Need to Know, July 6, 2012: Cleaning up the tax mess

Ray Suarez.

Our tax code has been described as a morass of different rates, deductions, loopholes, and subsides that is different depending on each individual taxpayers 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? This week, Need to Know’s Ray Suarez hosts a panel of tax experts who debate how to fix the tax mess.

What’s on this week:

Cleaning up the tax mess

Our panel of tax experts 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.
(Originally broadcast March 9, 2012)

 

Watch more full episodes of Need to Know.

 

Comments

  • Don Roti

    I just watched your program and was surprised no one even mentioned the Fair Tax which was first introduced in the House in 1999 and each session since.  It seems to offer many of the things your guests wanted;  single rate, no loop holes, consumption tax (although not a VAT), no tax until poverty level level spending has been reached (via prebate), no income tax filings, tax transparency, replaces the existing code, and much more.

    The book is available from Amazon.com and is entertaining as well as informative.

    Don Roti

  • The Crazy Canuck

    It seems to me the problem in the USA is not that marginal tax rates need to go up or down, but rather that the threashold where the top marginal tax rates take effect need to come down.  The top tax rate of 35% does not apply until taxable income exceeds $388,000!   For example the marginal tax rate for income between $100,000 and $217,000 is only about 26%  That is too low. In Canada (Ontario) the top marginal tax rate of 46% applies to all ordinary income over $132,000.  It is the theasholds where the top tax rates kick in that need to come down.

  • Tom

    I get tired of hearing corporations need to pay more taxes,  If you increase the taxes on corporations, the cost of the the goods or services go up and they tack that on to the sales of their goods or services. so any increase in corporate taxes hurts the low income people more.

  • curious

    There is a lot of talk about contributions to the economy that rich people make and how making them paying higher taxes will damage the economy. I’d like to know: how exactly those in the top tax bracket contribute to the economy, how much contribution they really make, and where is the evidence that they will contribute less if they have to pay higher taxes (which is also a contribution to the society at large).

  • Ellig

    You seem to be saying about the wealthy, let a sleeping dog lie, because when he wakes up he will take advantage whatever way he can.  The weakness of this argument is that you are being a victim and refusing to standup for justice.

  • J.V. Hodgson

    It took this debate along time to get around to the fact tht big corporate America despite a so called 35% “notional rate” which is high as Republicans claim the Effective tax rates that corporates pay is amongst the lowest of developed nations, many surveys show this independent of government in power.
    Small businesses if they are really small and sensible can do all sorts of simple things that thier accountant / tax adviser can keep them out of the 35 % rate on an awful lot of money, as they often employ family members and pay salaries to eliminate Business or corporate profits. the problem is small business is not entitled ti the Big corporate loopholes.
    America via “state sales taxes” has In effect a tax virtually the same as VAT or Consumption tax as it is levied by all states. One should remember 65% it is said of American GDP is consumer spending. the ultimate point of VAT is that everyone pays and for Big business it is not a cost/tax but a pure cash flow matter, its the consumer who pays… the issue would be to have a fixed level of Federal sales tax, and leave staes as they do now to fix state rates VAT applies all through the value chain and has input and output taxes leading to net cash payment. So I think a federal sales tax eliminating things like gasoline tax, collected by states and paid monthly to federal is viable a revenue positive.
    Loopholes and tax reliefs lower Notional rates and eliminate loopholes and keep the Income Gain from special ta x give awas for treasury use for debt repayment.
    Overall it was I think fair rthat most on the panel see the overall solution as reasonable spending cuts but with an overall tax revenues increase is the solution to upcoming issues even if thaat uses loer rates.
    I firmly believe that dividend and interest income should be taxed at salary income rates, and that capital gains taxes short tern I.e. made in less than 12 months pay 30% and long term capital gains at either 20 to 25%. These rates will not affect job rate growth or decline nor be economical negative.
    The cliff certainly gets smaller and the middle class are not picking up all the bill
    Regards,
    Hodgson  

  • J.V. Hodgson

    It took this debate along time to get around to the fact tht big corporate America despite a so called 35% “notional rate” which is high as Republicans claim the Effective tax rates that corporates pay is amongst the lowest of developed nations, many surveys show this independent of government in power.
    Small businesses if they are really small and sensible can do all sorts of simple things that thier accountant / tax adviser can keep them out of the 35 % rate on an awful lot of money, as they often employ family members and pay salaries to eliminate Business or corporate profits. the problem is small business is not entitled ti the Big corporate loopholes.
    America via “state sales taxes” has In effect a tax virtually the same as VAT or Consumption tax as it is levied by all states. One should remember 65% it is said of American GDP is consumer spending. the ultimate point of VAT is that everyone pays and for Big business it is not a cost/tax but a pure cash flow matter, its the consumer who pays… the issue would be to have a fixed level of Federal sales tax, and leave staes as they do now to fix state rates VAT applies all through the value chain and has input and output taxes leading to net cash payment. So I think a federal sales tax eliminating things like gasoline tax, collected by states and paid monthly to federal is viable a revenue positive.
    Loopholes and tax reliefs lower Notional rates and eliminate loopholes and keep the Income Gain from special ta x give awas for treasury use for debt repayment.
    Overall it was I think fair rthat most on the panel see the overall solution as reasonable spending cuts but with an overall tax revenues increase is the solution to upcoming issues even if thaat uses loer rates.
    I firmly believe that dividend and interest income should be taxed at salary income rates, and that capital gains taxes short tern I.e. made in less than 12 months pay 30% and long term capital gains at either 20 to 25%. These rates will not affect job rate growth or decline nor be economical negative.
    The cliff certainly gets smaller and the middle class are not picking up all the bill
    Regards,
    Hodgson  

  • Tom Huff

    Despite Ray Suarez’ skills as a moderator, tonight’s episode rendered more heat than light, as each panelist competed with the others to show how right and bright he/she was.  Sorry – please do better next time.

  • JW Ogden

    A little discussion of the incidence of taxation would have helped.  For example if the Government taxes corporate profits more government can consume more but who consumes less, stock holders, employees, consumers, which and how much.  

  • http://www.facebook.com/elmer.stenger Elmer Stenger

    I watched the show on WQED 7/6/2012,  and would like to propose a new idea on taxes.
     How about taxing all income regardless of the source, at the same percentage rate for all payers from the poorest, to the wealthiest.

      As I see it,  the biggest problem, would be compliance, People who work for a company have their wages reported to the Federal gov’t on form 1099 Everyone has to include wages interest.ie all income. It should include all banking institutions, and wall street speculators take home pay.

      What the corporation makes, is not relevant, but every cent paid to everyone as compensation should be, whether they are the CEO, stock holder, or lowliest paid employee.

      If total compensation is known and reported,  and the amount required to balance the budget is known,  figuring the percentage should be simple.   I’m guessing about 10%.

     So now, who can say they aren’t paying their fair share,  everyone pays the same percentage.

      If the top executives think they are paying too much, all they have to do is raise the wages of everyone below their pay scale.  the amount they will pay goes down and the employees, stock holders etc. will go up.

      While I’m on the subject of compensation, we may as well think about health insurance, and social security.  Everyone should pay into the fund equally too, and receive the same quality of care. Why should government employees, firemen, police, etc not pay into social security like most everyone, then collect their pension like everyone else.  Maybe if they did congress would have to pay attention to their job, and act accordingly, not borrow money from the fund to pay for wars and put an IOU chit in the bank, and forget to pay it back, like is now the case.

      Capitalism is great when equality is the rule.  Progressive government works well too when laws are not drawn up to favor certain segments, rather than everyone equally. 

  • http://www.facebook.com/jillsh48 Jill Shaffer Hammond

    Most tax discussions ignore from the outset that almost everyone who works for a living — wages, salaries, small businesses– pay payroll taxes that amount to an effective 15% on earnings and is already our FLAT RATE TAX. The only exemption is anything you make OVER $110,000. That tax supports Social Security in total, and also Medicare and Medicaid. The funding for Social Security has been in surplus for decades–it was redesigned that way in the 1980s to prepare for the Boomer retirement. In fact, much of the national debt is owed to the Social Security Trust Fund.

    So when discussion of tax reform and deficit reduction start talking about cutting entitlements like Social Security, let’s  be clear that the taxing structure of the (progressive) Federal Income Tax and corporate taxes are the revenue streams that have not be raised, expanded or reformed to keep pace with actual government spending, like the defense department, a couple of wars, subsidies to highly profitable fossil fuel corporations and agribusiness, etc.
    It’s rather that government spending for non-entitlement programs has shifted already onto a flat tax base, since they’re borrowing those payroll tax revenues for something other that the Social Security so many of us have paid into all of our working lives. And now we’re told that we should cut entitlements, the ones we’ve bought and paid for?

  • Don Wilson

    Aren’t taxes fun?  Our 1.3 T budget deficit is an interesting problem.  Let’s say we were to eliminate the defense department and ALL discretionary spending.  Problem fixed, right?  Barely.  Let’s say we were magically to double our revenue from both individual and corporate taxes.  Problem fixed?  Not quite.  How about fixing the problem by growing the economy spurred by cutting taxes?  Not likely because even in the tech bubble days in the late 1990′s, the tax revenue was not enough to cover today’s expenditures.  The scale of the problem is massive.  How do you attack a problem like this?  Rather obviously, you reduce spending and raise revenues from taxes, BOTH because neither can solve the problem alone.  And since you’re going to raise taxes on everyone that can afford to pay (can’t bleed a turnip), better make it “fair” or there will be a tax rebellion.  My vote?  First, “do nothing” in December, letting the tax rates return to somewhat higher levels.  Then start phasing out most tax subsidies and loopholes and special rates and exceptions over 10 years, including the massive mortgage interest deduction.  While you’re at it, design a more effective mildly progressive tax system which of course considers ability to pay.  It’s “easy”, but you do need legislators that are willing to work with each other and not have closed minds.

  • JonThomas

    This show was ridiculously useless. Nothing new. Same tired rehashed Liberal/Conservative views.

    Please stop wasting our time with shows that do nothing but attempt to reconfirm the Liberal/Conservative legitimacy.

    People are wanting…no, needing more. They are waking up and shows like this just lull them back down. sad!

  • Banorris53

    Four smart people and nobody mentioned defense spending.The U.S. spends as much on defense as the rest of the world combined.  I don’t understand the thinking.

  • PeteG

    The Job-creators vs The Job-doers (or are they the “Wealth-creators?)
    In this country if you add together all the taxes at the federal, state, and local level, a single minimum wage worker paid 37% total taxes on her $14,500 annual salary (leaving her $9600 for one year of full-time work, and no she does not qualify for food stamps or the earned income tax credit). Meanwhile, billionaire Warren Buffett pays 11% total (federal, state, local, corporate) taxes on $8 billion annual investment gains.
    Our system of taxes if viewed across all levels of government, is regressive. It favors the very rich, the self-proclaimed, so-called “job-creators) while it punishes the middle-class, the working poor, “the job-does,” the “wealth-creators.”
    The tax cuts for the rich were supposed to encourage investment and strengthen the economy. Instead, average GDP growth during the 30 years since the tax-cuts-for-the-rich began has dropped 25% compared to the 30 prior years.
    How do tax cuts for wealthy investors produce worse growth? Here is the main way: The favored tax treatment for investments and the wealth concentration that resulted leads to the demand for investments exceeding the supply of worthy investments … Any attempt at regulation is overwhelmed by “supply and demand” market forces (Econ 101) … The price of investments MUST rise “artificially” and unsustainably … Investment bubble … Burst bubble … Recession … Every 6-8 years all but the wealthiest are at risk of losing their jobs, their homes, their opportunity to educate their kids, and their retirement savings … and the government loses more tax revenue.
    For details, spreadsheets, and a proposal that would make the economy flourish for everyone, not just the wealthy ivestor-class, see my site: http://fairsharetaxes.org

  • http://profile.yahoo.com/XMVK2MA52LVZAXYEILCCULBXAA Terry

    It is good that the show discusses tax policy seriously; very few public service programs on television do that.  TV programs are more likely to present debates about spending than revenue generation.  However, the discussants on the program did not examine their divergent assumptions about the purpose and vision of government in our society.  

    In contrast to the traditional and established purpose of government to legitimize private property and protect people of property (the “haves”) against those with little or none (the “have-nots” – about 99% of us), I advocate that government should more or less do the opposite: actively seek to make our society far more egalitarian and with few class differences.  The present status of our economic system resembles the board game Monopoly in its last stage, when one player has amassed nearly all the money and the properties on the board, and all other players are either penniless or deeply in debt to the winning player.

    The true “job creators” in our society are NOT the millionaires and billionaires with vast surplus income looking for opportunities for investment, but the consumers, especially lower and middle-income households, who are compelled to spend virtually their entire income to survive and live in reasonable comfort.  For without the demand of consumers, there is no incentive for investment in providing additional goods and services.  The greater the purchasing power of the consumer base of our economy, the more it will prosper.  

    In furtherance of this goal, I recommend as tax policy the elimination of personal income tax, at least for everyone except the highest earners.  Federal government revenue should come primarily from three tax sources: inheritance / estate taxes, corporate income taxes, and capital gains taxes.  Government spending that needs to be radically cut are in defense and unjustified corporate subsidies obtained by beneficiaries by prostituting our legislators.  The anticipated outcome of such policies are the transfer of economic wealth and political power sharply from the decadent, parasitic ruling elite to the have-nots, and would result in a far more stable and just society.  

  • Abuelo

    This program was very helpful.  It brought to the same table a full spectrum of  viewpoints on taxes, in a forum where divergent perspectives could be exchanged in a very civil manner.  Kudos to Ray Suarez and the Need to Know team!

    Two comments stick in my mind.  First, nowhere in the discussion of tax rates did anyone observe that our system of income taxes is “graduated”.  That is, the tax “rate” does not apply on the basis of total income; rather, it applies on the basis of each increment of income.  Each increment has the same rate, no matter what the total income of the taxpayer is.  So Warren Buffett pays the same tax rate on the first increment as his secretary (or as the local laborer).  Warren Buffett would only pay a highter tax rate on the increments of income that his secretary (and local laborer) don’t have. 

    If there are cuts in tax rates on the lower increments, these cuts benefit everyone, including Warren Buffett.  On the other hand, if there are cuts in tax rates on the upper increments, these cuts only benefit those, including Warren Buffett, who have income in those upper increments. 

    This puts a different light on the concepts of “tax rates” and the “flat tax” and the “value added tax” and “tax fairness”.  If tax rates that apply to the lower increments — which apply to most taxpayers — are set to be fair to these taxpayers, even Warren Buffett benefits from these principles of fairness.  For example, if the tax rates for lower increments were set so that lower income families would not pay income taxes on money that a family would have to spend on food and shelter and other basics, this “tax break” would also apply to Warren Buffett.  The same fairness is not true for tax rates for higher increments, which apply only to the relatively few who have income in those higher increments.

    As a country, we would be wise to keep the “graduated” nature of our income tax rates in mind.  It makes sense to consider much higher rates (e.g. 60% instead of 35%) on much higher increments of income, because those higher rates don’t affect the rates for lower increments of income.  Even Warrent Buffett gets the benefits of any lower rates on lower increments.  In addition, of course, as he himself pointed out, he gets the benefit — which he can apply preferentially to his higher increments of income — of lower capital gains rates that are not available to his secretary (or the local laborer).

    The second comment responds to what the Cato Institute speaker said about Republicans not delivering on promises to cut spending.  He is correct, but the problem is not one of will power.  The problem is systemic, but can be corrected in a straightforward manner.  We need a long term budget and appropriation process which is designed to make changes gradually, and which measures the effects of both spending and revenue levels and changes in those levels.  As a country, we need to pull together but we don’t have the measures to do so.  Financial measures are not sufficient.  We need also to measure routinely not just the cost and financial benefits but the values served by the various expenditures; and we also need to measure not just revenue stream produced by the various revenue programs but also the degree of sacrifice required by these revenue sources.  Such routine measures would take considerable work, but would be worth the effort because such measures would help us see how the benefits and burdens of citizenship are being shared, so as to better promote human flourishing for all Americans.

    Absent the information that would be provided by such a system of measures, we are left with a continuation of relatively crude shouting matches over promises that cannot be fulfilled.  We cannot cross the river if we do not take the time and effort to build a proper boat.  The answer is not — and here I disagree with the Cato Institute speaker — to put our Congress in a straightjacket.  Instead, we need to provide our Congress with the routine measurement tools it needs to discharge its service responsibilities to the public.  Congress, of course, is the only body that can authorize such a foundation for its own work.

    But the necessary foundation ought not to be a partisan matter.  We should be able to get this done.

  • Private Private

    Getting wrapped up in these “sophisticated” concepts and falling into the trap of trying to “think smarter” can create illusions about what is really happening in our country.

    Here is the simple truth. We are a nation; a collection of humans that created a government to help protect our individual rights and accomplish collective goals. This government requires representatives that all have families to feed. Thus we pay these representatives and their staff to work and make decision in order to protect individual rights and complete collective achievements.

    Over time this government has created a “spiderweb” of legislation in order to fulfill it’s responsibilities. The legislation and salaries of government workers costs money. Some might argue that goverment is too big and spends too much. Maybe, however as a society expands in population so does its government; when we seek to understand the underlying principles of civics and societies we understand this more clearly. So over time, regardless, government and its initiatives will expand to some extent.

    Now here is the important part. Our government creates its own money out of thin air by creating and validating debt. However, it has created so much money and validated so much debt it is reaching a ceiling of effectiveness.

    This leaves us the task of trying to find a way to pay the representatives of government and the legislated objectives with what we have in the current created money supply.

    Here is where all the fighting lies. Fact is the government needs 1.3 or so trillion. The vast majority of wealth in our country does not lie in the bank accounts of the common middle class or lower american. Conversely it lies in the many varied accounts of the wealthy and upper middle class.

    Over 90% of this nations GDP lies in the coffers of the top 25%. So here is the question we must ask. do we go about trying to get the 1.3 trillion from the people who collectively have tens of trillions, or the people who collectively have about 2 trillion?

    Sure raise taxes on those not paying taxes, so be it, but then minimum wage should be raised too. Why is it that anything that negatively effects the top earners is bad and anything that hits those with much less is fair? Well at least in the eyes of the more conservative thinkers. The concept that companies see more money, not as growth or bonuses, but as a means to “give” away jobs to people, “You get a job, and you get a job,” like cars on Oprah, is utterly false. Companies take the extra money that government subsidises them and distrubutes it as trophy money to CEO’s, Presidents, and Shareholders. This lie and false perpetuation needs to stop.