I'm watching the Republican debate. I'm surprised that four of the candidates

[gateley]

thus far have mentioned they want to change the tax system.

Huckabee would eliminate all federal income and payroll taxes which include all personal federal, corporate federal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment taxes. He proposes a "Fair Tax" which is a consumption tax.

Hunter is also a sponsor of the Fair Tax.

Brownback is promoting a Flat Tax.

And of course Ron Paul is anti-fed tax, and I'm unsure as to what his alternative would be

Even McCain said he would re write the tax code.

My point is that I'm in agreement that something needs to be done about taxes. I was surprised that anyone other than Paul suggested a radically different tax. Tax cuts, yes, but eliminate the federal tax?!?

So my question, do any of the Dems have such dramatic designs on the current tax system?

I'm not an economist and I don't understand the potential ramifications of any of these plans, but on the surface, I like 'em!

Thanks.

[scarletwoman]

1. Gravel wants to do away with the income tax in favor of a universal sales tax.

If you really want to know the details, go to his website.

(Sorry, I don't have a link handy -- but google is pretty easy to use...)

[gateley]

3. Thanks - and now that you mention it, I do remember that. nt

[jillan]

2. the dems really haven't discussed taxes yet - have they?

I'm of no help here at all. Sorry!

[gateley]

4. Yeah, I didn't think I'd heard it discussed by the Dems in as much detail as

the R's did tonight. The debate this evening was called "Your Money Your Vote" so that explains why there was so much emphasis on taxes.

I'd like to hear what the Dems would propose and hear more of Gravel's approach.

I'd just love to essentially shake out the tax system to make it more equitable and simplify it.

[MiniMe]

5. All of those proposals are regressive taxes

They hit the poor and middle class harder than they hit the rich.

[fedupfisherman]

6. How so?

Lots of states have sales taxes and keep raising them.

[MiniMe]

13. If you are poor, you are spending 100% (or more) of your income

That means that you are taxed with no exceptions on every penny you make. Meanwhile, the rich spend a relatively minor amount of their income, and a lot of that income would be on their portfolios, and of course, some on inheritance. If you use a tax of say 15% for a sales tax, the poor would be paying 15% on everything, the rich maybe 15% on 50% of their income, which comes out to a 7.5% tax rate.

For a flat tax, it again depends on what you define income as. If it is wages only, again, the rich make a lot of money by means other than wages. States do have sales tax, but most states also have income tax.

On edit, read post #10 for a much better explanation than I gave.

[sandnsea]

7. Take our FICA

give it to the wealthy in tax cuts, then tell us the deficit is because of our social security and that we can't have it anymore.

Yeah, that's a brilliant tax strategy.

[silverback]

9. Or not...

Keeping Promises to Seniors
By Rep. Ron Paul

With our country's finances stretched thin, our credit limit fast approaching, and our currency inflated to the breaking point, there is no indication yet of any urgency on the part of Congress to rein in spending. The predictable answer to the government's voracious spending habits is this week’s proposal by some Democratic Congressional leaders for tax increases to pay for operations in Iraq . Here at home, however, there are promises our seniors heavily rely upon. We must keep these promises.

An analysis of the Social Security "Trust Fund" shows we are not doing a credible job of keeping these promises. Official reports show the trust fund having assets of $2.1 trillion. In reality, those dollars are just IOUs the government is writing to itself when it borrows from the fund to spend on unrelated programs. There are no real assets in the Social Security Trust Fund. This is similar to taking money out of your savings account, spending it, then replacing it with an IOU to yourself, and calling that IOU an asset.

In addition, this money we owe to our seniors is not even included in official budget deficit figures. In fiscal year 2006 alone, $185 billion was borrowed from Social Security. The official deficit was reported to be $248 billion. The actual deficit for 2006 would be $433 billion when combining the two. This sort of accounting would land private sector executives in prison for fraud.

Yet this is done every year by the federal government. The truth is that while politicians in Washington differ about what programs to spend Social Security money on, they are united in wanting to spend it on something other than benefits for seniors.

This approach can continue only until Social Security stops running “surpluses” the government can raid. Trustees of Social Security estimate this will happen in 2017. At that time, the amount owed to the Trust Fund will be between $4 trillion and $5.2 trillion, depending on the economy.

When that day of reckoning comes, there will no longer be “excess” payroll tax receipts available to prop up government spending, and the risk of financial crisis will be significant. Instead of forward thinking solutions, politicians are discussing alarming proposals, such as an agreement with Mexico to let their citizens collect social security money intended for our seniors. This would break the bank even sooner. But, current Members of Congress will no longer be in office to face the wrath of seniors and their families when the trust fund goes bankrupt. Instead, they will be retired and enjoying their own plush Congressional pensions.

I have been working to reverse this trend. My Social Security Preservation Act, HR 219 would make sure this Trust Fund has real assets such as certificates of deposit in FDIC-insured institutions so that in 2017 and beyond, Social Security payments would continue for those who are depending on them.

Congress must take action now, so we can keep the promises we made to our seniors.

http://www.house.gov/paul/tst/tst2007/tst100707.htm

[Mojorabbit]

11. like Gore's lockbox? eom

[CK_John]

8. Reminds me of the powerball winner whining about all the taxes he has to pay.

[progressive_realist]

10. "Fair" and "Flat" taxes are regressive

The current tax system is designed to be progressive, i.e. higher incomes are taxed at higher rates. Any switch from a progressive to a regressive tax system is designed to take money from the poor and give it to the rich.

Consider it this way: A poor person must spend his/her entire income on consumption. A middle-class person spends most of his/her income on consumption, with modest amounts being saved/invested. A very rich person spends a relatively small fraction of his/her income on consumption, with huge amounts being saved/invested. This means that the very poor are taxed on a higher percentage of their income than the wealthy are, so if the tax rate is the same, the poor will end up paying a higher percentage of their income in taxes.

The relationship between personal income and personal consumption is not linear. Changes in consumption will almost always be smaller than changes in income (in either direction). Thus at the bottom of society, consumption equals or even exceeds income (this situation tends to lead to hopeless debt and/or early mortality and thus might be considered undesirable by those with intact humanity). At the very top of society, people have incomes that greatly exceed their ability to spend, and thus personal wealth increases exponentially.

Flat taxes, sales taxes, and other regressive taxes make poverty deeper and give more money to the stupidly rich. Progressive income taxes and capital gains taxes shift the burden to those who can most afford to pay the extra taxes.

Don't fall for the right-wing "tax reform" scams! Their only purpose is to screw the poor and reward the rich.

Edit: To clarify that consumption taxes lead to a higher effective tax rate for the poor.

[dugggy]

12. SO WHAT EXACTLY DOES A "RICH" PERSON DO WITH

MONEY HE/SHE DOES NOT SPEND ON CONSUMPTION?
IS THERE A BLACK HOLE FOR HIS UNSPENT MONEY?
DOES IT GET BURIED IN THE MATTRESS?
DOES IT GET INVESTED IN THE STOCK MARKET?
OR REAL ESTATE?
OR IN RUNNING A BUSINESS?

I AM SURE YOU WOULD KNOW THE ANSWERS!!
WAITING TO HEAR THEM.

[MiniMe]

15. They invest it.

Now could you stop shouting?? If the rich are getting richer as all the statistics show, they sure as hell aren't spending it. They are saving and investing, and making tons of money off those investments, which wouldn't be taxed on a consumption tax.

[dugggy]

27. And in that process of "investing" they create new jobs!

which is why Hillary is the best candidate because during
her husband's adminstration, businesses prospered along
with people. 22 million jobs were created outside of
government.

p.s. excuse me for the capital letters, my caps lock was on
inadvertantly.

[Justitia]

16. personal investments (stock market, CDs, depository bank accounts)

The really wealthy (top 5%) are usually extremely liquid.

[sandnsea]

17. China, India, Dubai

[dugggy]

26. India & China were the two biggest economies for many centuries

going back 3 centuries. It is inevitable they both will
regain that status again. Both have enormous pool of
intelligent & highly educated people plus long history
of civilization. The oldest major religion, hinduism,
is over four thousand years old and budhism originated
in India via Budha who was a prince in India.

All both countries needed was to get away from communism
and socialism, and now that they have discovered capitalism,
it is full speed ahead.

[sandnsea]

30. Which is fine

except when my FICA money funded the tax cuts for the 2% so they could make billions off those economies while the workers in this country are going broke because nobody understands what's going on. Not to mention being told it's blessed capitalism that's creating the growth when it's the same labor exploitation that used to go on in this country under slavery, Jim Crow and immigrant discrimination. The answer is not reducing taxes and regulations here, it's demanding that anybody who imports into the US must adhere to the same labor, environmental, human rights and safety standards that we do. The point of globalization was to reduce poverty through trade, not to create whole new classes of enslaved workers all over the planet.

[Blue-Jay]

19. They invest in a Caps Lock key.

[progressive_realist]

25. Others have ably answered your questions in my absence

But I would like to address an assumption that underlies your questions as well. Part and parcel of right-wing efforts to sell supply-side economics, which this kind of tax "reform" is akin to, is the notion that saved/invested money creates jobs, grows the economy, etc., and therefore lowering taxes on the rich helps the poor indirectly.

However, this argument relies on some slippery usage of the concepts of money, savings, and investment. Most "investment" involves the buying and selling of pre-existing assets in a secondary market. This is not the same as investment in business production activities. Supply-siders would have you believe that whenever capital is accumulated, hearty entrepreneurs turn around and use that hard-earned capital to open businesses, create new technologies, and pay other hard-working Americans wages. In fact, money for such expenses in preexisting businesses is generally subtracted from revenues BEFORE taxable income is calculated, so tax rates are irrelevant and external funds are not involved unless revenues are lacking (in which case the business model might be presumed to have questionable merit, but that is a separate argument).

When external funds are needed, as for opening a new business, the money is borrowed from somewhere. Here the myth of the savings-investment identity comes into play. In neo-classical economics, all borrowing must be done against a counter-party who has saved those funds, and the interest rate is the premium paid to someone for the use of their savings (which presumably they would themselves invest otherwise). But this presumes a fixed money supply, whereas all modern economies operate on inflating money supplies. Through the magic of fractional reserve banking (and a thorough explanation of this process can be found in any introductory Macroeconomics textbook, as well as many places on the web -- try http://en.wikipedia.org/wiki/Fractional_reserve_banking">Wikipedia for starters), banks are able to lend out much more money than has been deposited by hard-working savers. In fact, through manipulation of reserve requirements, the Federal Reserve could theoretically allow banks to lend freely with NO depositors, although I can only imagine the chaos this would cause.

Lastly, because of the huge amounts of money circulating on the secondary markets, I would venture to argue that the vast holdings of the wealthy only retain their value as long as they stay on the secondary markets. If all the money currently "invested" in the stock market was to make its way back to the real economy, it would cause massive price inflation, as much more money chased after a relatively stable pool of goods. There is approximately $100 trillion invested in global stock and bond markets (again per http://en.wikipedia.org/wiki/Stock_market">Wikipedia), while global GDP is only about http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29">$66 trillion. This is a ticking time bomb overhanging the entire economy.

So, in summary:
1) Almost all increases in earnings by the very wealthy will be reinvested in securities and other secondary markets.
2) The money "invested" in such markets is not needed for conventional business activities.
3) If this money ever found its way back into the real economy, it would cause severe inflation and crowd out other activities that were previously productive.

I'm really not seeing any benefit to society from reducing tax burdens on the very wealthy...

[dugggy]

28. What you are failing to understand is that when stocks are

bought, the demand goes up more than supply and the price goes up.
When the price of stock goes up, that corporation can and does issue
more shares. So in effect the corporation gets capital for expansion.
This is more desirable capital than straight borrowing or issueing bonds
because the principal never has to be paid back, unlike loans & bonds.

This is why Bill Clinton's policies created 22 million jobs in 8 years.
I rather look at actual experience than some convoluted and esoteric
theory.

[Mojorabbit]

14. It seems it could be made to work

if groceries etc were excluded. I think the rich are buying the huge mansions, expensive cars, etc and that amount can't be so small, can it? I pay five hundred dollars to have my taxes done as it is so complicated with a small business. I would love for it to be simpler.

[dugggy]

29. Exactly, when you add all the time 200 million people spend

figuring taxes each and every year, it is such a
humongous waste of productive time.

[Apollo11]

21. I would expect every Democrat to understand this.

People on minimum wage should pay zero income tax.

But people who "earn" $1 million a year should pay a big slice of income tax. Maybe 50% or more.

I don't believe that rich people should be allowed to keep all their income to spend on yachts.

If you are REALLY interested in tackling poverty and creating a "fair" America, with enough money to pay for things like social security, good public schools and universal healthcare, then you need to have a progressive scale of income tax (the more you earn, the higher rate you have to pay).

In Europe - everyone understands this. Social-democrats, Liberals, AND Conservatives.

But some consumption taxes are necessary (I would even say desirable) to influence behavior. In England they have huge taxes on cigarettes and gasoline (the pump price is $7.50 per gallon). It rewards people who quit smoking and drive less.

[trotsky]

24. Excellent writeup.

I would add that I have heard most experts say that any such "flat tax" to replace the revenue the gov't collects now would have to be in the 30-35% range. Despite "freeing up" your money from not having income taxes taken out of your paycheck, imagine the sticker shock of seeing everything you buy increase in price by that much. The economy would instantly tumble into recession for simple psychological reasons. Government also loses the ability to help formulate & guide social policy by adjusting tax rates in different areas to encourage/discourage investments or activities.

[Justitia]

18. I was shocked to hear so many of them with the "tax attack". Dangerous & Delusional.

They underestimate their audience, this crap has been slapped down for years.
Do 5 minutes of mental math and you quickly figure out why all those plans suck for anyone but the very wealthy.

Then again, that kind of crap is red meat for their stupid base who only listen for code words and are too stupid to figure out how screwed they'd be under such plans.

[Faryn Balyncd]

20. By repealing the FICA tax, the entire social compact of Social Security is destroyed......

People who have paid into the system for 45 years under the premise that they were paying into a system that would then pay them retorement benefits suddenly have no one else paying into the system.

And since the 45 years of surpluses have all been spent on genral revenues, there is no "trust fund" to pay their benefits.

So there is no longer a constituency politically sufficient to support continuing benefits.

And suddenly FDR's social insurance program becomes a "welfare" program, no longer a pension that the worker, who has paid into the system all his life, in good faith, is entitled.

Social Security, as an earned retirement benefit, will cease to exist the day payroll taxes cease.

And an extire generation will be shortchanged, just as their earning potential has disappeared.

[gateley]

22. Okay - I understand the premise of progressive vs 'flat' or 'fair'. If it's that

cut and dried, why/how does Warren Buffet pay less income tax than his secretary?

This is from Huckabee's site:

------------------------------------

The FairTax will replace the Internal Revenue Code with a consumption tax, like the taxes on retail sales forty-five states and the District of Columbia have now. All of us will get a monthly rebate that will reimburse us for taxes on purchases up to the poverty line, so that we're not taxed on necessities. That means people below the poverty line won't be taxed at all. We'll be taxed on what we decide to buy, not what we happen to earn. We won't be taxed on what we choose to save or the interest those savings earn. The tax will apply only to new goods, so we can reduce our taxes further by buying a used car or computer.

Our current progressive tax system penalizes us for working harder and becoming more successful. As we climb the ladder, the government lurks on each rung, hungry for a bigger bite out of our earnings. The FairTax is also progressive, but it doesn't punish the American dream of success, or the old-fashioned virtues of hard work and thrift, it rewards and encourages them. The FairTax isn't intended to raise any more or less money for the federal government to spend - it is revenue neutral.

---------------------------------------

If this is indeed designed to take money from the poor and give it to the rich as a couple here have stated, then we at least need an overhaul.
For example, on Hunter's site it mentions the "Federal Telephone Excise Tax was first enacted in 1898 to help pay for the Spanish-American War when telephones were considered a "luxury." While this tax was initially applied to long-distance service, it was later extended to general phone service in 1941 and currently applies to all telecommunication services, which include standard and wireless telephone services, as well as computer Internet connections."

On a trip to the Carribbean I bought an ancient Roman Coin (considered an antique) and a piece of hand made jewelry (considered art). I was told I didn't need to pay tax on either antiques or artwork and the customs guy concurred. Now my purchases were insignificant, but who are those who can afford to by real antiques and real artwork? The rich. So here I waltzed through customs and the people bringing back t shirts, coffee and rum cakes get nailed. That's wrong.

I just hate the fact that we pay so much in taxes, and the government loses it, spends it on the black budget, and assorted other things over which we have no say, so my ears always perk up when I hear of alternatives.

[Strelnikov_]

23. Because the tax code has been gamed to favor the wealthy

Buffet talks about this often.

If you want reform, keep the progressive income tax, increase rates on higher incomes, throw out all but the most 'progressive' of deductions, increase the capital gains tax.

Why is it that medical expenses have to exceed 7% of income to be deductible, but a Hummer can be written off?

The fair/flat/whatever tax is a wet dream for the wealthy and the oligarchs. It will firmly establish a wealthy aristocracy (ruling class) in this country (re: a big Mexico).

"hate the fact that we pay so much in taxes"

The commons costs. Yes there is waste, particularly in the military budget, and under Reich rule through no-bid contracts, but take a look at the budget. Most goes to entitlement programs. Where will the funds for universal health care everyone wants come from?