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Old 02-26-2010, 09:39 AM
juanmorris juanmorris is offline
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Default How To Clean Up The Tax Code
On Feb. 23 Senators Ron Wyden (D-Oregon) and Judd Gregg (R-New Hampshire) introduced S. 3018, a bill to reform the federal income tax. Unlike utopian reform ideas such as the flat tax, which would tear the existing tax system out by its roots and replace it with something completely different, the Wyden-Gregg plan has a more modest goal of just trying to make the tax system work a little better.
The problem historically with utopian plans is that they need to be implemented in totality for them to work. This means taking on every vested interest in any section of the tax code simultaneously. It was a simple matter for those opposed to touching the mortgage interest deduction to join forces with churches concerned about the deduction for charitable contributions and big corporations anxious to keep the research and development credit and all the other special deals that businesses have inserted into the code over the years.
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Against this sort of opposition the benefits to individual taxpayers from a flattening of tax rates would be relatively small. Because we have progressive rates, the wealthy would benefit disproportionately while many of the poor would be devastated by elimination of refundable tax credits that give those with low incomes a negative tax liability--they get checks from the government rather than paying taxes to the government. Many in the middle class would benefit only modestly or would even pay more under a flat tax.
Over the years various tax reformers have tried to tweak the system by raising the personal exemption or continuing the deduction for mortgage interest and charitable contributions. The idea was to buy off the squeakiest wheels. But, in the process, the logic and integrity of the flat tax was lost, and it became harder and harder to make further exceptions lest we end up right back where we started.
More importantly, the flat tax always required a trade off between the exemption level and the rate. The higher the exemption, the greater the number of people paying no income taxes at all, which broadened support. But that required a higher rate to bring in enough revenue, which reduced support. Experience showed that the rate could not be much above 20% or support for the flat tax simply evaporated. This greatly constrained how high the exemption could go--which had to be high enough at least to cover everyone in the 10% and 15% tax brackets, or they would see a tax rate increase.
Finding a rate and an exemption that fully satisfied every political requirement proved to be impossible if the flat tax were to be implemented in a revenue-neutral manner--neither raising nor lowering the overall tax burden. Tax cuts for the rich in effect led to big tax increases on the poor and middle class, which was at least politically untenable. The only way out was to combine the flat tax with a huge tax cut so that basically everyone was better off. But with massive federal deficits facing us, the option of a tax reform that would sharply reduce overall revenues is not likely to be viable for some time to come.



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Some reformers have tried to fudge the issue. They would set up the flat tax as an alternative tax system, and people could choose to either opt in or stay in the existing system. In theory no one could possibly be worse off, because the only people who would opt into the flat tax were those who would pay less. The problem, of course, is that this meant the flat tax would be a guaranteed revenue loser even if it had been designed to be revenue neutral. The only way it could work would be if everyone was eventually forced out of the old system and into the flat tax. But the last ones in would necessarily be those with the most to lose. In the opinion of most tax experts, the idea of allowing people to choose their own tax system was fundamentally ill conceived.
Having exhausted every means of reconfiguring the flat tax to make it politically viable, the idea essentially ran out of steam and died during the George W. Bush years. Those who had previously supported the flat tax instead voted for every tax cut that came down the pike without worrying for a moment whether it was improving the tax code or serving some unmet social need. The only thing that mattered was whether a tax cut would buy votes for Republicans. If so, it was enacted with little if any debate.
Sadly, real tax reformers stood mostly by the sidelines while Republicans added one special interest provision after another to the tax code without the slightest concern for coherence, economic efficiency or the government's fiscal needs. Along the way, the whole concept of spending and tax cuts became deeply distorted.
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Old 03-03-2010, 09:47 PM
daredan daredan is offline
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Yea right, higher taxes are coming, no tax cuts
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Old 03-08-2010, 08:33 PM
The Penny Hoarder The Penny Hoarder is offline
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Yep, I am a fan of S. 3018. The flat tax is a joke and a horrible way to reform the system because it will shift a great burden on the poor and middle class.
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Old 12-27-2010, 07:11 AM
kinah3 kinah3 is offline
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Mozila is the best browser for SEO.
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Old 12-30-2010, 10:32 AM
amy12 amy12 is offline
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Spending restraint and economic growth are the most promising ways to tame America’s deficits. But they won’t be enough. Spending on an aging population and rising health care costs will push government to seek new revenues, too.

Higher income tax rates are not the way to do it. Higher rates will discourage working, saving, and investing and will further encourage people to base decisions on tax considerations rather than real economic fundamentals.
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Old 01-05-2011, 05:32 AM
jeremy2011 jeremy2011 is offline
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Eliminating many of the exemptions, deductions and exclusions in the tax system would save hundreds of billions of dollars.

Spending restraint and economic growth are the most promising ways to tame America’s deficits. But they won’t be enough. Spending on an aging population and rising health care costs will push government to seek new revenues, too.

Higher income tax rates are not the way to do it. Higher rates will discourage working, saving, and investing and will further encourage people to base decisions on tax considerations rather than real economic fundamentals.
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Old 03-28-2011, 11:01 AM
logoonlinepros logoonlinepros is offline
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I agree to you. I think you have mentioned very excellent material. Higher income tax rates are not the way to do it.
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Old 04-12-2011, 08:04 AM
kinah3 kinah3 is offline
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I think a duet would be interesting. Someone like Amy Lee (from Evanescence) comes to my mind.
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