Restoring Balance to Taxes
Capital Gains taxes. The federal rate should be increased.
Income tax. The top marginal rate is high enough. We should lower rates proportional to revenue received from a new Value Added Tax (discussed below). Loopholes and subsidies need to be ended.
Tax Simplification. The more complex the tax laws, the more loopholes and the more difficult it is to figure out. This helps the rich, who can afford to pay lawyers to figure out how to fit in loopholes, and can hire lobbyists who can get subsidies and loopholes added. The 1986 reform act did an admirable job of simplification, but Congress hasn't been able to keep its hands off the tax code, and a host of special provisions have been added in the last 20 years. For corporations, one proposal is to simply have corporations pay tax on the profits they report to shareholders, which is usually higher than what they report to the IRS. The incentive to show higher profits should offset the incentive to cheat.
Corporate taxes. We should increase the share of taxes corporations pay, but do it by reducing the corporate tax rate (to be competitive with other countries) and adding a Value Added Tax (VAT), which is essentially a sales tax. Whether it is a corporate income tax or a VAT, we consumers pay for it in the price of the products anyway. The personal income tax brackets can be adjusted to compensate for the regressive (poor pay a higher percentage of income) character of the VAT.
We can't raise corporate taxes, and probably need to lower them, because corporations will move offshore to where the rates are lower. Other countries have lowered their rates, so that ours is among the highest. To get corporations to pay more tax, we need to tax the products and services. The corporations can move offshore, but their customers are here. In fact, almost all other countries impose such a sales tax, called a Value Added Tax (VAT) because it is imposed at each stage of manufacture. Although complex, it is somewhat self-policing, since each company in the chain can deduct from its taxes the taxes already paid by a company earlier in the chain - thus they will insist the other companies pay their share. The lack of such a tax actually puts the US at a competitive trade disadvantage, since our exports have to pay this tax in other countries, but imports from other countries don't have to pay such a tax here. Alan Greenspan supports such a consumption tax (Fox News, Red Orbit).
Tax enforcement. To recover some of the $350 billion unpaid taxes, the enforcement budget of the IRS needs to be increased. Also, simplification of the tax code would eliminate the availability of loopholes, intended or not, and subsidies.
The corporate AMT helps keep larger corporations from completely avoiding taxes. It applies to corporations with over $5 million in annual revenue, with a rate of 20% (as opposed to the top 35% rate for corporations).
Inheritance tax. This tax, labeled the Death Tax by conservatives, was intended to prevent a rich aristocracy developing in America over the course of several generations, with undue access and influence on government. The exclusion has been very generous - it does not even apply to estates of $2 million or less ($3.5 million in 2009). The highest marginal rate is 45%. It should be maintained.
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