I think that these are even more abhorrent than Entitlements since the giveaways represent government favoritism, they bias the affected markets and they should be eliminated in favor of lower taxes for all.
To focus in on any one of these tax tricks would be like hand-wringing about tornadoes against a backdrop of hurricanes, typhoons, blizzards and tsunamis. They all need to go.
Here's a list of a whole bunch of them and the associated federal tax revenue losses:
The list adds up to $4.122 trillion over 5 years or $824 billion/year. There are also some smaller ones.
Highway subsidies $ 35 billion/year
Accelerated depreciation $ 24 billion/year
Accelerated depreciation $ 24 billion/year
R&D tax credits $ 7 billion/year
Farm subsidies $ 6 billion/year
Federal Reserve interest payment to banks on reserves $ 9 billion/year
$ 81 billion/year
These bring the total to $905 billion/year but there's more.
Farm subsidies $ 6 billion/year
Federal Reserve interest payment to banks on reserves $ 9 billion/year
$ 81 billion/year
These bring the total to $905 billion/year but there's more.
These bring the total up to $979 billion/year (above table covers three years).
This doesn't include the 6% dividend that the Federal Reserve pays to member banks; this number was $1.2 billion in 2008 and doubles every 4 years or so.
Related Connecticut state tax trickery of $358 million is quite modest by comparison. Extrapolating by population, this is another $30 billion/year; roughly 1/33rd of trickery at the federal level.
The sum of all this trickery exceeds $1 trillion/year excluding the costs of management. All this favoritism also smacks of backroom deals, campaign contributions and general corruption.
This doesn't include the 6% dividend that the Federal Reserve pays to member banks; this number was $1.2 billion in 2008 and doubles every 4 years or so.
Related Connecticut state tax trickery of $358 million is quite modest by comparison. Extrapolating by population, this is another $30 billion/year; roughly 1/33rd of trickery at the federal level.
The sum of all this trickery exceeds $1 trillion/year excluding the costs of management. All this favoritism also smacks of backroom deals, campaign contributions and general corruption.
Don't get the idea that I'm arguing for more taxes because I'm not.
However, I do favor getting rid of all of this tomfoolery in exchange for cutting corporate and personal income taxes equivalently.
I would also except income from Social Security since we already pay income taxes on the amounts withheld and taxing it again is double taxation; credit my cousin Suzanne for pointing that out to me.
Reform Details
State
For state tax trickery, most is corporate handouts (see table below) so elimination with a corresponding reduction of the 9% state corporate tax rate should be better than a wash; this stuff invites tax fraud and costs money to implement and verify.
Total corporate tax revenue in Connecticut is about $400 million/year so the average trickery of about $130 million should wash out with a rate reduction to 6% for all corporations.
Federal
Health Insurance
Federally speaking, of all of the tax trickery that goes on, the biggest by far is that employer-provided healthcare is not taxed like wages are; there is no equivalent to a payroll tax. I think this is a subsidy for the biggest, most profitable business on earth. I'd wager that if companies paid tax on it, there'd be a lot more push-back on health care costs by folks with clout; that could not be ignored. Taxing this with FICA (payroll taxes) ought to focus industry on the 30% profits of insurance companies and the 40% profits of hospital conglomerates; at least until Obamacare entices all employers to stop providing $14,000 coverage for all in lieu of the $2,000 tax. When that happens, we'll buy our own and be glad the corporations stepped up to the fight first.
That is the only tax I would add but it is mostly an attention-grabber since I will propose halving corporate taxes as I progress through this mess.
Retirement Savings Deductions
If we look at the Retirement Savings breaks (mostly 401(k) tax deferrals) and the Reduced Capital Gains Rate, getting rid of them in exchange for lowering all tax brackets is basically a wash at the low end and better than a sharp stick in the eye at the high end. The average deduction is $2,733/year so the tax break would be $684 in the 25% bracket so reducing the bracket from 25% to 23.9% makes it neutral. More on Capital gains later.
Social Security savings are taxed, why not this stuff?
Mortgage Interest Deduction
I think the mortgage interest deduction is huge dollar-wise but I think that all it really does is non-linearly inflate the cost of housing; like Medicare and Medicaid inflate the cost of health care; like government funding inflates the cost of education; etc..
Given a debt-to-income recommendation of 36% and the assumption that 85% of debt is for real estate ($1,581/month), the average $62,000 earner can afford a $300,000 home with a 30-year fixed rate of 4.475%. The $10,000 in interest represents a $2,500 tax savings in the 25% bracket, or 4% of gross. Reduce taxes by 4% more and it's a wash.
However, I do favor getting rid of all of this tomfoolery in exchange for cutting corporate and personal income taxes equivalently.
I would also except income from Social Security since we already pay income taxes on the amounts withheld and taxing it again is double taxation; credit my cousin Suzanne for pointing that out to me.
Reform Details
State
For state tax trickery, most is corporate handouts (see table below) so elimination with a corresponding reduction of the 9% state corporate tax rate should be better than a wash; this stuff invites tax fraud and costs money to implement and verify.
 |
| CT Tax Credits 1995-2007 |
Federal
Health Insurance
Federally speaking, of all of the tax trickery that goes on, the biggest by far is that employer-provided healthcare is not taxed like wages are; there is no equivalent to a payroll tax. I think this is a subsidy for the biggest, most profitable business on earth. I'd wager that if companies paid tax on it, there'd be a lot more push-back on health care costs by folks with clout; that could not be ignored. Taxing this with FICA (payroll taxes) ought to focus industry on the 30% profits of insurance companies and the 40% profits of hospital conglomerates; at least until Obamacare entices all employers to stop providing $14,000 coverage for all in lieu of the $2,000 tax. When that happens, we'll buy our own and be glad the corporations stepped up to the fight first.
That is the only tax I would add but it is mostly an attention-grabber since I will propose halving corporate taxes as I progress through this mess.
Retirement Savings Deductions
If we look at the Retirement Savings breaks (mostly 401(k) tax deferrals) and the Reduced Capital Gains Rate, getting rid of them in exchange for lowering all tax brackets is basically a wash at the low end and better than a sharp stick in the eye at the high end. The average deduction is $2,733/year so the tax break would be $684 in the 25% bracket so reducing the bracket from 25% to 23.9% makes it neutral. More on Capital gains later.
Social Security savings are taxed, why not this stuff?
Mortgage Interest Deduction
I think the mortgage interest deduction is huge dollar-wise but I think that all it really does is non-linearly inflate the cost of housing; like Medicare and Medicaid inflate the cost of health care; like government funding inflates the cost of education; etc..
Given a debt-to-income recommendation of 36% and the assumption that 85% of debt is for real estate ($1,581/month), the average $62,000 earner can afford a $300,000 home with a 30-year fixed rate of 4.475%. The $10,000 in interest represents a $2,500 tax savings in the 25% bracket, or 4% of gross. Reduce taxes by 4% more and it's a wash.
Children
The Earned Income Tax Credit and the Child Tax Credit are essentially Welfare duplication and should be abolished. They also encourage foster care fraud and cost even more money to implement and verify. If you can't afford kids, I suggest celibacy, condoms or the liberal's favorite; just not on my dime, please.
We already get a deduction for dependents.
State and Local Tax Deductions
State and local tax deductions should also go. Given that, of the 40% paid in taxes 20% is state and local tax (sales tax too), dropping the 25% bracket by another 5% makes it even again.
Capital Gains Rate versus Inheritance & Gift Taxes
Now that the 25% bracket costs just 14.9%, eliminating the preferred Capital Gains rate in favor of the regular tax rate makes the average $62,000 earner tax neutral while the 1-percent group pays 29.8%; better than a sharp stick in the eye and probably what a liberal would call more fair although I'd say anything but a flat tax is unfair.
The trade-off should be the abolishing of the inheritance tax (aka the death tax) and the gift tax; we should be able to do as we please with our earnings.
Tax Deferral on Foreign Subsidiary Income
To fix the problem with this (can you say Apple?), the corporate tax rates need fixing. The chart below shows the magnitude of the problem and would show $1.7 trillion for 2013.
Other Corporate Payola
As part of this deal, abolish the deductions for Accelerated Depreciation of Capital and for R & D. Regular people can't depreciate their stuff so businesses shouldn't either; if you need it to turn a profit, why should taxpayers finance it?
Same goes for R & D; innovate or die and don't burden taxpayers with your problem.
Charitable Deduction
The deduction for charitable giving should also be abolished in favor of another reduction of 3.75% allowing for the private funding of Welfare, Medicaid and whatever as I suggest at the end of a previous post.
Liberals love to give their money away so confiscation is not needed.
This is promoting the general welfare as intended by the Constitution.
Transportation
Highway Subsidies to states, largely funded by fuel taxes, are the wrong way to go. Taxing fuel is dumb, especially for this purpose. We end up giving lots of it back for the LIHEAP Welfare program as well as taxing farmers, landscapers and boaters for highway improvement. It also raises the cost for home heating.
Given the more than 1.2 trllion ton-miles driven every year, a tax of a 3 cents per ton-mile would produce $36 billion/year. Of the 47,908 interstate miles, Connecticut has only 346 so we'd get $405 million/year from the federal levy; far more than we need. No cabinet department needed, just a ton-mile tax on the interstate operators since large vehicles deliver the most wear and tear to our roads. Every dollar received is automatically distributed to the states by mileage ratio so congress can't touch it.
Do the same with ships and pay to keep the harbors dredged by the Army Corps of Engineers.
Farm Subsidies
This brings us to Farm Subsidies. This is an anachronism from the depression of the 1930's.
Given $440 billion in revenue and the tax reductions proposed herein, this subsidy can go. Additionally, removing fuel taxes will shave production expenses.
The reduced tax burden helps all businesses grow and hire workers.
Preferential Corporate Tax Rates
Similarly, all of the preferred industry rates shown in the third table from the top can go since corporate rates are halved by the tax reductions proposed herein.
The biggest losers (dollar-wise) are Energy, Telecommunications and Information Technology Services (whatever that is); I have no doubt they'll be fine without having me subsidize them.
Summary
I have proposed ending all tax trickery favoring the few with broad tax reductions favoring all. This swap is essentially revenue neutral and causes no pain for the average earner; the middle class.
In reducing the 25% bracket to 11.15%, this plan:
- Makes retirement more affordable while eliminating the 401(k) deduction
- Enables the funding of Welfare and Medicaid outside the auspices of government confiscation while eliminating the charity deduction
- Eliminates the mortgage interest deduction
- Eliminates the state and local tax deduction
- Lays the groundwork for my proposed Grand Bargain.
In chopping the corporate rates in half, this plan:
- Repatriates foreign dollars
- Ends corporate handouts
- Promotes the growth of all businesses
- Adds a wake-up tax on employer-sponsored health insurance; due to Obamacare, companies will soon stop providing this benefit (in lieu of the penalty tax) so using (forcing) the corporate lobby to drive down costs first will be helpful
In eliminating the preferred Capital Gains rate, this plan:
- Reduces the top bracket to 25.75% (same 13.85% reduction as for the 25% bracket)
- Taxes the real source of the 1-percent's income by taking 10.75% more
- Eliminates inheritance and gift taxes
In replacing the fuel tax with a ton-mile tax on heavy vehicles, this plan:
- Taxes the real source of highway wear and tear
- Reduces farm production costs
- Reduces heating oil by about $1/gallon and gasoline by $0.63/gallon in Connecticut
- For me, this is worth nearly $2,000/year
- Funds the Army Corps of Engineers if also applied to ships
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