Thebastidge: Leftist Tax Policy (part 2)
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    Thursday, September 09, 2004

    Leftist Tax Policy (part 2)

    Continuing on:

    Tax Shift #3: From Taxes on Wealth to Taxes on Work
    Between 1980 and today, the main tax on wage income, the payroll tax, has jumped 25%. In the same period, top tax rates on investment income and large inheritances have been cut between 31% and 79%. Taxes on wealth are falling fast with shrinking taxes on capital gains, dividends and estate taxes.

    Let's start with those top tax rates. When Reagan came into office, those top tax rates were up to 70% on income tax. Tax rates on inheritence/estate taxes are still 48% of any amount over $2million (combined for spouses). While a $2M inheritence would be quite nice, and will set up a wise and frugal person for a very nice life, (as long as they stay somewhat productive) it is by no means a concentration of wealth that threatens the stability of our democracy. It's a well-established small business.

    Taxing investment income is another bad idea. These guys are still fighting the class war against the 'capitalists'. Well, "Recent data released by the Federal Reserve shows that nearly half of all U.S. households are stockholders."
    The key reasons for this democratization of the stock market include:

    The popularization of the mutual fund.
    The general reduction in the multiple taxation of savings and investment that resulted from the genesis of the IRA and 401(k) plan.
    The emphasis of the Federal Reserve on price stability that has lowered interest rates, stabilized financial markets, and acted as a de facto tax cut.

    In addition to providing a basis for investment needed for economic growth, the increase in stock ownership appears to be cultivating a deeper appreciation and understanding of private enterprise. The involvement of new stockholders in the capitalization of the companies that create wealth allows these new investors to have a better understanding of financial matters. Furthermore, it is suggested that broadened stock ownership can erode class conflict, for "as capitalism expands, a lot of 'them' can become 'us.' It [stock ownership] brings us all together as stakeholders-in-common."

    Encouraging people to build wealth rather than consume it, is a good long-term strategy. Stephen Moore of Cato Institute: Repeal the Grave Robber Tax.
    Tax Shift #4: From Corporations to Individuals:
    Since 1962, the share of federal revenues contributed by corporations has declined by two-thirds, while the share contributed by individuals has risen 17%.

    While corporate income tax has been reduced as a percentage, it has still climbed in absolute numbers. Also, income tax is not the only tax that businesses pay. Licensing and operating fees can be signifcant to smaller businesses, and they all have payroll tax to contend with.

    Significantly, the decline in corporate tax contributions is generally not attributed to tax reductions, but to increased sheltering domestically and internationally by companies "increasingly taking advantage of structural weaknesses and loopholes in the state corporate tax systems." According to the Multistate Tax Commission.
    Estimated state corporate tax collection losses due to sheltering activity: The estimates range from a low-end estimate of $8.32 billion to a high-end estimate of $12.38 billion.
    Scope of problem: The vast majority of U.S. businesses are not part of the state corporate income tax sheltering problem. Very few small businesses can take advantage of the tax sheltering schemes in question. Additionally, some major corporations choose not to engage in aggressive corporate tax sheltering.
    States with biggest dollar losses: Using the mid-point of the estimates, the hardest-hit state in dollar terms was California, which lost up to an estimated $1.34 billion. Next was Illinois, with a $693 million loss, followed by Texas (a $607 million loss) and Pennsylvania (a $582 million loss).
    States with greatest losses, measured as a percentage of revenue: While California’s midrange loss equates to over 19 percent of its corporate tax revenues, many other states absorbed far greater losses in percentage terms. These included: West Virginia, where the mid-range loss estimates equaled 57.8 percent of collections; Ohio at 56.9 percent, Florida at 48.7 percent; and Mississippi at 43.1 percent.
    Average losses for states: Using the mid-point of the estimates, the typical state suffered a corporate tax collection loss of 31.1 percent. The estimated mid-range losses for states ranged from a low of 10.3 percent for Michigan to 57.8 percent for West Virginia.

    Personally, I think we should tax any company that does business within our borders, just not burdensomely. Note that California, one of the highest tax states was hardest hit- the more incentive we give a company for moving revenue around, the more they will respond to that pressure.
    Tax Shift #5: From Current Taxpayers to Future Generations:
    Current tax policies are fueling the national debt, imposing an average $13,000 in additional debt on each man, woman and child in America between 2002 and 2007 —or more than $52,000 in added debt per family of four.2 Our children and grandchildren will pay for this debt through tax hikes, higher interest rates and inadequate public services.

    Any thinking person is concerned about deficit spending by the government. On of my biggest complaints about the Bush administration is that by co-opting some socialist issues of the Democrats, they're spending us intoa deep hole. The Prescirptiojn drug benefit was the wrong end of the system to try to help people. Socialized medicine and medical benefits isn't the way to go. You get more leverage starting with inputs than trying to re-work a finished product. We need reform of the insurance industry and tort reform limiting punitive damages to reasonable amounts. We need to create a more tiered approach to healthcare, with more widely available lower level services feeding into full service hospitals. We shouldn't be using insurance to pay for preventive healthcare and routine stuff: Insurance is for catastrophic situations. There's alot of room for improvements to the inputs of our whole medical process.

    But what we have here is a group calling for tax hikes now, rather than later. I agree that if it's our burden, we should pay for it rather than later generations- they'll have theirown burdens after all. But what the hell, I'll be paying for the baby-boomer's retirements too, so arguably passing on a portion of the burden is morally acceptable. If we succeed in the war on global terrorism, we'll have achieved a world in which later generations will be better able to recover from debt.

    Eh- it's a little late, and I'm not making as much sense on these last points as I'd wish, so I'll pack it in for now and pick up again later. My weekend starts in a couple-three hours and I should be able to get some more done after some sleep.


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