Once again, I have written to a staffer for Senator Dan Sullivan, Alaska Republican. This month's epistle was regarding tax policy, and the ongoing Republican effort to enact tax reform.
Tax reform is deeply needed in the United States, but the direction of Republican reform seems entirely driven by the desire of wealthy political donors for lower taxes. Representative Chris Collins of New York commented, "My donors are basically saying, 'Get it done or don’t ever call me again."
I believe that the process of reform should be an open process, subject to hearings, testimony, consideration of evidence, and compromise, but the Republican party is pursuing a closed process, without bipartisan input or debate.
And so I wrote to my Senator's staffer again with a sense of futility, despairing of receiving responsible government from Republicans. But for the reader's consideration, here's my letter, and my priorities for tax reform. For brevity, I placed my highest priorities in bullet points at the beginning.
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Tax reform is deeply needed in the United States, but the direction of Republican reform seems entirely driven by the desire of wealthy political donors for lower taxes. Representative Chris Collins of New York commented, "My donors are basically saying, 'Get it done or don’t ever call me again."
I believe that the process of reform should be an open process, subject to hearings, testimony, consideration of evidence, and compromise, but the Republican party is pursuing a closed process, without bipartisan input or debate.
And so I wrote to my Senator's staffer again with a sense of futility, despairing of receiving responsible government from Republicans. But for the reader's consideration, here's my letter, and my priorities for tax reform. For brevity, I placed my highest priorities in bullet points at the beginning.
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1) Fully fund the federal government now. Stop stealing from our children.
2) Drastically simplify the tax system.
3) Make everyone pay something. Make rich people pay more.
4) Tax unearned income higher than earned
income.
5) Treat all capital earnings the same. Eliminate special rules for trusts, S
corporations, REITs, limited partnerships, hedge funds. Treat personal capital earnings (short-term
gains, long-term gains and dividends) the same.
6) Tax foreign business profits in the same
year that they are earned.
7) Eliminate corporate tax loopholes.
8) Tax unrealized capital gains on financial
assets at death. Keep the estate tax at 40% for estates larger than $10 million per couple.
9) Place Social Security and Medicare taxes on
unearned income at the same rate as wage income. Eliminate the earning caps on Social Security
and Medicare taxes.
10) Stop lying about how American taxes are
higher than other countries. Correct
lies when other people say them.
Deficit Spending
I ask that you fully
fund the Federal Government now.
During Senator Sullivan’s town hall meeting, the Senator
expressed serious anxiety regarding the size of the US government debt. I agree with the Senator on this point. Debt held by the public is now about $14 trillion,
or 76% of GDP. Gross National Debt is
about $20 trillion, or 106% of GDP. Debt
levels over 100% of GDP have been implicated in a number of foreign financial
crises, such as Greece, Italy, Portugal, Argentina, and others. Interest payments are rising as a percentage
of the Federal budget, leaving less money for actual beneficial spending.
Deficit spending is sometimes necessary to stimulate the
economy. But a balance sheet overloaded
by debt allows policy makers no flexibility to deal with future crises. Economic theory says that deficit spending is
needed in an economy with high unemployment; an economy at full employment has
no need for stimulus. Deficit spending
in an economy at full employment will simply result in inflation.
We’ve been systematically underfunding the Federal
government for 40 years. If this deficit
spending was going to produce an economic miracle, it would have happened
already. We should raise taxes to run a
surplus until our debt is under control.
Deficit spending, when it is not required for economic
stimulus, is immoral. Like all borrowing,
it is taking benefits today, which must be paid for in the future. The difference with Federal borrowing is that
the people who enjoy the benefits of today’s spending will not pay those
debts. These debts will be paid by our
children. By deficit spending, we are
literally stealing from our children.
Any tax plan approved
by the Senate should decrease the Federal debt.
Tax Simplification
I agree with Republicans that taxes are too
complicated. I support any reasonable
effort to reduce the complexity of taxes, and to ease filing. It is important that we improve the public
perception that our taxes are fair. I
would recommend that the 40% of the population currently not paying income tax
pay something, but with corresponding
cuts in payroll taxes to mitigate the impact of these taxes on working
families. I would support the phased
elimination of many deductions, including the home mortgage interest deduction. In general, I support changes to reduce the
use of the tax code for social engineering, and more to simply fund the
government.
Trusts, S Corporations, REITS, limited partnerships and
other special kinds of capital ownership should be eliminated, as far as tax
law is concerned. All capital should be
treated the same for tax simplification.
I see no reason why unearned income should be exempted from
the Social Security and Medicare taxes.
Earned Income vs. Unearned
Income
Work is an American virtue.
Physical productivity is the necessary foundation of our economy and
earned wages support American families.
But those wages have decreased for the past two decades, in real terms
and as a percentage of the economy (Federal Reserve database, https://fred.stlouisfed.org/ ). Difficulties faced by young wage-earners are
reflected in later marriage ages, later first children, more prevalent
emotional difficulties, despair, drug addiction and deaths.
I would note that any cut in the corporate business tax is
implicitly a tax cut on unearned income, as profits pass through to
shareholders.
Changes in our tax
law should reduce taxes on wages and increase the taxes on unearned
income.
Estate Tax
Eliminating the estate tax would leave a gaping hole in the
taxation of unrealized capital gains.
All unrealized capital gains on financial assets should be taxed at the
time of death, and the cost basis re-set for the heirs. Retain the estate tax for financial assets on
estates worth over $10 million per couple.
Business Taxes
As I document below, American business taxes are already
lower than 2/3 of the countries in the OECD. I have no strong objection to lowering
business taxes, but ask that those taxes be replaced by other revenue, so as
not to increase the Federal debt.
Corporate tax loopholes (or incentives) should be eliminated, to bring the actual tax paid in line with the nominal tax rate.
Corporate tax loopholes (or incentives) should be eliminated, to bring the actual tax paid in line with the nominal tax rate.
I think that foreign business profits should be taxed in the
year that they are earned, and not deferred until repatriation.
I recommend a carbon tax scaled to volume of carbon emitted
by each carbon fuel, and acknowledgement that climate change is a major hazard
for the United States, and caused primarily by human CO2 emissions. I would be happy to talk about that in
person, to anyone who is not convinced of this point. A carbon tax should provide additional revenue
to allow some of the tax reductions desired by Republicans.
Social Security and Medicare
Tax unearned income at the same rate as earned income. Remove the earnings caps on Social Security
and Medicare taxes. [Given the
opportunity, I would restructure Social Security. But that is a topic for another post.]
Truth -- American Taxes
Compared to Other Countries
I would conclude by noting that the Republican justification
for tax reform is based upon outright lies.
In Donald Trump’s acceptance speech for the Republican
nomination, he stated that America is among the most highly taxed countries in
the world. This is the complete opposite
of truth. Anyone with an Internet
connection can look at the OECD statistical page (https://data.oecd.org/), and see that the US
has almost the lowest Federal tax burden of the industrialized world, and is in
the lowest third in terms of total tax burden.
Similarly, you can go to the World Bank database and see that the US
Federal tax burden is lower than over 100 countries, and higher than only a
handful of third-world countries (http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS).
In Senator Sullivan’s town hall meeting, the Senator said
that the US business tax was the highest in the world. This is deceptive, and since the Senator is a
knowledgeable person, I have to conclude that his statement is deliberately
deceptive. It is true that the nominal
US business tax rate is higher than other nations, but it is easy enough to
check the revenue collected from businesses, and compare to total domestic
business profits. The actual tax paid is
far lower than the nominal rate. Further,
you can go again to the OECD database. The
countries with lower business taxes than the United States are Slovenia,
Latvia, Turkey, Greece, Germany, Poland, Hungary, Italy, Estonia, France and
Finland (2014 & 2015). The remaining 21 countries – two-thirds of
the OECD – have higher business taxes than the United States. https://data.oecd.org/tax/tax-on-corporate-profits.htm
I will judge the
Senator’s honor by how well he speaks the truth, and how he speaks out to
correct falsehoods when they are used to justify government policies. *
* You might think me
presumptuous to judge the Senator. I
write another blog with the theme that God should be judged according to the
standards of reason and justice. It is
not that I have the right to judge. It
is rather that all figures of authority are subject to judgment according to truth,
reason and justice. I think that was the
basis of the American Declaration of Independence.
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The section on Estate Taxes was revised 12/2/2017, returning the proposed estate tax to something similar to current law, but reducing the tax from 55% to 40% of assets over $10 million per couple.
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The section on Estate Taxes was revised 12/2/2017, returning the proposed estate tax to something similar to current law, but reducing the tax from 55% to 40% of assets over $10 million per couple.
