WG/Strategies/Economic Regulation/Tax Reform
Use the Discussion tab for this page to discuss proposed goals involving tax reform. Place reference information and proposals on this topic here on the Page tab. To find another topic, return to the Strategies, Proposals, Positions page.
The current US tax law contains a large amount of compliance difficulties; estimates are that personal and corporate compliance costs between $300B-$600B a year; according to this out-dated study it was about 24 hours per person. While the Bottom 99% recognize that accountants have to eat too, this does strike us as a bit excessive.
The ultimate goal should be a federal revenue plan that covers expenses; serious debt reduction can occur organically after this recession ends and incomes rise, but implementing an austerity strategy which would struggle to find extra revenue sources that don't hamper our stumbling economy is not wise. A moderate and achievable goal is 3% of outstanding debt, requiring roughly a $400B surplus; it's a good show for the bond market that America isn't given over to MMT Chartalists but not so onerous that it'll crush any hope of having a successful recovery.
Achieving even that goal is going to be difficult, but if it were easy it would've already been done.
The current tax and benefits system is needlessly complex and wasteful. Social Security is designed to regressively pull money from and then pay back a flat amount to every American, whether they need it or not. Welfare programs attempt to alleviate symptoms of poverty such as food insecurity and support for dependents without addressing the root cause of poverty. Income and deduction calculations are ridden with entrenched interests. Earned Income Tax Credits incentivize fraud and allow employers to offer inadequate wages otherwise untenable, creating welfare traps.
The system is inefficient and broken and needs to be scrapped.
Luckily, there is a solution which has been proposed and even promoted by economists of all stripes: the negative income tax (NIT), as endorsed by the Keynesian Tobin, the Austrian school Nobel winners Hayek and Friedman, and a host of others. In its simplest and best form, a target income is set; in practice this would be a function of individual poverty levels arising out of members and dependents in a household, though for this proposal roughly $35k/yr was used as it represented an American average of the double of (the average poverty threshold plus 10%). Citizens earning less than their target amount in gross income have half the difference awarded to them by the NIT, while citizens earning over that amount pay according the usual American progressive bracket system.
For example, a person who has no gross income for the year (a retiree or disabled person), is awarded half the difference between their gross income and their target income, or $17.5k (mean poverty level plus 10%, a bare minimum amount sufficient to live without savings and just a little more). Someone making $30k/yr is awarded an additional $2.5k (half the difference between $30k and $35k). Someone making $50k per year is taxed on the $15k they made over the target amount of $35k.
Fundmentally, the negative income tax would replace all welfare programs and Social Security, all deductions, and corporate income tax deductions, ultimately scrapping all those programs, and more importantly a large portion of their administration and compliance costs.
- Expenses for Social Security and other welfare programs for 2009 was roughly $1.2T.
- The amount of money required to ensure that every American household was guaranteed a minimum income and food assistance to total to 10% over the poverty threshold is approximately $700B; this assumes that universal healthcare has been implemented and its costs tracked separately.
- Removing all welfare programs and the current income tax filing requirements, replacing them with the NIT, saves the government $500B and ensures that no American lives in poverty.
- Medicare and Medicaid and associated medical expenses carried by the government cost $1.3T; universal health care would cost an additional $0.3T more (see the section on Wage Stagnation)
- With these adjustments, target revenue for the government, before discretionary expenses, is $2.3T.
- All other taxes, excluding Social Security and personal income tax (i.e., excise taxes and duties) and assuming a flat 20% corporate income tax would be roughly $300B.
- Therefore, setting corporate tax to 20% and maintaining other taxes sets the total target revenue for the NIT at $2.0T.
- Personal income last year was $7.6T.
- Universal healthcare should increase realized wages by approximately $700B (see the section on Wage Stagnation) and elimination of the Social Security payroll tax increases realized wages by approximately $900B for a total gross income increase of $1.6T
- Current income tax revenue is $870B, meaning roughly $1.1T in increased taxes would be required to meet the new mandatory government expenditure target of $2.0T.
- With a gross income increase of $1.6T but a requirement for $1.1T in additional taxes, this still affords a net $500B increase to aggregate income after paying for the guaranteed minimum income, negative income tax, and universal healthcare; this corresponds to roughly a 6.5% increase to gross aggregate wages of the average American.
- Ending the wars in Iraq and Afghanistan but putting down money for debt reduction means $1.5T in additional revenue is required!
Participation and ability to claim the Guaranteed Minimum Income (basically, to enjoy the negative income tax) would require the participant to show one of the following:
- Caretaking (child at home too young to attend school, looking after the disabled)
- Acquiring a post-secondary education or training at accredited institution (only once every ten years, unfortunately)
- Retired (age 65+)
- Looking for work (as this basically replaces Unemployment Insurance)
- Volunteering at a non-profit or performing community service for 25 hours per week.
This incentivizes work and education, recognizes roles and community-building generally previously not compensated, and encourages home- and community-building.
Guaranteed Minimum Income can support people while they innovate, engage in entrepeneurship or recover from previously failed systems. A major advantage of guaranteed income is the reduction in administration costs, which goes away if you start placing constraints on it. For example, we could extend the free school lunch program from only poor students to all students for only a 30% increase in cost, thanks to the ability to abolish all the beaurocracy around deciding which children are qualified.
People don't want to be passive. People want to do things and be productive and collaborate. Unfortunately the stress of providing for the every day basic necessities (including the enormous burden of government paperwork and job/training requirements, which are mostly a boondoggle for the unaccountable private firms the government hires) leads to decision fatigue which prevents people from engaging in productive activities when they are overwhelmed with poverty. We need to stop demonizing people who don't work and instead make it easy for people to be productive even if they aren't in the formal economy. We should be encouraging informal child care arrangements, skill exchanges, start-up activity, open-source contributions, free community schooling, crafting and other forms of productivity among those who don't benefit from formal employment. In the meantime we save the government money, we eliminate the need for minimum wage laws, SNAP, welfare, Section 8 and other micro-managed government programs and we create a new creative class that can drive American growth and innovation. It also prevents worker exploitation, as the punishment for not taking a dangerous or exploitative job is no longer starvation. What's not to love?
Please put most concerns and questions into the Discussion tab, and only summarize items here when they are clear, short and serious.
I don't think there is either the money or the political support for a system in which the government supports everyone in the country to be at some basal level of income. For people who are able to work, I think there should be "workfare" to give the recipient some responsibilities, pride, incentive to work, and to give society some benefits for the considerable money spent, which can last a lifetime. I think this is a ripping bad idea as proposed.
- check the above incentivization scheme. I knew I should've included it with the numbers. :)
- as far as cost is concerned, it's difficult to answer. Our current schema is costing us $1.2T in debt a year: if America wants to maintain a social safety net, then things are going to have to get efficient at a very fundamental level. Making Social Security progressive (as this does - folks making money don't get the GMI, and that also goes for retired folks... but now you can retire and effectively enjoy what is Social Security if you DON'T have sufficient savings), replacing current patchwork schemes to strictly incentivize work or community participation... I feel there's a lot of good here.
- as a side note, the GMI encourages consumption and boosts GDP - there'd be a real "trickle-sideways" effect.
-- As Facebook and other free-for-participation internet companies demonstrate, consumption and participation is a valuable contribution. Say suggests that people would just switch to barter in our current situation, but unfortunately barter doesn't work well at all. By guaranteeing basic income (even without excluding undeserving people as proposed above) we are basically providing liquidity to the macro economy and guaranteeing that it will continue to function even during an economic downturn. This approach is the equivalent of the discount borrowing window for banks, only for Main Street instead of Wall Street.
- in the final analysis, there's a serious structural unemployment problem in America, and there IS no current answer about what to do with the fact that there's THIS: (
http://research.stlouisfed.org/fredgraph.png?g=2Ok ); that's the percent of Americans not in the labor force. It's been growing since 2000, and has an ugly upward trend. There's a good half-dozen sorts of measures like this, but basically either America accepts a growing, permanent underclass or we start entertaining real game-changing solutions.
-- Productivity has soared: ultimately we don't need as much productive labor as we used to. Previous rises in productivity (like the industrial revolution and the cotton gin) allowed first children and then women to leave the workforce, and the most recent productivity increases in the home allowed women to re-enter the workforce while still increasing their leisure time. We are currently using a system that is terrible at distributing leisure. We need to either legislate shorter working hours (for everyone, not just "non-exempt" workers) or make work optional. If you want to live on bare minimum and no one is willing to pay you enough for your skills to motivate you to stop living on the bare minimum, it is probably more advantageous for the economy as a whole to support your basic consumption (this is what Tyler Cowen calls "zero marginal productivity workers"). It should not be workers' responsibility to force companies to hire them, because they don't have the power to do so. It should be the companies' responsibility to make their work worth doing.
4. Tax hedge-fund gamblers.For starters, we need an immediate repeal of the preposterous and indefensible carried-interest tax break, which allows hedge-fund titans like Stevie Cohen and John Paulson to pay taxes of only 15 percent on their billions in gambling income, while ordinary Americans pay twice that for teaching kids and putting out fires. I defy any politician to stand up and defend that loophole during an election year. - Matt Taibi in My Advice to the Occupy Wall Street Protesters,
Under no case should tax law advantage capital over labor. Capital gains should be taxed identically to income, for that is what it is.
Points of Information
Abolish the Mortgage Interest Deduction
It is a huge subsidy for the 1%, distorts our markets and encourages people to borrow when they could pay cash, giving even more money to the banks.
Points of Information
Based on: SPP Tax Reform at wikispaces