Cleaning up the tax mess

(Originally broadcast on March 9, 2012.)

Our tax code has been described as a morass of different rates, deductions, loopholes, and subsides that is different depending on each individual taxpayer’s situation. Homeowners are treated differently than renters; high earners are paying lower rates, in some cases, than middle-class Americans. And, on top of that, the nation faced a $1.3 trillion deficit last year.

So, how do we make our tax code simpler and fairer? And how do we produce more revenue without stifling job creation? Need to Know’s Ray Suarez hosts a panel of tax experts who debate how to fix the tax mess. The panel includes: former New York Governor Eliot Spitzer; Emory University tax law expert Dorothy Brown; Bruce Bartlett, who served presidents Reagan and George H.W. Bush; and Cato Institute economist Dan Mitchell. Want more? Listen to the whole, unedited conversation here:

Read the transcript

Watch more full episodes of Need to Know.

 

Comments

  • J.V. Hodgson

    Finally a discussion that hit the problems of getting to a balanced budget longer term.
    1) Spending and entitlements need to be carefully reduced.
    2) Tax revenues have to rise and the Priority is tax expenditures, the key area here being Mortgage relief that needs to remain on Houses Up to $400K and withdrawn on anthing over that value and no allowance for second Homes. In fact state taxes on second homes *2 and third *3 fourth *4
    3) Dividend and capital gains tax rates should be brought into line with International norm where dividend income is treated as part if income subject to income taxes and capital gains at 30%
    4) On Income taxes the bush tax cuts should be phase out equally over the next 4 years.
    5) Corporate taxes well 28 or 30 % fine but only works with 2 above.
    Pledges to Grover Norquist should be deemed unconstitutional I expect my Rep or senator to vote the interest of the whole people and not just the enforce whim of 1 pac leader.or special interest group.
    Regards,
    Hodgson. 

  • J.V. Hodgson

    Finally a discussion that hit the problems of getting to a balanced budget longer term.
    1) Spending and entitlements need to be carefully reduced.
    2) Tax revenues have to rise and the Priority is tax expenditures, the key area here being Mortgage relief that needs to remain on Houses Up to $400K and withdrawn on anthing over that value and no allowance for second Homes. In fact state taxes on second homes *2 and third *3 fourth *4
    3) Dividend and capital gains tax rates should be brought into line with International norm where dividend income is treated as part if income subject to income taxes and capital gains at 30%
    4) On Income taxes the bush tax cuts should be phase out equally over the next 4 years.
    5) Corporate taxes well 28 or 30 % fine but only works with 2 above.
    Pledges to Grover Norquist should be deemed unconstitutional I expect my Rep or senator to vote the interest of the whole people and not just the enforce whim of 1 pac leader.or special interest group.
    Regards,
    Hodgson. 

  • Jeffrey Flint

    This discussion can be analyzed so much more simply.  The simple way to analyze taxes is to discuss the effective tax rate, the actual percentage of income each income class actually pays.  

    There is great data at the CBO that is revealing.  It shows that currently, our tax system is indeed progressive, where the people who make the most money pay a effective tax rate, about 20%.  It also shows that people who are at the lowest income quartile pay an effective tax rate of about 3%.  These figures include social security taxes and medicare taxes.  

    So, Warren Buffet’s claim that he is representative of his income class is not correct according to the CBO.  His income class does actually pay a higher effective tax rate.  It might be that Warren Buffet himself pays a lower effective tax rate than his secretary, but on average people in his income class pay a higher effective rate than his secretary.  So, it appears that Warren is being disingenuous, and I have to guess it is for political purposes, since he must know better.

    The solution is to lower the nominal tax rate to the current average effective tax rate and then remove all the current deductions, the foremost among them is the mortgage, state tax, and health insurance deductions.  People under such a plan then, will on average, not see any difference in their effective tax rate.

    Their can be accommodation for the very poor so they can still eat.  But, in short, this is a simple mathematical problem.  The difficulty is explaining it in such a way that people do not feel like they are getting ripped off.  

  • Richard Individual Right

    You have this guy Spitzer on the panel for tax relief? Is that right. Of all the people who should sit on a tax reform panel this guy is the last. You want to know why I think that? This is the same person who on CNN said about the author of the book ‘Only 50% pay taxes’, that’s not true said Elliot, they pay sales taxes so they do pay taxes! What a complete idiot and an insult to any hard working man trying to earn a living. This guy is a twit and he would further increase the child deduction and take more wages out of single people to support this family fetish in this government which is ‘raise families on other people’s money.’

  • Punditius

    You nailed it.

    But the source of the problem is that the Congress uses the income tax code to raise campaign contributions, get votes from favored interests, and to manipulate the behavior of taxpayers.

    So there’s not going to be any reform. The only real way to stop them is to repeal the 16th Amendment.

  • http://profile.yahoo.com/UBM46TCW3HZVVJAZFKZ2B6NT6U debbied

    When it comes to the mortgage deduction I don’t hear anyone discussing that houses (and condos) have maintenance.  If I have no deduction and I now have to pay for maintenance (new roof anyone?) why would I own a home?  From on ecomomic sense it’s illogical.  So how can economists say the people behave rationaly and make the most rational decision (rational economic man) and then say just as many people will own homes?  If that is the case then people don’t behave rationaly and that theory should be thrown out. Appliances cost 1k plus, plumbin, heating roofs, paint, etc. all cost money.  Therefore if I can rent for the same as my house payment or less (and less would the case in my area, significantly less) and I do not have to pay any maintenance costs why would I own?  I would choose not too.  The second point is why take away the one and only deduction that effects the actual middle class?  I didn’t not see a lot about taking away the deductions created during Reagan’s error that allows companies to move money to Bermuda.  I don’t see the deductions for companies being eliminated.  What I heard was take away decudtions from the middle class: 1. Housing 2. Health insurance 3. Retirment (401K) savings contributions.   What else were they going to eliminate?  Not much.  And for that they’re going to “lower” my rate to 20% and with these deductions my rate is really at Mitt’s rate – around 15%, therefore they would raise my effective rate by 5%.  I would guess that the reason is that the middle class has no lobby working for them and/or the object is to destroy the middle class.

  • bill

    crooked on the take politicians.set up the taxes.to benefit the rich and they..get taken care of.we the people.get screwed and pay for everything…like wars.wars for profits.guess who gets richer off of the wars.not we the people.wars are a no over head business..tax payer pays the bill.with there money and there lives..the rich and politicians,get richer..

  • bill

    America rigged up.by politicians and the rich.to be..the HAVES AND HAVE NOTS..EVERYTHING IS BEING MADE AND PRICED.FOR THE HAVES..GOING TO BE PLENTY OF HAVE NOTS..

  • bill

    oil and insurance corps.paying politicians millions each year.for them to turn there backs.to Americans being robbed.out of billions in profits.year after year.soon to be billions.for big oil

  • bill

    oil corporations.billions in profits.year after year..soon to be in the trillions..they pay off the Government.they they will keep there backs turned away.to the thieving by the oil corporations..i wonder.1000% markup on a gallon of gas.

  • Keycrunch

    There should be a basic amount of income from all sources before federal/state income taxes kick in — for rich and poor alike.  It should be enough for bare essentials to live, say 20-25 thousand dollars and the rate on the excess should grow with income.  There should be a large tax on mult-million dollar incomes.   I don’t dislike the rich, but I do dislike greed and the corrupting power it brings.

    Then I’d like to see mortgage deductions capped, say 25k.  Deductions from income should include cost of health care and insurance.

    And every time someone proposes a tax cut, they should state the economic group to whom the tax burden will shift to.  Why to the news gatherers not ask this?

    The tax structure is very unfair —unless you’re rich.  And those people are the ones who buy media and try to convince everyone else that they’re job creators.   Yeah, jobs overseas — AND they get a tax break for doing it?   That’s the definition of fiscal insanity!

  • Jack Hilift

    The premise that equal tax rates for all people is fair is a false premise.  It implies that people should pay ridiculously different values for the same Government services.  Would you think it would be fair that you pay a $100 at a barber for a haircut and your neighbor would pay nothing because he choose not to work?
     

  • Jack Hilift

    On the tax thing, look at it this way:

    If you go to the laundry, get a hair cut, have your car fixed etc. any other kind of business that offers a service, everybody pays the same price for equal service. You are not charged extra if your income is higher than somebody else’s. Now, the Government provides services of transportation, defense, security, agriculture, congress, welfare, etc.,  in which all the people in the US have equal access.

    Now if you divide the federal budget of about 3 trillion dollars (2007) by the population of 300 million, that comes out to be a cost of $10,000 per person. We fudge and say that we wont charge the kids for their part of the service usage, then that makes about 2.5 people per household. That comes out to $25,000 per household.

    The bottom line is , if you are not paying at least $25,000 Federal income tax,  You are being subsidized! 
     That means those having an income of over about $125,000 are subsidizing those with less. Those with the higher incomes are scientists, engineers, doctors, business owners, business managers, etc.  Theses are the people who have usually taken high risk and spent a lot of capital (college, investments, etc) to get to where they are at.  Is that fair to tax them at a higher rate?
     

  • Advsysen

    where’s the transcript ?

  • Anonymous

    Great conversation, except I don’t know why Cato people get invited to these things anymore.  They will always put ideology ahead of facts, as demonstrated by Dan Mitchell’s ridiculous assertion that the Reagan tax cuts increased federal revenues (see http://krugman.blogs.nytimes.com/2011/06/22/reagan-and-revenues/).

    Cato is also infamous for claiming that the example of Monaco – with its extraordinary combination of high consumption and high population density – refutes the ecological concept of “carrying capacity.”  Of course, even a ten year old, on a moment’s reflection, would realize that Monaco residents don’t live off the natural resources of Monaco.  But that’s just the sort of nonsense one can expect from Cato.

  • Susan

    Time to re-frame the debate.
    What is the purpose of tax policy?  Is it to raise money for essential goverment services?  Is it to equalize income throughout the citizenry?  Or is it for some purpose between those two?  How much tax money is enough?  How much is too much?  Should target revenue be defined as a percentage of GDP?  What should be the role of government spending in the economy?  Is more better?  Is less better?
    Those are the types of questions we should debate and get settled first.  After that we can discuss equitable means of funding.

  • Susan

    Time to re-frame the debate.
    What is the purpose of tax policy?  Is it to raise money for essential goverment services?  Is it to equalize income throughout the citizenry?  Or is it for some purpose between those two?  How much tax money is enough?  How much is too much?  Should target revenue be defined as a percentage of GDP?  What should be the role of government spending in the economy?  Is more better?  Is less better?
    Those are the types of questions we should debate and get settled first.  After that we can discuss equitable means of funding.

  • Susan

    Keycrunch, look at page 2 of your personal income tax return.  There IS a basic amount of income from all sources that is exempt from federal income taxes.  It’s called Standard Deduction and Personal Exemptions.  For a married couple with two children the amount for 2011 is $26,400.  In addition the rate on the excess DOES grow with income.  Health insurance and health care ARE deductible from income.  Given that all your ideal scenarios exist in our current tax structure, how can you say it’s very unfair?

  • Jbdamerell

    Actually it is not just high income earners that get tax breaks.  If your taxable income is in the 2nd bracket or lower, all your qualified dividends and long term capital gains go untaxed.  Nice perk for older people living on investments.  Also, it you don’t have a large mortgage, itemized deductions are usually less than the standard deduction.  I do think it would be better to treat all income the same way and end all the tax deductions.  Maybe it will happen if the “do nothing” congress just lets the current Bush tax rules expire.

  • Anonymous

     

    Can the
    middle-class exist in our current environment? It seems not. The lowest tax
    rate in over 30 years & the top 400 people have more wealth then the bottom
    150 million in the USA. 

  • Anonymous

    Well, the federal income tax may still be progressive, but studies have shown that when all taxes are considered, over all levels of government, we essentially have a flat tax.  Moreover, since the super-wealthy have rigged the system so that they make orders of magnitude more than the Middle Class, and also because they don’t need to spend anywhere near as high a percentage of their income just to live, they are pulling away from the rest of us, getting comparatively richer and richer.  This is why the Forbes 400 households have more net wealth than the bottom 150 million Americans.

    This is not just a question of mathematics, it’s a question of fairness, and of how a democracy can survive such extraordinary wealth inequality.

  • Anonymous

    It has been posted.

  • Jhoc

    Elliot spitzer is an expert at credit card fraud with prostitutes in his personal life so maybe he does know something about finance and evasion

  • Jeffrey Flint

    Jimbo1672,

    I’d be interested to know where you arrived at your “flat tax” conclusion.  I haven’t heard that.  The effective tax rate, if all local, state, and federal is included is about 30% averaged over everyone; I’m not sure whether or not it is progressive.  So, we all pay on average, 30% of our income in taxes.  Our tithe to the state is 30%.

    It seems to me though that your aim is retribution for some wrongs that you feel has occurred.  Is that correct?  

    I ask because those kind of feelings, while valid, are not often helpful in arriving at solutions to problems.

    I do not believe that there are a collection of monster rich people who are trying to control the rest of us.  It is true that the richer are getting richer, but it is not clear that there is a single cause, and most certainly there is not a conspiracy.   Most people will try to keep what they have and then try to get more.  That is true for all classes of people, poor and rich alike.

    Have you considered that a possible reason the rich are getting richer is that the costs of labor is decreasing due to vast reserves of labor coming on line from China, India, and the like?  If you own a business, and the cost of the most expensive resource gets cheaper, you will make more money.  Does that make the business owner a bad person?  Is there a conspiracy here?

    Finally, it is a mathematics problem.  We have a deficit so large that it is a national security issue, mostly due to radically increasing health care costs.  We need some common sense here and solve these issues.  

  • Jhoc

    why Elliot Spitzer? 
    He is entailed to own sexual mores, but credit card fraud to do it is against the law
    john

  • Zephyr

    Just watched the tax code program.  Wonder why facts don’t get discussed such as many of the people who collect dividends are seniors who have worked all their life and invested in our countries businesses.  Your program seemed to focus on only the rich people having dividend income.   More needs to be talked about the difference between people making $200,000 or say $500,000 and those making millions of dollars a year.  We need to set some kind of dollar amount where a person can live very,very well and let the American dream continue and then put a large tax on those who make way in excess of what they need to live very, very well. 

    Also the so many things in the tax code just don’t make sense such as having a single person have to pay much more in taxes then the married person at the same income level.  We should start all over again and write a tax code that is simple, closes loopholes, collects unpaid taxes from the underground market, and is written by people who aren’t afraid of upsetting certain constituents.

  • Mountainbiker

    The too-big-to-fail companies proved destructive to our economy.  Surely taxes can be used to encourage a breakup to smaller, less influential size. The tax revenue won’t provide all we need but may prevent further increases in what we need.

  • Mountainbiker

    Spitzer had Wall Street unhinged.  He was going after the illegal practices.  He had emails showing corruption among executives to sell securities they knew were going to tank.  How interesting it is that his discretions came to the surface in a nick of time.

  • Booker2886

    Dorothy Brown was right in the sense that we should not raise the tax rate but rather close the loopholes and eliminate deductions and subsidies.

    As far as jobs go? We have to eliminate free trade and tax international (monetary) transactions. Since NAFTA’s inception, 29 million jobs have left the U.S. A good portion of the jobs created to replace manufacturing have been in hospitality, retail, and customer service. These jobs cannot support a family. Our country also had a $50.8 billion trade deficit. We will never overcome this type of deficit if we don’t crack down on the money travelling between nations via banks and corporations.

  • http://www.facebook.com/profile.php?id=1313446947 Victor Ian

    The Libertarian math is way off.   Fact check this guy!   You know what I’m talking about.
     

  • Bkeating2

    The re-run of this program is still on and was moved to rise from the couch and send this email! Several commenters mentioned eliminating/phasing out the homeowner tax deduction. Well…I don’t have a second home, I have one VERY modest older home and I DEPEND on the homeowner tax deduction to plow the money back into the infrastructure. I need a new roof (estimates pending), my plumbing needs to be replaced (quoted $5,000); 125′ of fence needs replacing; the house needs paint; yadda, yadda, yadda. I’m single, retired & on a fixed income; I do much of the work myself if appropriate to my skill level and codes. Tell me what renter has to cover domicile repairs! As to the Value Added Tax, it sounds very much like the 8.25% sales tax we pay here in my California county; having a VAT in addition to our sales tax would be onerous. That said, I DO believe in paying my fair share! My income is about $30,000 and I pay both state and federal tax each year. People make a big deal about those who don’t pay taxes…I’d like to see if there is a break down of the income of said people. Perhaps some have such low income that they are not required to pay, a sad & sobering thought; I do have frustration to those who have plenty of income but milk loopholes in the tax code. 
    And that’s all I have to say about that.

  • BThau

    We must do something to bring our deficit into better balance.  I believe that eliminating some of the loop holes while allowing deductions on the first mortgage should be acceptable.  We should also raise the tax on incomes above  $1 million.  I do not believe that it will truly encourage people to stop earning.  Let’s give it a trial!

  • classical liberal

    The progressive socialist mind set is twisted.  I pay my “fairshare” in taxes.  Lower federal SPENDING across the board: entiltlements, agriculture subsidies, military… this will solve the problem.  Marxism has never been able to compete with free markets.  But it doesn’t matter, if we are borrowing 43% over revenue received, then we will financially collapse under our own weight. Neo-con Republicans and Democrats alike are statists and suck.

  • Akostyk

    You can have a “Goods & Service
    Tax” at 7% on EVERTHING with no exempts that would gernarate good
    cash flow. You may think of a simaler tax of 21% “BUT” drop the
    income tax session, you pay more for what you buy. If you live in a
    tree eating nuts you can save a lot of cash.

    Alek Kostyk
    Niagara Falls, Canada

  • PSN

    I wish these discussions would include the FairTax. For those who aren’t familiar, the FairTax is a consumption tax, which would replace all existing federal taxes – income, corporate, FICA.  It would be around 23%.  Realize that there are now about 22% taxes imbedded in all products we purchase, so replacing them would barely be an increase.  In addition, every person would receive a prebate equal to the taxes on spending up to the poverty level.
    See more at http://www.fairtax.org

  • A Lazyriver

    A progressive 12 tax bracket tax code like the Eisenhower years would discourage banking and other fraud as it would not pay.  Companies would upgrade equipment, hire employees, provide better products and expand operations rather that give their CEO bonuses that would only go to Uncle Sam in income tax.  The 1950s were good years for America largely because of tax code.  I remember.     

  • JonThomas

    All the other comments aside, this program was useless.

    Nothing was said that was new. It was just more of the same Liberal and Conservative views rehashed.

    Surely the PBS audience is already versed in every aspect of what was discussed.

    Discussions such as this was only serve to perpetuate the same tired arguments and attempt to reaffirm the 2 party system’s way of accomplishing nothing at all.

    Why waste the bandwidth? My guess is to perpetuate Democrat and Republican facade of legitimacy. Though, it was interesting that the only real conservative they could find to participate was a Libertarian.

  • Rdlee031771

    once again we tax the lower income and give the rich a smallar burden.

  • Scbinion

    Congress is NOT listening to the people when it comes to this issue.  No Person who works for a living wants the RICH to get all the tax breaks.
       This is what we need.
    1.  Remove corporate loopholes.
    2.  A FLAT tax of about 20% should be for all whether rich or poor.
    3.  States have ridiculous taxes so they should not be above 7% on their sales taxes.
    4.  Capital gains of all kinds should be the same rate as the FLAT TAX.  This is fair because if you have the ingenuity to make passive income, then so be it.  Your talent has rewarded you.  I do not believe in penalizing talent, whether on the sports field or the finance board room or the stock market or any other passive income.
      ALL pay 20%.  If you get 5 dollars, the government gets one.  Sounds reasonable to me.
    5.  No tax of any kind on retirees and on Social Security.  However, I do think that SSI people who are disabled, yet below 59 1/2 years of age should still pay into the tax system.  Social Security is being drained by those who are taking retirement money, when they are not altogether unable to work. 
        I believe in the principle in the Bible of “if any one does not work, he ought not to eat.
        Therefore I think those who are on SSI, who are not 59 1/2 years of age, should still pay 20% on their benefits.
          After you reach the first year of retirement, then you pay not more taxes.  That would be age 62.
    6.  CORPORATE BONUSES above 1 million dollars, should be taxed at double the rate–40% and that should be without exception.
          SO, if a company feels an executive or employee should get a bonus of 10 million dollars, they should pay 4 million in taxes.  No loopholes here so important here.  This will come from corporate profits.  This 10 million is corporate income as well so the company will have to EAT IT if they feel any employee is that important.
     7.  This will spur corporate growth and will eliminate corporate “good ole boys” from giving each other multi-million dollar pats on the back. 
    8 No credits for mortgage interest.  As you guys stated, this will lower interest rates and home values, making it more possible for those with less income to become homeowners.

        We need something like this.  TWEEK IT, ADJUST IT and make it work for all. 

      

  • guest

    Everyone is entitled to give his or her opinion and anyone can give opinion. That does not mean that he or she is right. There is nothing with the Tax Laws but those laws should benefit the taxpayers and the country as a whole, not some x, y or z.

  • SuzyQ

    Sorry, but scientists, and many other scholars, don’t make particularly good salaries. For example, atmospheric scientists average about $88,000, according to the BLS. Veterinarians made $82,000 in 2010. (In contrast, the median physician make s almost twice that, $166,000 per year. Specialists can make much more. )
    The bottom line is that American labor markets are far from being as fair as many of us would prefer.