From Wash Post: Some Easy, and Not-So-Easy, Tax Fixes

[papau]

http://www.washingtonpost.com/wp-dyn/articles/A53339-2004Apr5.html


Some Easy, and Not-So-Easy, Tax Fixes
By Allan Sloan Tuesday, April 6, 2004; Page E03
<snip>
1. Reform the estate tax. This is a tax that affects the estates of about 2 percent of the people who die. Congress created it to make sure a handful of wealthy families didn't end up dominating the nation. But the tax became a threat to estates of the middle and upper-middle classes. Bush's top priority is eliminating it. Instead, let's restore its initial function. Establish a big exemption -- $3.5 million a person -- and index it so it increases at the rate of inflation. And cut the maximum estate-tax rate from its current 48 percent to the personal max tax rate, currently 35 percent.

2. Keep the 10 percent bracket and "marriage penalty" fix. Many of Bush's tax cuts, set to expire in stages through 2010, may be allowed to expire by Congress if he loses. Lots of them ought to expire, but here are two keepers: the new, low 10 percent bracket and the fixes that treat married couples almost the same as two single people. It's socially just.

3. Create a trust fund we can trust. Social Security will take in about $75 billion more cash this year than it spends, and its trust fund will earn about $85 billion of interest on its $1.6 trillion of Treasury bonds. That interest won't count as a budget expense. This $160 billion makes the budget deficit look smaller, and doesn't set aside any real wealth for baby boomers' retirements. Let's change the law to allow the trust fund to buy mortgage-backed securities and such -- but no Treasury securities and no stocks. Require the Treasury to pay cash interest on the fund's T-bonds, rather than paying with Treasury IOUs. This will set up a real trust fund -- and add about $160 billion to the stated budget deficit. It won't change any underlying economics, but it may help scare people into curbing the deficit before it eats us all.

4. End the tax cut for dividends and capital gains. Come on, already. Income is income. Taxing dividends and capital gains as regular income would still leave them with a significant advantage over salary -- you don't pay Social Security and Medicare tax on investments. It's wrong on both fairness and fiscal grounds to give capital income a subsidized ride while charging salary earners full fare.

5. A war surcharge. Civilians are supposed to sacrifice during a war. Our soldiers risk their lives, we civilians support the troops and pay for the war. But we're paying our Iraq and Afghanistan expenses with borrowed money, much of it from foreign central banks. Instead of sacrificing, civilians are partying with tax cuts. Let's have a 10 percent temporary war tax on people and corporations to raise $100 billion a year for the war on terror. Rates would rise to 11 percent to 38.5 percent from the current 10 to 35. Families with soldiers in Iraq or Afghanistan would be exempt.

6. Fix the alternative minimum tax. Both the Bush and Kerry camps duck when this topic comes up, with good reason. It's a mess. The AMT is arbitrary, unfair and confusing, and has morphed from a trap to catch a handful of rich tax avoiders into a snare for the masses. We ought to kill it outright and raise tax rates to offset it. But I don't know how that plays out. For starters, we should lower the AMT rate but subject dividends and capital gains to the AMT.

COMMENT -HOW DO I DISAGREE WITH A FELLOW THAT AGREES WITH ME!

:-)

[Warpy]

1. Don't tie any tax to fixed dollar amounts

Instead, reinstitute a progressive tax structure that would tax disposable income rather than subsistence income, and tie it to the median wage. Adjust the rates every 6 months in times of rapid inflation or deflation, every couple of years otherwise. Rigidly adhereing to dollar amounts is what sank the old progressive income tax, a tax which had worked very well for this country until the oil shocks and resulting double digit inflation began to kill the middle class.

Remove the laughably low cap on earnings subject to FICA. In fact, remove it completely. We need disincentives to executive greed, and corporations are not going to want to match FICA contributions on outlandish multimillion dollar salaries.

Revamp the formula for determining the poverty line, below which there should be no taxation, period. The current formula assumes 1/3 of the family budget is for food, and relies solely on food costs to determine poverty level. Inflation in housing especially has driven that down to 1/6 of the average family budget, and the poverty level we have now is more of a destitution level.

Your other suggestions are good ones.

[papau]

2. disposable income can be approximated by all income less deductible

And we also agree on removing the cap on earnings subject to FICA.

Again not taxing below poverty line is equivalent to a large deductible and a rebate of some or all payroll taxes for those that are "negative" after subtracting the deductible.

You and I are are on the same page! Now to get Congress to make the changes - which mean getting the media interested!

I really really hope we succeed, since if we do not this country becomes another third world with no middle class.

[OneBlueSky]

3. return to progressive taxation . . .

it served this country well for many years, and its abandonment has created two Americas . . . one for the rich, and one for the rest of us . . . taxation based on one's ability to pay is a fair system that should be restored both to reduce the deficit and to even things out a bit between the haves and the have-nots . . .