Cleaning up the tax mess

Transcript
Need to Know: Episode 226
Airdate: March 9, 2012
ANNOUNCER:
This is Need to Know with Jeff Greenfield, Maria Hinojosa, Scott Simon, and this week, Ray Suarez.RAY SUAREZ:
On this special edition: Four big thinkers weigh in on the problems with our tax code.

BRUCE BARTLETT:
I think it’s a mistake to treat people making $250,000 dollars a year and people making 10 billion dollars a year the same way.And suggest how it can be reformed.

DOROTHY BROWN:
This notion that all tax increases are bad just isn’t viable anymore.

Fixing our tax mess — next on Need to Know.

FUNDER BED

RAY SUAREZ:
Welcome to Need to Know. This week, a special program that affects every one of you, taxes. We want to start with some big numbers. In 2011, the federal budget was $3.6 trillion. But federal revenues were only $2.3 trillion. Most of that money comes from taxes. Individual income taxes, followed by Social Security taxes, Medicare taxes, corporate taxes, gasoline taxes, and the rest. Despite all those tax collections, the U.S. still had a budget deficit of nearly $1.3 trillion during the last fiscal year. Of course, much more rapid economic growth would mean more tax revenues and help close that deficit. But unless and until that happens, we’re left with two ways to make the budget whole: cut spending or raise more money from taxes. Today, our focus is on that side of the equation, taxes. Specifically, how we can raise more money and make the tax code fairer for everyone. Joining us from left to right in every sense, Eliot Spitzer is the former Democratic Governor of New York, Dorothy Brown is a Professor of Law at Emory University, specializing in federal tax law. Bruce Bartlett was a former policy analyst in the Reagan White House. He helped draft the nation’s last major tax reform in 1986. He’s written a new book called “The Benefit and the Burden.” And Dan Mitchell is a senior fellow at the Cato Institute and previously served as an economist for the Senate Finance Committee.

RAY SUAREZ:
Guests, thank you all for being here. Fairness, as it turns out seems to be at the heart of a lot of complaints about the tax code. Now, conservative critics point out that nearly half of all Americans pay no federal income tax. They wonder if that’s fair to the other half, the top half, Professor Brown, who pay just about all of the federal income tax. Is it?

DOROTHY BROWN:
Well, it’s fair because as we’ve seen with the release of Mitt Romney’s tax return and Warren Buffett’s tax return. Their tax rates are much lower than the middle class taxpayers. And I would argue that’s not fair.

RAY SUAREZ:
But that’s percentage. What about the bulk – I f you look over the whole American population, isn’t most of the tax being paid by the upper half?

ELIOT SPITZER:
Can we agree, fairness is in the eye of the beholder? When you consider all the various taxes imposed upon us, those at the top — the top 1 percent that earns about 20 some odd percent of all income, pays about 20 some odd percent of all taxes. So we have neither an excessively progressive nor regressive tax system when all of these various tax burdens are imposed.

RAY SUAREZ:
President Obama proposes eliminating tax breaks introduced by President Bush on all family income above $250,000 a year. Does that get us some of the way to where we need to go?

BRUCE BARTLETT:
I think it’s a mistake to treat people making $250,000 a year and people making $10 billion a year the same way. I don’t understand why we can’t have other brackets above the current one that apply at much higher levels of income. I think that’s a way to get at the people — the Warren Buffetts of the world who say they would be happy to pay more taxes — without really affecting incentives for anybody who — who really matters.

RAY SUAREZ:
Dan Mitchell?

DAN MITCHELL:
As an economist, what I’m concerned about is how can we make the tax code less destructive to economic growth and competitiveness? I look at jobs and — and investment flowing to places like China and India instead of the U.S. And for the life of me, I don’t understand why people are so fixated on trying to penalize those who are contributing a lot to our economy — or who have the capability of contributing a lot to the economy but might take their business elsewhere.

BRUCE BARLETT:
We talk a lot about one particular type of fairness, which is the the richer you are, the more you oughta pay. But a much more important problem today is people with roughly the same incomes pay wildly different taxes, depending on their individual circumstances, whether they own a home or rent a home — the form of their income, whether it’s wages or whether it’s capital income. And I think this is really where — a bigger problem that we should be talking about.

RAY SUAREZ:
Let’s talk a little bit more about rates, because that’s where a lot of the focus of this debate goes, isn’t it? The president and others complain that the rules, as they’re currently written- – allow Warren Buffett to pay a lower tax rate than his secretary. Is that fair?

ELIOT SPITZER:
Look, I think implicit in your question is the answer, it isn’t fair. Warren Buffett gets $500 million because he has dividend payments out of Berkshire Hathaway, and somebody’s earning $50,000 working 12 hours a day, eight hours a day. The lower rate that Warren Buffett pays strikes people at a very fundamental level as being unfair. I would support, and I’m sure many others would not, but support getting rid of the differential between capital gains and ordinary income, tax it all at one level. Maybe that rate could go down if we broadened the base as all of us, I think, would agree would be a good thing. You could have some sense of fairness, but we’d all pay the same rate on whatever income we get.

BRUCE BARTLETT:
It’s worth remembering that in 1986, Ronald Reagan agreed that income from capital and income from wages should be taxed the same–

ELIOT SPITZER:
Exactly right.

BRUCE BARTLETT:
–in the 1986 Tax Reform Act–

DOROTHY BROWN:
And it had.

BRUCE BARTLETT:
He raised the capital gains rate from 20 percent to 28 percent and—

DOROTHY BROWN:
And lowered the taxpayer wages–

BRUCE BARTLETT:
And lowered the tax on income.

RAY SUAREZ:
One adjunct of this debate over progressivity and tax rates is the flat tax, which several Republican candidates have either advocated going to for all, or at least — squash down, simplified, fewer rate level tax code.

RICK PERRY:
Flat tax. Simple. Keep it simple.

HERMAN CAIN:
Pass, the nine percent, nine percent business flat tax.

NEWT GINGRICH:
I have proposed an alternative flat tax.

RAY SUAREZ:
Does a flat tax answer some of these problems with our current progressive system?

DAN MITCHELL:
A flat tax isn’t just one rate. Yes, that’s part of it. The most public part that most people understand. But a flat tax also means getting rid of all loopholes, deductions, credits, exemptions and preferences. If we can just bring the tax rate down, or tax rates down, that solves a lot of problems. Credits and deductions and — preferences won’t be as valuable if tax rates are low. If the tax rate’s 50 percent, we all care about finding different ways of protecting our income. But if the tax rate’s 20 percent, we say, “oh, whatever.” You know?

RAY SUAREZ:
But wouldn’t that also have the perhaps unintended consequence of raising taxes significantly higher on those least able to pay,

BRUCE BARTLET:
These people would suffer massively large tax increases And — and this is — I think the Achilles heel of this whole proposal that is generally ignored by those on the right.

RAY SUAREZ
Professor?

DOROTHY BROWN:
Well, that’s absolutely right. And the flat tax proposals would completely exclude from taxation capital gains and corporate dividends. And I don’t think most Americans would think that would be fair.

RAY SUAREZ:
Another idea that gets circulated from time to time is a consumption tax. The United States is the only major Western industrial power without a value-added or consumption tax. In the U.K. it’s 20 percent, in Germany it’s 19 percent. Do we need one?

BRUCE BARTLETT
I am one of the very few people, that think we do need a value-added tax. I think we could use it right now to pay for needed tax reforms. Don’t necessarily raise net revenues from it. But at least it would give the government–

RAY SUAREZ:
Well, let me go to the professor, you know, because in the middle of the income distribution, around $52,000 family income, what changes about your daily life if there’s a 17 percent, 18 percent, 19 percent value-added tax?

DOROTHY BROWN:
To me, a value-added tax is very regressive. So middle-income compared to high-income, they’re gonna pay a higher percentage of their income in taxes. And at first–

RAY SUAREZ:
Just because we know wealthier people—

DOROTHY BROWN:
Right.

RAY SUAREZ:
Cumulatively spend less of the money they earn.

ELIOT SPITZER
It is, as the professor said, intensely regressive. In order to get meaningful revenue from a sales tax, a value-added tax, you either have to put — make it hit numbers that would be enormously painful to everybody who was less than upper, than sort of upper middle-class and below, or exempt so many of the basic necessities, milk, clothing, the essentials that we buy every day that you have only a very thin set of products subject to it. In which case, even then it’s very hard to get the revenue.

DAN MITCHELL:
I agree with this side of the table that I don’t like the VAT. But you won’t be surprised to know it’s for different reasons. Why on Earth would we wanna copy Greece and Italy and Spain? You look at Europe 40 years ago, right when they were first implementing VAT’s. The burden of government wasn’t that different than it is in the — was in the United States at the time. Now, since then, the burden of government has climbed some in the U.S. But it exploded in Europe, because when you put in a VAT, it is like putting blood in the water with hungry sharks around, it’s like giving the keys to a liquor store to a bunch of alcohols. The guys in Washington are salivating; they’re drooling. Government already is too big in the U.S. I don’t wanna give the 535 least competent people in America a giant new checkbook.

RAY SUAREZ:
But right now, we have a central government that spends $3.6 trillion and collects $2.3 trillion. Can we close that 33percent, roughly, canyon between what we’re spending and what we’re collecting?

BRUCE BARTLETT:
Sure, it’s very simple. We just do nothing. Allow all the Bush tax cuts to expire. If you just did that, our fiscal problems go away. But see, the problem is that Dan — and people like him, want their cake and eat it too. They want the Bush tax cuts extended, they want more tax cuts on top of those tax cuts–

DAN MITCHELL:
I don’t want all the spending. You know that if I was in charge, we would solve the problem. At least–

BRUCE BARTLETT:
That’s fine. But–

DAN MITCHELL:
If you defined the problem as deficits–

BRUCE BARTLETT:
That’s fine. But it’s — but do you believe that in the long run, spending and revenues have to more or less equal each other?

DAN MITCHELL:
Yes. And the goal is–

BRUCE BARTLETT:
Well just–

DAN MITCHELL:
Do we let the revenue line go up or do we bring the spending line down?

BRUCE BARTLETT:
But what if the spending line doesn’t come down? Then what do you do?

DAN MITCHELL:
Then we become Greece.

RAY SUAREZ:
Let me jump in there, because it’s been suggested that do nothing or do little is actually a plausible scenario. If Congress does nothing this year, every tax rate will go up. The highest individual tax rate will rise from 35 to- 39.6 percent, the lowest rate from 10 percent to 15 percent. In addition, the tax rate on long-term capital gains would rise from 15 percent to 20 percent. Is that a good idea? At least short-term, given the financial hole we’re in?

DOROTHY BROWN:
I’d say it’s better than nothing. But it certainly isn’t my ideal. Because my ideal would be to tax wage income at the same rate as capital gains income. So doing nothing might be politically feasible. But I think in the long run, the reasonable response is we have to cut spending. We also have to raise revenues. And this notion that, you know, all tax increases are bad just isn’t viable anymore.

RAY SUAREZ:
As a practical matter, we have one party that says, “raise revenues,” largely, one party that says, “lower spending” largely. And instead of doing both, we do neither.

DAN MITCHELL:
Well, that’s because we have one party, Republicans, who say, “Lower spending,” but they don’t mean it. When they were in charge under Bush, they increased spending faster than Obama’s been increasing spending. So my frustration working at a libertarian think tank is that you send people down to the feverish swamps of Washington D.C., that — they say Washington’s a cesspool. After they’re there for a year or two, they decide it’s a hot tub. And they make government bigger. And– and that’s why I do not want to increase the allowance of children who are misspending their money.

BRUCE BARTLETT:
Look, the expiration of the Bush tax cuts is one of these things that — that we call an action-forcing event in Washington. And people like Dan are gonna be saying, “Oh, this is terrible,” that “We’re gonna — the economy’s gonna crash.” Well, people like Dan said we were gonna crash after the 1993 tax increase.

DAN MITCHELL:
I didn’t say that.

BRUCE BARTLETT:
They — well, a lot of people on your side of the aisle did –

DAN MITCHELL:
Yeah, that’s true.

BRUCE BARTLETT:
And also the people — if you accept Dan’s theory, we should’ve had massive increase in growth after the 2003 tax cut. Everything that his philosophy believes in says, “Cut the tax on capital. Cut the capital gains rate. Cut the dividend rate, and you’ll get massive growth.” Well, I don’t remember any growth after 2003. There was nothing –

DAN MITCHELL:
Well, actually, that — that was our best period last decade –

BRUCE BARTLETT:
We had—

DAN MITCHELL:
– But it wasn’t that great–

BRUCE BARTLETT:
We had a terrible — a terrible economy. And that — if they didn’t do any good, then they probably won’t do that much harm if we get rid of ‘em.

RAY SUAREZ:
One of the specific plans that’s on the table in this political season is Governor Mitt Romney’s. Governor Romney has proposed reducing all individual tax rates by 20 percent, eliminating taxes on investments for those who earn under $200,000 a year, and eliminating the estate tax. Can America pay its bills if it’s restructuring the receipts end in that way, Governor?

ELIOT SPITZER:
I don’t see how it works. I think it sounds good. I’d love to be running for office again saying, “Hey, I’m just gonna cut your marginal rate by 20 percent.” But unless he pairs that with extraordinary cuts in spending, he simply will never balance the budget. And I think that is not a matter of ideology, that’s arithmetic.

DAN MITCHELL:
I actually fully agree with that statement– other than he doesn’t need to cut spending, just he needs to slow the growth. But Republicans have shown when they’re in power, they are very, very weak when it actually comes to putting some discipline on the spending side of the budget. Now you can’t just promise lower tax rates if you’re not gonna try to control the federal behemoth.

DOROTHY BROWN:
I would like to point out that under Mitt Romney’s plan, his tax rate probably goes close to zero. And one of the ideas I have is I’d like to see members of Congress disclose their tax returns. Because right now, we have no way of knowing which tax laws benefit them. So for example, I did a study of the — stock ownership of — all hundred senators to find out how many own stock in the way that allows them to be eligible for the 15 percent rate. Nine in ten — nine in ten. Whereas across America, it’s less than one in five.

RAY SUAREZ:
That’s a pretty broad caucus in the United States Senate.

BRUCE BARTLETT:
Well, the thing about Romney is that he — he says that he’s gonna– as many conservatives do, they will pay for rate reductions with base broadening. Now, this is a very good idea in theory. The problem is, they will never ever name one single solitary tax loophole or tax expenditure that they are willing to put on the table and say, “Okay, let’s get rid of mortgage interest. Let’s get rid of the deduction for state and local taxes.” Which, of course, is very popular or anything else. They just wave their hands, “Well– we’ll just wipe the slate clean,” or something like that, and they never do it.

RAY SUAREZ:
Let’s let’s talk a little bit more about that. The federal government loses — or foregoes collecting more than a trillion dollars a year by offering 250 different deals that lower tax payments: excluding employer contributions for health care, not taxing Medicare benefits, offering the child tax credit, excluding contributions to retirement plans. If we got rid of all of these, would we end up with a fairer system?

DAN MITCHELL:
Get the government out of the business of picking winners and losers, industrial policy, get rid of the loopholes that we all agree are loopholes, bring the rates down, you’re gonna have a more efficient tax system, the system will be less corrupt, less complex — it’s just a win/win situation.

ELIOT SPITZER:
You’re right. If we could wipe the slate clean, there’d be enormous dislocation to many people. And understand, so — homeowners across the nation who have a mortgage who deduct that interest and don’t — and therefore don’t have to pay– tax on a fair bit of their income, will suddenly say, “Wait a minute, I have more taxable income.” If we paired it with the theoretical argument we could then lower rates, it would be healthier, there would be fewer disincentives, fewer dislocations so yes it would be the right thing to do.

DOROTHY BROWN:
Economists generally agree that the mortgage interest deduction does not cause anyone to buy a home. We are rewarding people for doing what they’d already do. Put aside the fact that renters get nothing. Talk about craziness, we not only allow you a mortgage interest deduction for your first home, we allow you a mortgage interest deduction for your second home, up to a million dollars total.

ELIOT SPITZER:
The problem is at this moment, with the housing market still at the very bottom of the trough, some people think we’ve hit the bottom, who knows, let’s hope we have. If you were to take away the mortgage deduction, everybody who owns a home would see the price drop as a consequence. Because it is capitalized in. And so therefore–

DOROTHY BROWN:
But– but the–

ELIOT SPITZER:
–there’d be enormous push–

DOROTHY BROWN:
But the issue is–

ELIOT SPITZER:
–not to do it–

BRUCE BARTLETT:
So could you phase it out? Could you put it–

DOROTHY BROWN:
Exactly.

BRUCE BARTLETT:
–into place—

ELIOT SPITZER:
Sure, you could. Sure.

BRUCE BARTLETT:
– A five year–

DOROTHY BROWN:
Right.

BRUCE BARTLETT:
– Ten-year schedule and start–

BRUCE BARTLETT:
– Chipping away at it–

DAN MITCHELL:
Yeah, you could phase it out–

DAN MITCHELL:
One thing that’s very important to look at, there are countries like Australia, like Canada, like the U.K. that have either no or much lower tax preferences for housing. And they still have homeownership rates –

DOROTHY BROWN:
Comparable to ours.

DAN MITCHELL:
– That are equivalent –

BRUCE BARTLETT:
Yeah, the price — the prices increased even faster in some of those countries than they did here.

RAY SUAREZ:
The highest tax rate ever reached: 92 percent in the early 1950s. Now it’s 35 percent. But given our huge deficit, should that rate go much higher, at least temporarily, until we’re no longer financing a third of our central government’s spending with borrowing?

DOROTHY BROWN:
I would say no, no, no, no, no.

RAY SUAREZ:
Why?

DOROTHY BROWN:
The answer in my opinion isn’t raising tax rates. It’s eliminating loopholes. It’s eliminating exclusions. The 35 percent’s already high. To me, it makes no sense to allow — privileges to certain groups, for example homeowners over renters, when they both have housing costs. So– and therefore tax other people. It doesn’t make sense.

RAY SUAREZ:
So keep the current rate schedule, get rid of the loopholes, Governor–

ELIOT SPITZER:
Well — well look, I think what the professor says is right. If you had to create a hierarchy, you would say first thing you do is close the loopholes, broaden the base. That may not be sufficient and it may not happen. Practically, if you cannot, get people to agree on what’s a loophole and what’s a legitimate incentive. That is often an ideological debate. If we had to go from 35 percent to 39.6 percent, that’s fine with me as a matter of philosophy, as a matter, because not that many people are paying the 35 percent, the 39 percent at the upper reaches. If we could reach some level where people who were earning over two million bucks a year, over a million bucks a year have to pay 39 percent, that’s fine. That does not in any way offend my sense of fairness.

DAN MITCHELL:
One thing that’s very important to understand is there’s a difference between tax rates and tax revenue. And the 1980s are a good example. In 1980, when we had a top break all the way up at 70 percent, people making over $200,000 a year paid $19 billion to Uncle Sam. Reagan brought the top rate all the way down to 28 percent, those people making over $200,000 a year, they suddenly paid $99 billion. You got five times as much revenue at a lower rate. But there’s no question that people respond to changes in tax rates. There is a very high economic cost when you impose these higher tax rates, because people just decide, “I’m not gonna work, save, and invest as much.”

RAY SUAREZ:
So if we go all the way back to those days, those dimly remembered days of 1996, 1997, 1998, weren’t rich people still trying to earn more money and be even richer?

ELIOT SPITZER:
There is surprisingly little economic study of this. But you asked the question, at what point does the marginal rate actually dissuade somebody from working. I have not seen anything that suggests that you cannot tax people — let me say it affirmatively. You can tax people up to 40 percent, 45 percent –

BRUCE BARTLETT:
Oh, much more than that.

ELIOT SPITZER:
I said there’s nothing that suggests in the 40s, you dissuade people. You can probably get into the 60s. Because as you pointed out, people still wanna get wealthier.

RAY SUAREZ:
Last month, President Obama proposed lowering the corporate tax rate from 35 percent to 28 percent while eliminating loopholes and establishing a minimum tax on foreign earnings. Now, the corporate taxation’s gotten a lot of attention during this political season. Isn’t that combination of lower rates and fewer loopholes getting us part of the way to a grand bargain, if a grand bargain is even possible, Bruce?

BRUCE BARTLETT:
Well, it’s a move in the right direction. But I think he moved in the wrong direction by saying, “Let’s have– an extra special low tax rate just for manufacturing.” And I think he’s kind of, you know, going in one direction and in the other simultaneously. I think you need to have some basic element of principles here of we’re gonna tax everybody the same or we’re not.

RAY SUAREZ:
But professor, when people talk about that 35 percent rate, is it like sticker price on an auto? Is anybody really paying 35 percent?

DOROTHY BROWN:
Well, some are. But it’s the exception as opposed to the — to the rule. I think– 2008, the GAO did a study that talked about two-thirds of American companies weren’t paying the maximum tax rate. So, no. Every time I hear, “We have to cut the corporate tax rate because the U.S. tax rate is so out of whack with respect to other countries.” But the effective tax rate of the U.S. corporate rate is nowhere near 35 percent. So –

ELIOT SPITZER:
But that’s — I think part of the answer though is that the wrong people are paying 35 percent. In other words, if you view this as a matter of fairness, G.E. didn’t pay any taxes. And I’m not trying to vilify G.E., great company, does amazing things. But they are sophisticated enough to take advantage of the code. They — I think they have a bigger tax department than most law firms put together in major cities.

DOROTHY BROWN:
And a better tax department than most law firms –

ELIOT SPITZER:
And certainly– well, certainly better from their shareholders perspective. But so the problem is that the small companies that don’t have the capacity to understand all this are the ones who are paying the 35percent. And that doesn’t make sense.

RAY SUAREZ:
We’ve been talking all about how the federal government gets the necessary money for its operations. There’s a big tax cut in the last decade. We gathered less money, and continued to spend more money is that kinda the crux of the problem?

DOROTHY BROWN:
It’s certainly a big part of the problem. But who got the tax cuts? It goes back to the fairness issue. Those with capital gains and corporate dividends got a huge tax cut, down to 15 percent. Those of us with wage income, our rate’s at 35 percent. So who got the tax cut? The highest income tax payers — it’s not the same as who’s bearing the burden, or who will bear the burden if our tax laws continue, which is gonna be the middle income taxpayers.

RAY SUAREZ:
I’m gonna stop it there. Guests thank you all for a great conversation. Eliot Spitzer, Dorothy Brown, Bruce Bartlett, Dan Mitchell, thank you all.

DAN MITCHELL:
Thank you.

ELIOT SPITZER:
Thank you.

DOROTHY BROWN:
Thank you.

BRUCE BARTLETT:
Thank you.

RAY SUAREZ:
This week online…participate in our weekly poll… do you think our tax code favors the rich? Tell us what you think and why. Visit PBS.org/needtoknow.

RAY SUAREZ:
That’s it for our broadcast this week. Next week, Scott Simon returns to Baltimore’s inner city and talks with young men who say every day is a recession, with no signs of letting up.

In the meantime, you can join us anytime online for more features, opinion pieces, and of course, our weekly poll at PBS dot org slash need to know. For all of us at Need to Know. Thanks for joining us. I’m Ray Suarez.

 

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.