax for everyone except illegals!

Now that's an idea conservatives can rally around.

Posted by: will12 | December 10, 2010 11:26 AM | Report abuse

The second half of the asterisk comment is a doozy -- tax dividends and capital gains as ordinary income. That's the "finally tax Warren Buffett at a higher rate than his receptionist" clause, and is fundamental (along with an estate tax) to straightening out the progressiveness/regressiveness of the current tax code.

Posted by: masseydvt | December 10, 2010 11:35 AM | Report abuse

And after Hubbard answers "I would like a smaller Government" you can ask "Why?"

I am sure his answer would be, "So I can have lower taxes."

There are people who want a small government as part of a political philosophy but I think there are much fewer of those in the GOP then the "I just want lower taxes" contingent.

Reform doesn't lower taxes for everyone though. Hedge Fund managers earning carried interest, cash businesses, zillionares, real estate investment funds, etc. would all be unhappy because even if the nominal rate went down their effective rates would all get hiked.

@Chris_Gaun
Christian Gaun

Posted by: chrisgaun | December 10, 2010 11:36 AM | Report abuse

"First, you need to figure out the size of government."

Really? While we may disagree on the appropriate size of government and that may fluctuate with changing politics, can't we agree that it should be roughly paid for in the medium- to longish-run?

Posted by: TheodoreLittleton | December 10, 2010 11:36 AM | Report abuse

another failed attempt by this admin to change the topic from their sellout to the oligarchs.

Posted by: xxxxxx1 | December 10, 2010 11:45 AM | Report abuse

After their UNFUNDED borrowing and spending spree during the Bush Error, Republicans are NOW so "concerned" about the deficit that they propose SPENDING MORE by giving tax cuts to billionaires - WHILE some Republican senators beat the wardrums for IraN!
Don't be fooled - Republicans LOVE Big Government! as long as the Top 2% and defense contractors make a killing!

Posted by: angie12106 | December 10, 2010 11:56 AM | Report abuse

Tax reform is good if it can be done. Even the Bush tax rates would probably be adequate if you just cut out the loopholes (and treat short-term capital gains and dividends as income). We simultaneously have a system where people complain that the official corporate tax rate is too high while 66% of corporations don't actually pay any taxes (according to a study that covered 1998-2005). If 100% paid taxes, you could probably get by with a lower rate.

Posted by: Nylund154 | December 10, 2010 12:00 PM | Report abuse

When Reagan decreased the tax rate for the Top 2% from 70% to 50% - what was he thinking?
That the middle class would pay more taxes.

Posted by: angie12106 | December 10, 2010 12:01 PM | Report abuse

Would have been nice if you had followed up Hubbard's answer with a quick question about which large expenditure people could possibly want cut.

Those are, in round numbers:
- defense, 20%
- social security, 20%
- medicare etc, 20%
- 'safety net' programs, 15%
- interest & retirees, 15%

Nobody wants to default on the debt or cut the military in half. We have already decided on the size of the government. Letting starve-the-beast agitprop like Hubbard's go unquestioned is a real failing.

Posted by: wcwhiner | December 10, 2010 12:03 PM | Report abuse

dbw1:

Yeah, let's shrink the govt. We can start by cutting in half the "defense" budget, which is really an offense budget. Why do we need over 760 bases around the world? Why do we need to fight imperialist wars without end? let's balance the budget by stopping this wasteful spending. Of course, it'll never happen because of what Eisenhower warned us about.

Posted by: rjewett | December 10, 2010 12:04 PM | Report abuse

"which are already far beneath what's needed to fund the government we've chosen to have"

Are you kidding? The politicians and bureaucrats have chosen this government not the people. You have a machine that spends $3 to get $1 out, it is nothing but a self serving apparatus for those in power. Time to put government on a diet not starve the people to feed the beast.

Posted by: Pilot1 | December 10, 2010 12:04 PM | Report abuse

In a sense it is definitely time for tax reform because our income tax structure is in desperate need of reformation.

But in another sense this is a HORRIBLE time even to be bringing the matter up, because the kind of reform we need is the precise opposite of what we have any hope of getting from this or the next Congress in combination with Bend-Over-Backwards Barry (or, if you prefer, "The Great Capitulator") in the White House.

What we NEED is to restore true progressivity to the tax rates and tax the topmost increments of income at genuinely confiscatory rates, and close most of the loopholes that allow the rich to avoid paying the taxes at the appropriate rates.

We need to tax inheritances from spouse to spouse at a zero rate but from parent to child/sibling/other at regular income tax rates and close the various loopholes like the trust fund shenanigans designed to escape taxation.

We need to tax corporate bonuses above a certain level at an especially higher rate, and find some way to tax such other executive compensation, like stock options, at the same rate as regular income.

We need to tax capital gains as earned income, but lower the rates we tax interest income because such income is largely an illusion caused by inflation.

We need to limit the real estate interest deduction to only the FAMILY's primary residence (not the individual's, because rich folks with multiple properties will play games with spouses and children).

We need to eliminate the favorable tax treatment for corporations, particularly those involved in oil and finance.

We need to eliminate the income limit against which FICA is assessed and make all income subject to FICA irrespective of source.

And we need HARSH tax penalties for shipping jobs, production and industry overseas, and have genuinely confiscatory rates against hidden assets concealed overseas, with serious efforts undertaken to pressure banking havens to open their books.

That will make us solvent again without seriously damaging our economy. But that's certainly not what we might hope for now, so maybe now isn't the time.

Posted by: FergusonFoont | December 10, 2010 12:04 PM | Report abuse

solution is stop spending on useless BS foreign military and economic intervention.locate and prosecute the financial criminals that manipulate our economy. deport illegals,harsh penalties for drug thugs and users of this crap. then we can help our citizens with education,social programs that will assist the less fortunate for whatever reasons to lead a satisfying and productive life in the greatest country ever. first the politicians must understand why they hold office

Posted by: pofinpa | December 10, 2010 12:08 PM | Report abuse

solution is stop spending on useless BS foreign military and economic intervention.locate and prosecute the financial criminals that manipulate our economy. deport illegals,harsh penalties for drug thugs and users of this crap. then we can help our citizens with education,social programs that will assist the less fortunate for whatever reasons to lead a satisfying and productive life in the greatest country ever. first the politicians must understand why they hold office

Posted by: pofinpa | December 10, 2010 12:14 PM | Report abuse

One thing is for sure.

Tax cuts for the wealthy will come back as tax rates for the middle class, who ends up getting stuck with the bill every time.

Posted by: postfan1 | December 10, 2010 12:17 PM | Report abuse

"Yeah, let's shrink the govt. We can start by cutting in half the "defense" budget, which is really an offense budget. Why do we need over 760 bases around the world? Why do we need to fight imperialist wars without end? let's balance the budget by stopping this wasteful spending. Of course, it'll never happen because of what Eisenhower warned us about."


BS #1. The primary expenditures of US federal, state, and local governments today are education, health care, and social security.

Posted by: krazen1211 | December 10, 2010 12:21 PM | Report abuse

1. The nice thing about negotiating for extension of tax cuts passed under reconciliation is that it you get to play that card again. It's going to be very tempting to extend them for 1-2 more years b/c Obama/Dems will be able to get something for it.

2. When these too-low rates expire is when both parties may be open to tax code reform because the optics are better than a tax raise while you are in charge.

3. Tax code reform is boring to the electorate. It's good for the country but there's little political upside to the parties who do it. It is a job best tackled by an administration that can't win another term. Depending on how the balls line up, it might be possible for a wonky dude like Obama.

4. If our government can pull off tax code reform, we will all complain about how much access and influence special interests got and be disgusted by the deal even if it is good for the country. We will react to any deal through the lens of our emotional relationships with our personal heroes and villains.

Posted by: BHeffernan1 | December 10, 2010 12:24 PM | Report abuse

"Government does not tax to get the money they need; government will find a need for whatever money they can tax."

dbw lays out the central problem here: Dems propose or oppose policies based on a variety of factors, including price tag (Bush tax cuts being an example). The Dems pay for things based on whether they're necessary and cost-effective. Repubs do that, but then add an overriding nervousness about this abstract thing called "government." Whether a policy is good or bad, their intuition that things have just gotten out of hand (which is an easy fit into conservative unease about cultural stuff, too) sometimes crowds out rational discussion about a specific policy.

So Hubbard's quote makes absolutely no sense. The "size of government" doesn't need to be agreed upon -- it just is. We have the government we created -- if we want to shrink it, then we should look at specific policies and cut them. Generalizing government's "size" is just a way to avoid talking about specifics -- specifics that often involve cutting programs for those w/ less political power. Tax policy should be about funding what programs have already been established, not a backdoor way to force cuts to things people don't want to address head-on.

Posted by: Chris_ | December 10, 2010 12:24 PM | Report abuse

"which are already far beneath what's needed to fund the government we've chosen to have"

Are you kidding? The politicians and bureaucrats have chosen this government not the people. You have a machine that spends $3 to get $1 out, it is nothing but a self serving apparatus for those in power. Time to put government on a diet not starve the people to feed the beast.

Posted by: Pilot1 | December 10, 2010 12:26 PM | Report abuse

Oy, we went through the same shenanigans when Reagan was president.

They lowered the rate on certain income levels while reducing the exceptions. They claimed this was a triumph of 'simplification'.

Within a couple of years all the exceptions came roaring back -- only the rates were never changed.

The process is so bogus. There's no reason to repeat it.

Posted by: leoklein | December 10, 2010 12:28 PM | Report abuse

Before the tax code is reform federal and elected official wages need to be reformed downwards.

Posted by: Maddogg | December 10, 2010 12:29 PM | Report abuse

After Obama's capitulation to the Republicans on the Bush tax cuts, the middle class should be very, very afraid when Obama says he's going to reform the tax code. John Boehner and Mitch McConnell will make sure the rich get richer and the middle class gets to pay for it.

Posted by: Chagasman | December 10, 2010 12:30 PM | Report abuse

No this is not the time, not until Obama is out of office or he will take all our money. Of course, we then will stop working and live off the government

Posted by: kathymac1 | December 10, 2010 12:32 PM | Report abuse

BS #1. The primary expenditures of US federal, state, and local governments today are education, health care, and social security.

The topic, krazen, is the FEDERAL budget, not state and local expenditures. "Defense" spending is equal to SS spending.

Posted by: rjewett | December 10, 2010 12:38 PM | Report abuse

So, let me understand this very well, they want to extend tax cut to the rich(give them a millions while we get 500.00), and then they want to overhaul tax code to bring in more money "(the mortgage-interest deduction, for instance), simplify the process" , isn't that raising tax on the middle class we have to pay somewhere around 4000.00 more, how is that cutting taxes to the middle class ?

Posted by: tqmek1 | December 10, 2010 12:40 PM | Report abuse

With the minimum wage and most salaries/wages at 41 year lows there is going to be a great need to reform more than just the tax code. Problems are a brewing. BIG problems.

Posted by: Maddogg | December 10, 2010 12:41 PM | Report abuse

Major changes are clearly needed to our tax system, but let's look more broadly and more imaginatively at how to make our economy stronger and more competitive. In addition to eliminating tax expenditures (deductions) and going to lower flat rates, also consider:

Much lower corporate rate -- 15 to 20%. Give companies incentives to do business here, not send it elsewhere where rates are lower.

An escalating tax on gasoline and other oil products. Our dependence on imported oil is a major weakness. However much we drill, most of our oil will continue to come from abroad. Start with an extra 5 or 10 cent increase in the price of gasoline (something similar on other oil products) and then continue to increase this tax by a similar amount for the next 10 to 20 years. Every consumer will be on notice and will have a long term incentive to switch to some domestically produced fuel (natural gas or electric), Because the change will be gradual, there will be plenty of time for consumers to change and for the economy to adjust. This is not an environmental measure; it is strong action to strengthen our balance of trade and reduce dependence on dangerous petroleum exporters.

Introduce a VAT -- to be phased in very gradually. Start at one or two percent and over 10 to 20 years, move the tax up to 10 to 15%. This will become a more stable source of revenue than taxes that depend on income (and economic preformance). It will encourage saving and discourage consumption.

Posted by: john640 | December 10, 2010 12:42 PM | Report abuse

We need to abolish government agencies that provide no value, such as the EEOC, which is just a bureaucratic hurdle before a lawsuit. There are hundreds of jobs and offices in that agency alone that are a total waste of funds. We need a fresh look at the size of our government services. We can't afford all of this, and don't need it anyway. We need to look at the government the way you'd look at your own budget if you were short on funds, and cut the things that aren't necessary.

Posted by: 4917lk | December 10, 2010 12:44 PM | Report abuse

I love that this came up right after Ezra's ASCE Report Card post on America's crumbling infrastructure, the report card gives America a "D". http://www.infrastructurereportcard.org/

Maybe we can ask Hubbard how lousy does America's infrastructure have to be before knuckleheads like Hubbard see that rich elites can no longer free ride, out source and tax cut America to a strong economy.

We need to rebuild our nation's infrastructure, it'll cost $2.2 trillion. So, let's develop a plan to pay for it and get America moving. The fact that Hubbard and his fellow conservatives don't even see this is hilarious. They wax on about "growing government" as if they haven't benefited from a past infrastructure investments. What a bunch of spoiled, narcissistic weenies.

Granted, this debate is as old as our republic, going back to "internal improvements" nearly 200 years ago. The funny thing is this, the dead enders worried about the size of government then were wrong .... and they are wrong now.

Screw tax cuts, sell the bonds, raise the revenue, invest in our 21st century economy. Maybe Hubbard wants us to follow his advice they way we did over the last 30 years. Let's review and watch the documentary "Inside Job."
http://www.sonyclassics.com/insidejob/

Hubbard and the tax cutting conservatives are selling snake oil. We can't afford to give the rich anymore tax cuts. We've tried it for 30 years and we've found they don't know what to do with the money they get and they invest poorly. Combine the stupidity of the rich with the fraud in banking and Wall Street, and what we get is this nightmare of 10% unemployment and lethargic growth.

Let's invest in America. The rich will STILL make their money, only not as obscenely, and with a lot less fraud. Oh yeah, when we rebuild, we'll get a strong middle class. When everybody does better, everybody does better.

Posted by: gregw571 | December 10, 2010 12:45 PM | Report abuse

I love that this came up right after Ezra's ASCE Report Card post on America's crumbling infrastructure, the report card gives America a "D". http://www.infrastructurereportcard.org/

Maybe we can ask Hubbard how lousy does America's infrastructure have to be before knuckleheads like Hubbard see that rich elites can no longer free ride, out source and tax cut America to a strong economy.

We need to rebuild our nation's infrastructure, it'll cost $2.2 trillion. So, let's develop a plan to pay for it and get America moving. The fact that Hubbard and his fellow conservatives don't even see this is hilarious. They wax on about "growing government" as if they haven't benefited from a past infrastructure investments. What a bunch of spoiled, narcissistic weenies.

Granted, this debate is as old as our republic, going back to "internal improvements" nearly 200 years ago. The funny thing is this, the dead enders worried about the size of government then were wrong .... and they are wrong now.

Screw tax cuts, sell the bonds, raise the revenue, invest in our 21st century economy. Maybe Hubbard wants us to follow his advice they way we did over the last 30 years. Let's review and watch the documentary "Inside Job."
http://www.sonyclassics.com/insidejob/

Hubbard and the tax cutting conservatives are selling snake oil. We can't afford to give the rich anymore tax cuts. We've tried it for 30 years and we've found they don't know what to do with the money they get and they invest poorly. Combine the stupidity of the rich with the fraud in banking and Wall Street, and what we get is this nightmare of 10% unemployment and lethargic growth.

Let's invest in America. The rich will STILL make their money, only not as obscenely, and with a lot less fraud. Oh yeah, when we rebuild, we'll get a strong middle class. When everybody does better, everybody does better.

Posted by: gregw571 | December 10, 2010 12:46 PM | Report abuse

While all wages need to increase significantly we can get rid of waste like the Patriot Act, Illegal Wiretaps, and Homeland Security. This will save Hundreds of Billions a year.

We need to fix what we have to without monkeying around with taxes.

Posted by: Maddogg | December 10, 2010 12:47 PM | Report abuse

Maybe instead of reforming the tax code we reform the government to one that cares about the citizens instead of just the rich contributors.

Posted by: postfan1 | December 10, 2010 12:47 PM | Report abuse

The size and role of governement has to be addressed, or tax reform just becomes another way to give revenune to system that needs both cuts and reform.

Americans do not like high taxes. They need to be forced to make hard choices on what they want funded.

Posted by: moebius22 | December 10, 2010 12:47 PM | Report abuse

Ezra, you should check out the Dec 4 Economist article on page 98, entitled: "Vote for Agony: Cutting public spending and raising taxes might not be as politically suicidal as it seems" The article describes multiple studies that followed the political ramifications across a number of countries that under went a belt tightening, either by: raising taxes or cutting spending. One of the main conclusions is "In only 20% of the elections in the countries that *slashed spending* did the government lose power, compared with a rate of 56% rate of being booted out of office for governments that chose to *raise taxes*. Voters evidently dislike tax increases much more than they abhor spending cuts." Interesting piece; perhaps the White House read the conclusions as they pushed harder on the Bush-extensions?!

Posted by: dnara | December 10, 2010 12:51 PM | Report abuse

I think the fundamental issue between conservatives and liberals is not how high tax rates are it's the size of the government. Liberals like Ezra, as he stated above think that the size of government is just fine the way it is (or should get even bigger) and that all we have to do is figure out a way of paying for it. Conservatives see the vast increase in the size of a already gigantic government during the Obama administration and say we should cut the government down to the size of the tax revenue already coming in (or make it even smaller). I don't see how you meet in the middle.

Also, for all those liberal who keep whining about how the Bush era tax cuts favored the "rich" should really brush up on their math. The cost of extending the tax cuts for those making over $250,000 for 10 years is $700 billion and the cost of extending the current tax rates for the "middle class" (those making under $250,000) $3.5 trillion over 10 years. Boy it sure sounds like Bush favored the rich!

Posted by: RobT1 | December 10, 2010 12:54 PM | Report abuse

Why not the same percent tax for everyone? Those who earn less will pay less and those who earn more will pay more. By being the same percentage, it's fair.

Posted by: LoveSnow1 | December 10, 2010 12:58 PM | Report abuse

The entire taxation system needs to be redone, and it needs to be done at the federal, state, and local levels. It needs to NOT be an instrument of social policy making, favoritism, or foreign policy. It needs to make sense, and it needs to be universal. Yes, I know the poor folks among us will bear a heavier burden, and maybe an adjustment can be made for that, but everyone needs to be paying into the system so that they have a stake in what's going on.

Posted by: tmkelley | December 10, 2010 12:59 PM | Report abuse

Yeah, the whole "the tax cut debate depends on your view of the appropriate size and role of government" thought process is BS. It's like saying "how large a credit card payment you make in a month should depend on what kind of lifestyle you want to lead". If you want to live a frugal lifestyle, then live a frugal lifestyle. Cutting down your payments doesn't help, solve, or change anything.

It would be fairly easy to disentangle this issue; for example, you could give everyone standard deductions up to the poverty line, and then toss out a flat tax rate of X% on everything above it, where X is defined by law to float to whatever rate is necessary to pay for current spending. Ta da.

There are two relevant questions for tax policy; one, who should pay? Two, what type of behavior should we encourage and/or discourage? Right now, government is mostly paid for by the middle class with the rich kicking in fairly generously on a per capita basis and fairly meagerly on a per wealth basis.

For encouragement/discouragement, right now we encourage spending on healthcare, being in debt, and having kids. I think the third of these is worthwhile; the first two not so helpful policywise.

Posted by: eggnogfool | December 10, 2010 1:07 PM | Report abuse

@LoveSnow1: a flat tax fails because it greatly accelerates the separation in wealth between the already-rich and everyone else. If that goes unchecked, you end up with a torches-and-pitchforks endgame.

That's why every western civilization has a progressive tax system where the wealthy pay a higher percentage than the poor do.

Posted by: masseydvt | December 10, 2010 1:13 PM | Report abuse

It's time to shut down the Washington Post. It is a Socialist/Communist/Progressive propadanda rag.


And your opinion matters why Erza? Do you have an economics degree? Masters's in economics? PhD.?


Shut up Erza.

Posted by: FormerDemocrat | December 10, 2010 1:18 PM | Report abuse


agreed - stop tweeking the tax code and just write a new one. it will be much easier, faster and can be writen w/o bending it to any special interests and tailored to meet our present day needs.

10 pages - all in understandable english - and accomplished in 1 day by 5 people with ABSOLUTELY NO POLITICAL AFFILIATION..

my version would look something like this-

have all businesses pay the exact same percentage of net receipts in federal taxes - 25%. that means ALL businesses, no matter the size or category. and since investment and re-investment are desired, just allow new equipment and capital improvements to be 100% written off in the year(s) they are paid for. simplicity and universality need to be driving forces. with a tax rate being relatively high - that too will stimulate re-investment.

allow NO LOOPHOLES - depreciations, exemptions or tax incentives.

on individual taxes -

have every earner file individually.

tax all income as income.

replace all current deductions and exemptions w/ a single exemption of $15,000/ filer.

set simple rates-
10% for the first $100k.
15% for the next $100k.
20% for the third $100.
25% for $300 - 500k
30% for $500-$1M
and 35% for income in excess of $1M.

and if you don't like my plan - don't whine and complain like a politician - just show me a better one.

Posted by: boblesch | December 10, 2010 1:22 PM | Report abuse

A tax system: two parameters.
The income level it kicks in.
The percent of income payable.
Example: 19% on income or profits earned over $40,000.
Notice that there are no schedules, exemptions, brackets, credits, etc.
There is no discriminating between any earner. It applies to any profits after expenses, dividends paid out and wages. No taxes collected on interest earned would encourage savings and investment. Dividends are taxed as income/profit by the payee.
Simple and transparent, fairness could be argued but not it's ease of administration.

Posted by: AnthonyNL | December 10, 2010 1:24 PM | Report abuse

The tax code is unconstitutional because it is so complicated and so contradictory, that no honest citizen can comply...

Let me advocate that the tax code be rescinded in its' entirety... In its' place I would put a tax rate on every dollar earned, of 3%.
There are no deductions, there are no expenses, no 'credits, no 'loop holes', no 503(c), no charitable exception, no nothing...

Every person and every corporation and every company, and every LLC, and every so called 'church', will pay 3% of every dollar that pass into it's hand...

Charity is not the business of the government and it has no business reimbursing charitable givings through a tax credit...

The cost of doing business is not the business of the government... If you cannot produce and sell your product while paying 3% of each dollar earned as a tax, then you have no business being in business..

Actually, I strongly suspect that 3% is high and that an even lower tax rate will equal the current income of the government...

dr. o

Posted by: ad4hk2004 | December 10, 2010 1:26 PM | Report abuse

I'm sick of hearing about eliminating the mortgage interest deduction. You can't justify a system in which landlords get to deduct mortgage interest as a business expense, but homeowners don't get to deduct interest -- creating a tax preference for renting over owning. Is that the society we want? It just concentrates more capital in the hands of the wealthy.

I write this as a landlord who also rents the home I actually live in.

Posted by: REClayton | December 10, 2010 1:29 PM | Report abuse

The tax code is more than 80,000 pages long. Why? It works for our politicians and this is the reason that it will not change. First, I cannot simply write a politician a check or give him money to get something I want. This is a bride and I wind up in the house of many doors. What do I do? I give him a campaign contribution? This is perfectly legal. What does the politician do? He writes the tax code to my benefit. Least anyone doubt this happens I will give the following example.Hedge funds have give many many millions to politicians. Hedge fund people do not pay normal tax rates for their income but everything they make is considered capital gains. They save millions of dollars in taxes from their generosity toward politicians. Politicians have favorite interests, local interests they support, or something along these lines. If they cannot get earmarks or other appropriations to help their cause, they insert something in the tax code. If we had a tax code that was simply designed to raise revenues, donors, politicians, and favorite causes would lose which explains why we will never have serious tax reform in this country.

Posted by: jeffreed | December 10, 2010 1:30 PM | Report abuse

How come no mention of the Fairtax?

What is the FairTax plan?

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.

The FairTax Act (HR 25, S 296) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.

The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

The FairTax:

* Enables workers to keep their entire paychecks
* Enables retirees to keep their entire pensions
* Refunds in advance the tax on purchases of basic necessities
* Allows American products to compete fairly
* Brings transparency and accountability to tax policy
* Ensures Social Security and Medicare funding
* Closes all loopholes and brings fairness to taxation
* Abolishes the IRS

For more info go to http://www.fairtax.org

Posted by: madmax8600 | December 10, 2010 1:32 PM | Report abuse

And with respect to corporations: "Corporations are legal fictions that have not, do not, and never will bear the burden of taxation. Only people pay taxes. Corporations pass on their tax burden in the form of higher prices to consumers, lower wages to workers, and/or lower returns to investors. The idea that taxing a corporation reduces taxes on, say the working poor, is a cruel hoax. A corporate tax only makes what the working poor buy more expensive, costs them jobs, lowers their lifestyle, or delays their retirement. Under the FairTax Plan, money retained in the business and reinvested to create jobs, build factories, or develop new technologies, pays no tax. This is the most honest, fair, productive tax system possible. Free market competition will do the rest."

Learn the facts at http://www.fairtax.org and make up your own mind.

Posted by: madmax8600 | December 10, 2010 1:34 PM | Report abuse

Great, White House. Float an idea that throws more uncertainty into the market. Businesses, and by extension individuals need to know the rules in order to plan. Without the ability to plan, they don't spend money. Without demand, there is no need to hire the unemployed. The guy hasn't got a clue as to how the private sector operates. Wonder why?

Posted by: gh38 | December 10, 2010 1:40 PM | Report abuse

A horrible idea! Why would anyone, except the Republicans, want this President to take on tax reform. He doesn't have the backbone or the competence to deal with Republicans.

Posted by: boardtest | December 10, 2010 1:42 PM | Report abuse

@boblesch:
"have all businesses pay the exact same percentage of net receipts in federal taxes - 25%. that means ALL businesses, no matter the size or category."

soon as you hit businesses taxes, interest in having a simple tax system becomes impossible. it's not reasonably possible to describe what 'net receipts' are, for accounting purposes, in less than 1000 pages. and 'all businesses': if i have my own business, do i pay 25%, individual, or 25% and then individual? or does it just depend on how my accountant defines things?


@AnthonNL

that's kind of my thought as well, with the % just floating to match revenue with expenses.

Posted by: eggnogfool | December 10, 2010 1:43 PM | Report abuse

What really makes me chortle wearily is that this snot-nosed kid who's all of, what, 25, believes he's received some kind of revelation...that nobody has asked this question, like yearly, for the past 50 years? Kid...when you finally grow up, experience a little of life, come back and talk to us about all you know. Until then just yak about Miley's 18th birthday or something similar.

Posted by: PanhandleWilly | December 10, 2010 1:51 PM | Report abuse

@ LoveSnow1
You said, "Why not the same percent tax for everyone? Those who earn less will pay less and those who earn more will pay more. By being the same percentage, it's fair."

This is one of those fundamental problems of fairness. Is the system you’re suggesting a “flat” tax or a “progressive” one? The chosen viewpoint can change the answer! And there are unsettled discussions on whether either is fair.

More importantly, if you wanted to set a single tax for all income levels it would have to be low enough that the lowest earners could pay it and still afford to meet basic living standards (presumably), but at that point we wouldn’t be able to pay for any form of government. So in order to raise enough revenue for minimal government you’d be forced to augment a higher tax rate with credits to the poor, which basically brings you back to where we are now, but with lower rates for the rich!

Would that be fair? Perhaps, but the result is that the middle class would have to pay more in taxes and the rich would pay less. Fair or not, I would fear that income inequality would accelerate and the middle class would shrink. This would actually slow U.S. growth as the rich continue to invest intelligently in growing markets overseas and the domestic market loses middle class consumers. Perhaps it would be good for the world, but for many in the U.S. I would expect conditions to fall in the long term. Who knows, I won’t pretend this is the only possible outcome, but it’s not impossible!

Posted by: one_timer | December 10, 2010 1:56 PM | Report abuse

@boblesch: I like your plan but why do we have to penalize those that make more by increasing the % on higher levels of income. We are all equal in this nation and I believe a flat rate for individuals no matter their income and a flat rate for corporations. The flat rate has been talked about for many years, why doesn't our government give it serious consideration?

Posted by: jc47 | December 10, 2010 2:06 PM | Report abuse

"which are already far beneath what's needed to fund the government we've chosen to have"

==============

Whoa junior...what do you mean 'we've' chosen to have? It seems to me this is the question that got answered this November and will be re-answered two Novembers from now. The message from the field...you know...the governed...is that we're loud and clear with choosing LESS government to have...less than YOU choose us to have. Your ideas about expanding the base aren't 'new' ideas. They're tired shibboleths from the mouthes of previous commun...er...I mean progressives. This is what I mean about all your cronies annointing you as 'razor sharp' and 'brilliant.' You're guilty of believing your own press releases. You've got no business writing about this subject at all. Go study it a little more. Take about 25 years. Raise a family. Start a real business...not a faux business like selling your jibberish on line to the jibberish starved. Take care of your aging parents. Then come back and talk to us about wealth re-distribution if you still believe in it.

Posted by: PanhandleWilly | December 10, 2010 2:08 PM | Report abuse

"...we've chosen to have."

Breaking News .... We, the people, have had very little input into Federal spending and unfunded mandates imposed on the states by insane overbearing legislation decade after decade.

We haven't chosen to have an out of control government. Those "lifers" in Congress - who seem to hang on until death - have imposed their self-serving will, with a compliant media, on the rest of us.

Posted by: Hazmat77 | December 10, 2010 2:11 PM | Report abuse

"the government we've chosen to have"

HAHAHAHAHAHA! The cabal of self-serving politicians, advocacy groups and rent-seeking lobbyists hardly constitute a quorum to determine the size of government we should have.

Posted by: cprferry | December 10, 2010 2:13 PM | Report abuse

Taxes have hit stratospheric levels to compensate for lower wages. The problem is wage levels have gone in the other direction.

There must be a significant boost in wage rates and tax revenues will go up.

Posted by: Maddogg | December 10, 2010 2:17 PM | Report abuse

It's important, especially in THIS economy, to establiash a tax code that is fair to everyone. That would be the graduated flat tax with no exemptions for anything.

The simpler it is, the less opportunities for corporations or the government to screw with it down the road.

It would give everyone a rate that they could depend upon. It would ne nice if we could fairly and equitably roll up all other state and local taxes into it as well. Of course, that would give the state's rights people fits.

Posted by: amazingboinker | December 10, 2010 2:18 PM | Report abuse

"On Tuesday, I asked Glenn Hubbard, one of the architects of the Bush tax cuts, how he'd reform the tax code. That was the wrong question to start with, he said. "First, you need to figure out the size of government."

And that's where tax reform will get complicated.
=======================================

I guess he could have answered (maybe he did) with thoughtful silence while wondering why he all of a sudden has to teach government 101 to the people that would have us believe their number one job is to 'keep an eye' on government. Hubbard's forebearance is admirable. I'm sure he had a chuckle when (if?) he read this collection of words when he read "and that's where tax reform...." Ezra, do you even proofread anything you blog? Talk about quantifying the amount of blinding flash contained in the obvious.

Posted by: PanhandleWilly | December 10, 2010 2:18 PM | Report abuse

"...we've chosen to have."

Breaking News .... We, the people, have had very little input into Federal spending and unfunded mandates imposed on the states by insane overbearing legislation decade after decade.

We haven't chosen to have an out of control government. Those "lifers" in Congress - who seem to hang on until death - have imposed their self-serving will, with a compliant media, on the rest of us.

==================================
madmax8600

Putting aside the question of competition, All businesses, regardless of the form of entity, (partnership, single proprietorship, etc.) factor in taxes when calculating their costs, and when possible raise their prices to include taxes.

Please take note that in many cases, intense competition and other external factors may prevent business owners from increasing prices to cover their tax liabilities. In many of those siuations corporations indeed do pay taxes on profits.

I know Rush and some other talk mavens love the "corporations don't pay taxes?" theme, but it is not absolute!

Posted by: Hazmat77 | December 10, 2010 2:23 PM | Report abuse

When the minimum wage is 619% lower now than it was in 1969 it affects all wages to the downside.

The governments attempt to compensate for this significant shortfall in wages by boosting taxes. All started with Ronnie Raygun, the master traitor.

Unless real wages are forced upwards there is NO way the deficit or the debt will ever be paid down. Both will just continue to get higher.

Posted by: Maddogg | December 10, 2010 2:26 PM | Report abuse

You could wipe out a much of discretionary spending by simply eliminating the agencies that oversee programs the states operate. States can coordinate amongst themselves if they wish to institute national standards above and beyond those determined by existing federal law and the courts. These agencies and their federal regulations merely add to the cost and frustrate the state's efforts.

If an advocacy group wants their way force them to lobby 50 different states not just to get their former Executive Director appointed to an agency secretaryship or pay off a few U.S. Congressmembers.

Posted by: cprferry | December 10, 2010 2:33 PM | Report abuse


Leftist journolist hack Klein waits four years while the Dims had control both houses of Congress. Only after the Dims get slaughtered in the midterm elections and the tax & spend Dims get ousted does Klein get the bright idea to rewrite the tax code.

Hilarious WaPo hacks

Posted by: screwjob23 | December 10, 2010 2:43 PM | Report abuse

Glenn Hubbard's comment is just another pseudo name for "starve the beast" myth that has been bandied about for the past 30 years and even David Stockman, former BD for Reagan, has stated it doesn't work.

Reagan and Bush II used the same set of belief by pushing for tax cuts and increase in spending and look where we are.
The problem stems from the fact that people want something without paying for it which violates the laws of economics which involves making trade off to both the amount of taxes paid and what we want. Elections makes that all much harder do that.

I always believe the government should maintain a optimal revenue to what we need (not want) to spend with the surplus being used to pay down the debt. That will come when we have a tax reform without the lobbyists' influence on the process and to make it more fairer which the Commission's report is calling for. The reality is that it won't happen.

Posted by: beeker25 | December 10, 2010 2:51 PM | Report abuse

@cprferry:

I'm not sure what agencies you refer to, but no, the government could not 'wipe out much of discretionary spending' by eliminating federal oversight of state programs. I guess 0.01% is a lot of money to you or me (on the order of 100 million dollars maybe?), but relative to the size of discretionary spending, not much.

Posted by: eggnogfool | December 10, 2010 2:53 PM | Report abuse

Leftist journolist hack Klein waits four years while the Dims had control both houses of Congress. Only after the Dims get slaughtered in the midterm elections and the tax & spend Dims get ousted does Klein get the bright idea to rewrite the tax code.

Hilarious WaPo hacks

Posted by: screwjob23
-----------
You forgot the last time we reformed the tax codes was 1986. Since then it has grown with both Republican and Democrat in charge and nothing has been done except to twink it.

It has been bandied about for years but nobody wants to do it because of the complexity certain group want to keep.

Posted by: beeker25 | December 10, 2010 2:59 PM | Report abuse

@Hazmat77 - It is absolute, and don't try to skirt the facts by throwing "Rush" into this. The Fairtax is bipartisan. You want to debate the merits of the Fairtax, then lets do it based on the merits of the program. Bringing up Rush or anyone else has nothing to do with the merits of the Fairtax.

Over 20 million dollars (private money) has been spent on creating and researching the Fairtax.

Let me make this simple, CORPORATIONS ARE FAKE. THEY DO NOT PAY TAXES. Any tax that is paid by a corporation is transferred to individuals in lower salaries, higher prices or lower dividends.

Get the real facts and answer to FAQs at Fairtax.org.

Posted by: madmax8600 | December 10, 2010 3:03 PM | Report abuse

@boblesch: I like your plan but why do we have to penalize those that make more by increasing the % on higher levels of income. We are all equal in this nation and I believe a flat rate for individuals no matter their income and a flat rate for corporations. The flat rate has been talked about for many years, why doesn't our government give it serious consideration?

Posted by: jc47
------
As I recalled Steve Forbes pushed for it as a candidate and look where he is - back to the Forbes magazine. Many people accused him of using that plan to benefit him which is why he lost the primary.

Posted by: beeker25 | December 10, 2010 3:05 PM | Report abuse

You could wipe out a much of discretionary spending by simply eliminating the agencies that oversee programs the states operate. States can coordinate amongst themselves if they wish to institute national standards above and beyond those determined by existing federal law and the courts. These agencies and their federal regulations merely add to the cost and frustrate the state's efforts.

If an advocacy group wants their way force them to lobby 50 different states not just to get their former Executive Director appointed to an agency secretaryship or pay off a few U.S. Congressmembers.

Posted by: cprferry
-----
It doesn't work that way, currently the Federal government doles out block grants to the states to spend it it see fit provided they set up the guidelines after all it is their choice to do so. However even then it won't do much because of the need for national standards. For example almost every states have a national drinking age simply because Reagan imposed it on the states or they lose the highway funding. Even the businesses would find it expensive to lobby state by state for something.

Posted by: beeker25 | December 10, 2010 3:13 PM | Report abuse

"When the minimum wage is 619% lower now than it was in 1969 it affects all wages to the downside."

619% lower? What does that even mean? A negative minimum wage?

Anyway, it was the same in 2009 as 1972 - and many states have higher minimums.

http://www.epi.org/publications/entry/tables_figures_data/

Posted by: justin84 | December 10, 2010 3:18 PM | Report abuse

"Even the businesses would find it expensive to lobby state by state for something.
Posted by: beeker25"

All the better. Let law be as pure of business and advocacy lobbying influence as possible.

What's most important in law is its principles, in that influences citizens to do right, not the legal authority's attempts to expand/restrain its application to certain parties.

Posted by: cprferry | December 10, 2010 3:23 PM | Report abuse

"Are you kidding? The politicians and bureaucrats have chosen this government not the people"

That's why lefties are so serious about good-government-y type things (public finance of elections, etc). What's the conservative alternative, starve the beast and cross our fingers that government functions well? That's the complete opposite of running "government as a business," and it's a recipe for failure. In countries that pay bureaucrats exponentially more than the US (Singapore being one, which tries to match the private sector in salaries), there's zero corruption, hugely efficient government, and institutions that function extremely well. Where people try to tear down government because it doesn't match their personal policy preferences, the aggregate effect is to get something much worse than what they had sought in the first place. And that failure's the point, I guess --> it still allows them to complain without trying to improve programs or be knowledgeable about them. It's a self-fulfilling worldview.

To make this clearer for the frothing-at-the-mouth conservatives:
If you were on a local City Council and it had long-established policies on how many pot holes to fix, how much to pay police officers, etc, you wouldn't say "hey guys, let's all first come to an agreement about everything our local government does" in figuring out how to raise revenue. That'd be completely impossible, and there's bills the city needs to pay now. If those bills amount to X amount of $$, we need to raise X amount of $$. The issue would be *how* to raise the revenue not *what* to raise it for. But once you figured out the mechanisms of how we get money in (fees, what type of taxes, etc), then the battles over whether we need a few less police or whatnot could begin. If it means slashing things, then that's fine and good.

But when every single issue -- including how best to raise revenue -- becomes an abstract discussion about the scope of government, practical discussion about specific policy becomes completely impossible.

"It seems to me this is the question that got answered this November"

Was '06 and '08 about more government, then? I'm thinking it's more complicated than that.

That comment about the credit card was right on.

Posted by: Chris_ | December 10, 2010 3:44 PM | Report abuse

@beeker25 - The problem is that people are bad at math. They don't understand that by definition percentages are progressive. Example, if you make 20K and pay 10% in Tax you pay $2,000. If you make 200K and pay 10% in tax you pay $20,000. In other words the person that makes 200K is already paying 10 times more in taxes at the same 10% tax rate. However, for liberals paying 10 times more is not enough, so instead they increase the percentage. By increasing the percentage just 1% the 200K citizen will now be paying $22,000. 1% is equivalent to the entire tax burden of the 20K employee. Of course 1% isn't good enough, so they raise it by 20% and so on and so on.

This is why we need the Fairtax (http://www.fairtax.org). The Fairtax is consumer driven. You, and only you get to decide how much taxes you pay based on consumption and not earnings. It rewards saving. It rewards success and hard work without punishing failure. It is transparent.

Once you learn about the Fairtax make your own decision.

Posted by: madmax8600 | December 10, 2010 3:46 PM | Report abuse

@Madmax

"But it's a mammoth tax cut for the crowd making more than $200,000 a year and a substantial tax increase for those making between $30,000 and $200,000 a year. Does this make economic sense? It is hard to see how: What makes the $200,000-plus crowd especially deserving of a tax cut?"

http://www.salon.com/news/opinion/feature/2008/01/07/huckabee_tax/

I understand your arguments about fairness, but how is the *effect* of this system fair to those paying more (the poor) or those paying less (the rich)? The only ones who care about FairTax view fairness as merely getting percentages to neatly match up. When we have an enormous and exponentially-growing gulf between the rich and poor(http://img.slate.com/media/1/123125/2265681/2266033/100902_GD_Part1_PikettySaez-fig1.gif), we should be making things more progressive, not less.

Posted by: Chris_ | December 10, 2010 4:09 PM | Report abuse

That's right.

Give the wealthiest citizens of the country a 4% tax cut, and then raise the tax on the price of gasoline by 15 cents a gallon.

Thanks, O'Bummer.

Posted by: postfan1 | December 10, 2010 4:11 PM | Report abuse

@FormerDemocrat (and others who question Ezra's credentials): you always have the choice of not reading this website. I don't have a PhD in economics (mine's in biophysics, what's your's in out of curiosity?), and of course Ezra doesn't present himself as some kind of expert in economics, but he has an interesting take on things that you aren't forced to be exposed to. The Internet is a great, big place - check some other places out! It'll do a world of good for your mental health I suspect.

Posted by: reader44 | December 10, 2010 4:29 PM | Report abuse

@Chris_ learn the true facts about the FairTax. The salon article is an opinion piece that has been completely debunked. It deals with "what ifs" and "possibilities". I'm not saying you have to support it. I'm just saying that you should learn the real facts. The Fairtax is based on consumption not income, which is a much more stable revenue source. It provides a (p)rebate to every legal US citizen for goods and services up to the poverty level. And most importantly it moves control from the gov't to the individual.

Go to http://www.fairtax.org and read through all the FAQs. If you still think it's bad then don't support it. However, just about everyone who learns the FACTS supports the FairTax.

Posted by: madmax8600 | December 10, 2010 4:50 PM | Report abuse

The tax code should have never been written by politicians, most of whom are liberal arts majors. No wonder it's a mess.

It's easier to write the tax code from scratch than trying to sort them out after the tornado has hit.

The best way to have an efficient and just tax code is to have mathematicians write them and the politicians give it an up or down vote.

Posted by: wu78754 | December 10, 2010 5:14 PM | Report abuse

Bring back the 90% tax rate for incomes over $100 million on money from whatever source -- earned, unearned, loans over $10 million, on the grounds that if you can't make it on $100 million (before tax), you can't be trusted to handle money.

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Posted by: niaoren99 | December 10, 2010 5:27 PM | Report abuse

@Chris_ since you brought up the comment, "But it's a mammoth tax cut for the crowd making more than $200,000 a year and a substantial tax increase for those making between $30,000 and $200,000 a year. Does this make economic sense? It is hard to see how: What makes the $200,000-plus crowd especially deserving of a tax cut?"

Here are the real facts using real numbers, not propaganda or opinion pieces:

Is it fair for rich people to get the exact same FairTax prebate from the federal government as the poorest person in America?

Let’s look at a billionaire under the FairTax -- if he spends $10,000,000 dollars he pays a tax of $2,300,000 and gets a prebate of $4,697 (assuming he is married and has no children). His effective tax rate as a percent of spending is 22.95 percent.

Now, let’s look at a middle-income married couple with no children under the FairTax -- if they spend $50,000, they pay $6,803 net of their prebate for an effective tax rate of 13.6 percent. The effective tax rate increases as spending increases, but never exceeds 23 percent!

Figure 4: Comparison of effective tax rates: FairTax, income tax

FairTax Current tax
Expenditures = income $50,000 $50,000
Net tax $6,803 $7,918
Effective tax rate 13.6% 15.8%

In contrast, if this same couple earns $50,000 in wages today under the current tax system, they pay $4,093 in income taxes and $3,825 in payroll taxes for a total of $7,918 in taxes (15.8 percent) -- a tax burden 14.1 percent higher than under the FairTax. In addition, their employer pays another $3,825 in payroll taxes. Most economists agree that the employer payroll tax is actually borne by employees in the form of lower wages. Looked at this way, this couple is paying $11,743 (23.5 percent) in taxes today, which doesn’t even include the hidden taxes they pay every time they make a purchase.

Finally, let’s look at a low-income couple that spends at the poverty level under the FairTax -- they pay no net FairTax at all. Today, under the income tax system, they not only pay 15 percent in payroll taxes, but they also pay hidden taxes -- arising from corporate taxes, private sector compliance costs, and payroll taxes passed on to consumers and embedded in the price of everything they buy."

Posted by: madmax8600 | December 10, 2010 5:34 PM | Report abuse

Obama should have asked the repubs in baltimore and the dems in dc "Want some tissues? Then he should throw them at them and yell Crybaby..."

When you throw clinton in the mixed. wow! I think I would like to play chess with President Obama

Posted by: MILLER123 | December 10, 2010 6:08 PM | Report abuse

Tax rates are the lowest they've been in more than 50 years. The wealthiest Americans pay less than they've ever paid and more of America's wealth is concentrated in the fewest hands since before the Depression.

"Government is the problem" is a bumper sticker not a political philosophy. It's a simplistic slogan, one of many the conservative echo chamber has been repeating as it drowns out any serious discussion that might challenge the mega-rich.

Fear, Hatred, Distortion, Distraction and Division is all Republicans have to offer.

Posted by: thebobbob | December 10, 2010 6:14 PM | Report abuse

Time to end Income taxes and Payroll Taxes!
The Income Tax code is essentially a scheme for Our congressman to pay off their benefactors and what business does to avoid taxes is just ridiculous! Not to mention the sheer waste of tax preparers, accountants, tax lawyers, tax auditors, IRS, tax planners, and the million other parasitic functions that exist!

What is need is 2 things:
1) A VAT that will automatically adjust as economic conditions change and a rule that government expenses must be equal to revenues over an election cycle! In addition, there must be an income cap from all sources to not exceed 100 times the level of the minimum wage!
2) A wealth tax to prevent the wealthy from ever having excess, useless, wasted wealth something like a confiscation of all wealth greater than 100 million; and an absolute limit of 1 Million per child upon death. Inherited wealth is just plain bad; for the nation and especially the child!

The VAT should be around 30% distributed like:
10% for SS distributed entirely and equally to all citizens over 65
10% for medical care for all citizens paid entirely without question and audited by an independent AG with the power to seize all assets and jail for a significant period of time any cheats.
2% for universal 3 years of service from 18-21 and for 3 weeks of service for next 19 years in Military, Peace Corp, or Americorp...all get military training and retain there weapons.
1% to run the government plus whatever fees are collected for services provided
1% for active military
1% for R&D
1% for Education distributed on a per child without any requirements
2% for a base living allotment distributed equally to each adult between 22 and 64
1% for Infrastructure maintenance and construction
1% for environmental protection and improvements
1% for FEMA, Army Corp of Engineers, and emergency services
1% for debt reduction until debt is paid off.

Posted by: CHAOTICIAN101 | December 10, 2010 6:15 PM | Report abuse

It is way past time for reform of government overall and especially irs tax regs- 70,000+ pages of loopholes and writeoffs for mostly the landed gentry and corporations. The only fair way to tax is a flat tax with a low end bottom where those in poverty do not pay.......

Institutitng a flat tax enables the reduction of an ineffective agency along with less need for accountants and lawyers both of which are leeches on the system and increase the cost of goods sold and taxpayers......

Time for reform is now- end these senseless and unethical wars and bring our troops home and close down nearly all foreign bases and cancel all weapons programs....we have killed and maimed hundreds of thousands since 9/11 and in the end are doing nothing but encouraging more people to become terrorists- enough is enough- STOP IT NOW.

End ineffectvie policies and close down or slim down hugely those agencies such as doe (35 years with one goal to get us off foreign oil all they have done is institute regualtions which have made it impossible to achieve the goal and in fact we are now more reliant on foreign oil than ever before), dea (huse waste of 40 years and hundreds of billions- we live in a free country (supposedly) let the people chose- legalize drugs and tax as sane societies around the world are doing as well as 11 states that have decriminalized marijuana, nida, dept of education (let the states handle), 146 security forces - cut in half and let half the police state implementers go, etc. etc.

End all earmarks and make lobbying illegal
and reform DOJ- which has now been bought off by the landed gentry and greedy corporations.....

TIME TO REFORM ALL!

Posted by: ticked | December 10, 2010 6:17 PM | Report abuse

As an uneducated person I surely would like to know how and when the Obama administration will penalize SS. No mention in all this talk of how we seniors are to survive while the rich get richer us a fast ball.

I have come to an ubneducated conclusion, either you are rich or poor in the USA Speak up Obama we seniors are entitled to know now that it appears there is no so-called Middle Class. Just poor,poor,poor if You do not have trillions tucked away nice and safe.

Posted by: LOONYBIN2000 | December 10, 2010 6:52 PM | Report abuse

(mine's in biophysics, what's your's in out of curiosity?)

=================

Which might explain why you think Ezra has an interesting take on things.

Posted by: PanhandleWilly | December 10, 2010 8:43 PM | Report abuse

Perhaps we can get somewhere if we acknowledge the semi-hereditary ruling class that we have created, and declare that they're not to be taxed at all (say, the top 1 or 2 percent of high income recipients and/or wealth holders). Get them out of the discussion and then see what the rest of us are willing to fund through the government and also to pay for. As it is, we're fixated on these pitiable rich folks, to the point of paralysis. The only question would be whether to include corporations, since they're legal persons and part of the ruling class.

Posted by: Socrates2 | December 10, 2010 9:26 PM | Report abuse

I have posted this already here before You guys should stop complaining because, one the health care we have now isnt as good as it was supposed to be. also the law has just been signed so give it some time. so if u want to say u have the right to choose tell that to ur congress men or state official. If you do not have insurance and need one You can find full medical coverage at the lowest price check http://ow.ly/3akSX .If you have health insurance and do not care about cost just be happy about it and believe me you are not going to loose anything!

Posted by: dionflowers | December 11, 2010 6:10 AM | Report abuse

Why does no one bring up the wars when they're talking about taxes? I'm fine with a smaller government if that means less foreign military involvement abroad, but for far too many republicans they don't consider military spending to be part of government spending, and don't see the need to increase revenue when we increase government spending. It's pretty disgusting that some of those on the right think that it's ok to start two wars and give huge tax cuts at the same time. It's the height of fiscal irresponsibility.

Posted by: SnowleopardNZ | December 11, 2010 6:53 PM | Report abuse

Tax rates are "beneath what's needed to fund the government we've chosen to have".

Who is this "we"?

Taxpaying workers get the majority of their government services from their local government, i.e., city and county.

The Federal government should be gutted - perhaps down to only 1-2% of each citizen's income. Enough to pay for National Defense and standardization of State/Local laws.

Posted by: b1978367 | December 11, 2010 7:33 PM | Report abuse

b1978367 asks who the "we" is who have chosen to have a Federal government of a certain size.

Well, the bankers who crashed the economy and got bailed out -- complete with bonuses -- are among the "we" who have recently needed tax revenues to help them out. Those "services" were not about to come from state and local governments.

And Medicare and Social Security apparently don't register on b's radar of essential social services?

Actually, probably not. After a painful bloodbath through a privatization process, everybody -- except maybe Lloyd Blankfein and his 2 percenter friends -- is going to have to sacrifice a bit for the country to get to get back on an even keel.

As to b's fantasy about 1-2% of aggregate income covering National Defense and a bit of administrative expense related to standardizing State/Local laws?

Hey, b, Congratulations! You've just won this week's Sean Hannity prize for clearest demonstration that you don't have a clue as to what you're talking about, though it hasn't stopped you from running your keyboard.

My son, GDP for FY 2010, which is the gross measure of income used for talking about these matters -- taxable income would be even less -- was pegged at $14.12 trillion, plus or minus a few billion. Overall defense related expenses were pegged at $1.35 trillion (high estimate) $1.01 trillion (low estimate). So that's between 7.2% and 9.6% of GDP.

OK Seanstein, tell us exactly how you get 7.2% or 9.6% of GDP out of a Federal tax of 1-2%?

The mind-boggling chutzpah of some people, who even wear their drive-by ignorance as a badge of honor!

Oh, by the way, in case you were wondering whether there is actually a small cabal of bankers who are in a position to bring down the world's financial systems on their own, over lunch, check out the lead article in Sunday's NYT.

http://www.nytimes.com/2010/12/12/business/12advantage.html?hp

Posted by: billyblog | December 11, 2010 10:55 PM | Report abuse

Why would anyone ask Glenn Hubbard anything about taxes in the first place? As Ezra pointed out, he was one of the architects of the Bush tax cuts which got revenues and expenses out of joint in the first place.

"Ask first the size of government"? As Hubbard has revealed over the years in his occasional pratings on Marketplace (where I hear him since I would never waste time actively seeking out his 19th century red-in-tooth-and-claw opinions), that's code language for: privatize (i.e., cut) Social Security and Medicare. And after you have done that, turn to cutting Social Security and Medicare -- some more.

Of course, they will never be entirely cut, because we don't want to have to clear too many homeless and infirm old people from the streets. So set up a nice stream of taxpayer money to fund safety net services at the minimum level necessary to make sure that at least the grandparents of those in power are not disadvantaged in some way.

Of course also pass that money exclusively through the ultra efficient private sector, with government being merely the front man, à la no-public-option Medicare Part D, and now, if it survives, Obamacare. You know, the sort of ultra-efficiency that brought prescription drug rates for Part D in at $30 billion a year greater than they would have been if we had a, well, Medicare prescription drug option, and not just a Humana, United Health Care, BlueCross, etc option.

That figure of $30 billion a year in savings if we introduced a Public Option into Part D? Why it's directly from Candidate Obama's White Paper for his Health Care Reform (HCR) plan (since disappeared from the Internet), the one that also promotes Obama's commitment to a Public Option for <65 HCR and drug reimportation, along with a call for the above mentioned missing Public Option for Part D.

Along with the White Paper, these proposed funding mechanisms for HCR were themselves disappeared when Obama and Max Baucus went into non-CSPAN negotiations in the March-May 2009 time frame with PhRMA about what HCR would really be about.

And, oh yes, remember the other principal funding mechanism that candidate Obama had earmarked for financing HCR? That's right, those Bush tax cuts for the rich. He and frisky Maxie quietly decoupled them at the outset from HCR, and in the process sent an unambiguous message to the Democratic leadership that the time was not quite ripe for rolling back those tax cuts.

Of course it was good political strategy for HCR, as I think Ezra himself argued at the time -- but I'll let him check his own Nachlass from American Prospect. Just imagine how many Republican votes for HCR Obama would have lost if he had insisted on keeping the repeal of those tax cuts tied to HCR!

Which is why the attempt to lay -- in any way -- the current 11th hour hostage debacle over tax cuts for the rich at Nancy Pelosi's or Harry Reid' feet is either Republican-like mendacity or political Alzheimer's.

Posted by: billyblog | December 11, 2010 11:04 PM | Report abuse

Yes most of the brands do give out samples of their products. Look for "123 Get Samples" online and get the samples. They are the best. You wont need CC.

Posted by: winnifred1 | December 12, 2010 3:33 AM | Report abuse

"Rather than simply increasing taxes -- which is very unpopular...."

The interesting question is why increasing taxes is so unpopular. Was a time when Americans recognized a responsibility to fund their government, with not too much complaining about a top marginal rate of 91% in the Eisenhower years. People may not have liked paying taxes - I don't, in the same way I don't like paying my rent bill or phone bill - but they paid them as part of the deal of being an American.

Reagan and the Republicans have poisoned the atmosphere by making paying taxes an issue, so that now no politician dares state a simple truth: once the economy is healthy, we are going to have to contribute more in taxes to pay off the Reagan/Bush debt.

Posted by: quickj | December 12, 2010 10:48 PM | Report abuse

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