Yglesias is Slate's
business and economics correspondent. His first book,
Heads in the Sand, was
published by Wiley in 2008. His second, The Rent Is Too Damn High, was
published by Simon & Schuster in March 2012.
... The above chart ...
should underscore exactly how hard tax reform is. This is often portrayed in
DC as if it's primarily a political difficulty, like the problem is simply
that politicians lack the gumption to take on the interests behind these tax
breaks. But part of what we see here is that many of these really high-value
tax breaks are integral elements of American social policy. ... There's a
case to be made for scrapping all of this stuff, but with the exception of
the deduction for state and local income taxes I don't think you could do
any of it without creating some kind of new replacement non-tax policy.
From 9-9-9 to 2-4-8 to Politically Cognizable
If you include the 14% Social Security/Medicare tax, most workers pay
around 30% of their income in taxes. Of course Mr. Romney and Mr. Buffet
donâ€™t pay the 30% rate because they rely upon specialized tax expenditures
(a/k/a loopholes). They can also delay paying taxes indefinitely or until
they choose to sell stock or take a salary.
A few lesser tax expenditures are available to those who itemize their
returns but it is the high earners in the higher tax rates that get the
larger savings from the same deduction for state and local taxes, charitable
contributions, mortgage interest, etc. While it makes a lot of sense to
lower tax rates by eliminating popular deductions no one has figured out a
way to make it politically palatable. The 9-9-9 plan of Herman Cane was an
intellectual step in the right direction because it offered a 9% income tax
rate as a political tradeoff for the elimination of common deductions and
also expanded the tax base with a consumption tax (which all other modern
countries have). Problems with the Cain plan included a failure to raise
sufficient federal revenue and the fact that it was regressive - (lowering
taxes on the rich while raising them for the poor and middle class).
The 2-4-8 Tax Blend goes a step beyond the Cane plan by adding a net
wealth tax to the tax base in order to achieve a progressive tax system with
the lowest possible rates. The entire $2.1 trillion in FY 2010 tax revenue
could be replaced by taxing individual net wealth at 2% (excluding $15,000
and qualified retirement funds) and taxing the $12.5 trillion individual
income at 8%. By eliminating the 14% payroll taxes (and paying social
security and Medicare from general funds) all income earners would take home
92% of their salary. Typical workers would gain unprecedented economic
mobility and consumer power. The rich and poor would also pay the same rates
for the fairest tax system on the planet.
Business tax reform is also
needed to shift the economy into high gear and to raise some additional
revenue. A 4% tax on $10 trillion in sales would yield another $0.4 trillion
in revenue and permit reduction of the corporate income tax rate to 8%. This
type of significant corporate tax reform is also a politically cognizable
tradeoff for the elimination of business tax loopholes (including deferrals
of foreign income) which are entrenched in the tax code.
capital gains, estates and gifts would not be necessary. Similarly,
deductions for mortgage interest would not be necessary since the unpaid
principal is an offset to net wealth computation. The uniform rates of the
2-4-8 Tax Blend also make it easy to quickly estimate the tax that would be
owed for any individual or business.
Congress should act before the
99% get angry.
Eugene Patrick Devany, JD, MPA