This year’s tax debate is a scene setter for what promises to be an extraordinary battle after 2008. Major tax reform that would permanently repeal the alternative minimum tax (AMT) and extend the Bush tax cuts will have to wait. The bottom line: It takes political leadership. Deloitte Tax principal Clint Stretch says it will take spending cuts and changes that bring in more tax revenue -- including popular items like the mortgage rate deduction -- for the government to operate and keep the promises of social security, Medicare, and Medicaid.
While the people in the throws of the tax debate today may not agree, the proposed changes would seem to be the easy ones. Closing the loophole on “carried interest” is expected to bring in 26 billion dollars over 10 years. Forcing billionaire private equity partners to pay more in taxes seems like another quick fix, but come to find out it’s not. Private equity partners carry a great deal of political weight. Plus, a change in the tax code raises the prospect that all sorts of partnership structures will be sucked in, leading to unintended consequences for the economy.
If squeezing more money out of wealthy private equity firms is a hard one, just imagine the political and economic consequences of eliminating the mortgage interest rate deduction or cutting social security benefits. Still, these are the debates that need to be resolved. Pushing off the tough decisions is only making it harder (and more expensive) to solve the problems.
Comments
America should adopt a tax system based on net worth for the following reasons.
1. A tax on net worth has the largest tax base. The net worth of this country is larger than the income system, about $9 trillion, and the consumption system, less than the gross domestic product, (GDP) about $14 trillion. The individual assets of $55 trillion and business assets of about $60 trillion is over 8 times larger than the consumption system.
2. Income is not a measure of being rich, net worth is. George Will has said that the wealthiest 1-percent of households have more assets than the lowest 90%, $16 trillion. Since the total individual assets are $55 trillion. The wealthiest 10% own about 73% of the net worth in the USA. The biggest 1-percent of corporations own 80 % of the business net worth.
3. Taxes should be based on ones ability to pay. A tax on net worth is the fairest tax to all.
4. Taxes on net worth have the lowest percentage. America’s budget is about $3 trillion. A consumption system requires a sales tax of over 21%. A net worth tax would be less than 3%.
5. A tax on net worth is the most versatile. Besides a flat tax of 3% for individuals and businesses, there are other possibilities. Some people say we have double taxation. We could tax only people at 6% or only businesses at 6%. Since businesses can’t vote and they pass there cost on to their customers, that is the best way to go. Next is the progressive path. The first $1 million could be tax-free and increase by 0.1 % for each $1 million up to 5% after $50 million.
6. A tax on net worth is the simplest to file. Take what you own minus what you owe. Our present tax system is 63,000 pages of loopholes.
7. A tax on net worth is the easiest to enforce. Since this is a property rights country, all assets are traceable. Taxing only the most prosperous 10 % of businesses and people is the most efficient tax system.
8. Like the consumption tax, all of our present taxes could be replaced, Individual income tax, corporation income tax, employment taxes, gift tax, and estate tax. Plus the excise tax.
9. Guarantees funding for all budget items like social security and Medicare by eliminating use taxes.
10. A tax on net worth promotes transparency. When a company shows an annual report with a book value of $1 billion and only $10 million in taxes, they aren’t paying their full taxes.
11. A tax on net worth promotes free trade. Money, inventory, buildings, etc. are all assets so everyone can move assets around for the best effect.
12. Eliminate inflation. Dr. Milton Friedman said to end inflation, stop printing money. By increasing the tax rate 1%, the national debt of $9 trillion could be paid off in 10 years.