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Thursday, March 20, 2008

My Tax Tweaks

If I were God-Emperor, I'd do the following with taxes:

o I'm not sure about the "Fair Tax", but I do like consumption taxes over income taxes in general. I'd like to see more consumption and less income taxes over time.

o I'd have a fairly high new gas tax. This would strengthen the dollar by reducing oil imports, and would make it clear that gas is not going to get any cheaper, so people should react accordingly. You can still buy a big SUV for pulling your boat, but you probably don't want to use it for your primary commute vehicle.

o Since in most American cities, working people still have to drive, I'd have a front-loaded reduction in payroll taxes. So, for example, if the gas tax produces $2K per worker, the first $2K in payroll taxes, or payroll taxes on about the first $26K of income, would be skipped.

This reduction would be dynamic and would probably go down over time as people use less gasoline.

o I'd eliminate corporate tax and have corporate dividends taxed at the income tax rate. Corporate tax is simply passed through to consumers in the form of higher prices, although reducing it is easy to demagogue as a givaway to "corporate America". Also, one of the reasons the dollar is weakening against the Euro is Europe is reducing corporate taxes.

o I'm not sure what to do about capital gains. If you eliminate corporate tax and corporations don't pay dividends, you need a way to capture the part of a gain in a stock price that is due to undistributed earnings. But you also want something that's easy to account for and doesn't result in a double-tax (ie, the company saves up a bunch of money and then has a dividend.)

At the end of the day, I like the idea of the "Fair Tax", but I'm not sure its implementation is workable...

Comments:
Dear God-Emperor,

First, when you are given your rightful title, can I be Grand Vizier?

Second, as far as "making it clear that gas isn't getting any cheaper"... the price of gas itself does that just fine. I'm neither agreeing nor disagreeing with your proposals, just pointing out that the best way to send price-signals is the price itself.

-- DW
 
I'm not sure what to do about capital gains. If you eliminate corporate tax and corporations don't pay dividends, you need a way to capture the part of a gain in a stock price that is due to undistributed earnings.

Why?

But you also want something that's easy to account for and doesn't result in a double-tax (ie, the company saves up a bunch of money and then has a dividend.)

You've already said you'd tax dividends as ordinary income. So much for dividends. Tax the capital gain at time of sale the same way. What am I missing here? You'd only piss off the CPA and tax lawyer industry, which could be a good thing.
 
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