I was watching Cashin' In on Tivo and the opening discussion was about a sales tax to replace the income tax. The crew was throwing around a 30% sales tax number. Someone also chimed in that a little of both would not work.
Here's my two cents. I think a mix of both could work as a five year, or so, transition. They could scrap the tax code and replace it with a 5% flat tax. Maybe a single worker's first $20,000 would be exempt. Married couples could have $40,000 exempt and then maybe $5000 exempt for each child under 18 or 21 and in college, something like that.
The sales tax to start could maybe 15%? Food, medicine, gas for cars and utilities for housing would not be subject to the sales tax. A few years later the 5% could be retired and the sales tax upped to 25%?
I don't believe that consumption would be hurt. Wealthy people, with now more in the pocket thanks to no income tax, will still consume and spend.
No tax on savings and investing could help capital markets but no mortgage deduction could hurt the real estate market. I'm sure there would be all sorts of lobbyists representing realtors to prevent such a thing. There would also be huge opposition from the accounting profession.
There are far to many flaws with my thoughts to address all of them but something like this certainly could be a starting point, couldn't it?
Here's another crackpot idea although clearly not my idea. I just remembered it today. What about legalizing and taxing marijuana? To be clear I don't use marijuana but a lot of people do. I'm no expert but it is any worse than alcohol and cigarettes? There would be plenty of obstacles here as well. But successfully capturing a tax on some portion of the marijuana industry would help reduce a couple of the financial problems the country now has.
I can appreciate that these ideas are out there but the people trying to address tax reform need to be open to anything at the start. And whether pot gets legalized or not a lot of people are going to smoke it.
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7 comments:
I don't see how your comments address retirees and probably others who have no incomes and are living on their savings.
Is it just a coincidence that this crackpot scheme comes along just as Boomers are retiring and therefore not the income tax cash cows they have been? If youcan't milk 'em, bleed 'em. Until they all die, anyway.
fair point but I never claimed this was a perfect solution. I did not set out to address retirement issues but son't people living on savings pay tax on their interest and dividends and some of their social security income?
As for your second paragraph, I bare no malice toward boomers or anyone else, if that is the implication.
I think the chances of anything happening, eg flat tax, VAT, whatever, are remote. Too many vested interests, and manipulating the tax code is one of congress' best tools for extorting campaign money. The transition to a totally different system would be hideously complicated. Maintaining a dual system of income and consumption tax during the transition is superficially appealing but in practice would be a terrible idea as well. Why? Because the temptation would be nearly irresistible for congress to retain the income tax, and we would be stuck with another layer of taxation.
To follow-up on your marijuana idea. I’m not a user either, and I doubt it’s as addicting as say heroin, but lets make a simple extension: Legalize heroin, crack, whatever and tax the hell out of ‘em all. The addicts would have to pay - they are addicted - and you and I would have a free ride. Wotta concept! If this sounds “far out”, it’s already working with cigarettes.
Seriously, the problem is not finding new sources of revenue - there’s much too much revenue already. The problem is cutting back and spending wisely. If you find a new revenue source, it’ll be tapped in a minute, and we’ll “urgently need more revenue” after 2 minutes. It truly never ends, they can absolutely spend it all. Focus on the cut-backs, unpopular as they may be. If taxes were not so large, or if they were much better used, how they were raised would likely not be such an issue.
Consumption taxes
Some factors to consider:
The repeal of inheritance taxes will very possibly work against spending by the wealthy as they age. Except for health care which you say will be exempt.
The wealthy also have the ability to shelter their purchases by buying in other countries and for "closely held corporations" they front. The flight of money on luxury goods might negate any tax gains.
Taxes based on consumption will become regressive swiftly, even if it starts out otherwise. The most collectible money will be on essential goods that are recorded on computers everywhere in THIS country.
I can't see a lobby for non-essential consumption taxes, since the rich have so many loopholes and very low rates and no inheritance tax, why would they make campaign contributions to those that might vote it away?
Corporations, too, would fight taxes on spending if they made, sold, serviced, etc. anything that would be hit with the tax. The tax would affect sales and could kill profits.
On taxing illegal drugs:
"Personal responsibility/ownership society" advocates simultaneously outlaw products and services of which they disapprove. Cognitive dissonance? Or "Orders from God" that brook no analysis?
There are powerful interests to keep all drugs illegal. Big Pharma to start and prison guards to finish. And lots of bribed officials everywhere in-between.
The underground economy is a badly needed employment growth area, as is the law enforcement arena. Hard to outsource.
Sarcastic aside:
Most of these illegal drug related jobs don't require higher math or science so US youth WILL be able to compete.
Science, after all, is SO hard and doesn't fit with the Bible. Math homework is time consuming and, if taken seriously, could limit sports practice.
I smoke the heck out of marijuana, and I'd gladly support government taxation. Prices probably wouldn't change much for the users. A side effect, which would save tax money, is that the court and prison system could remove huge swaths of non-violent criminals, saving the public dollars.
You do realize that some of the biggest opponents of the legalization of marijuana are the biggest growers and controllers of the underground economy. It stands to reason that those with the most to lose would be against the change. Also, big pharma has never been a fan of medication which can be grown at home.
Hi Roger,
Can you give example of closed-end covered call funds, including tickers?
Best Regards,
David Jackson
Editor, ETFinvestor.com
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