Perry's Tax Plan
Taxes, taxes. Death and taxes. The two most inevitable occurrences in American life and one may soon be getting reformed. At a time when all things financial hang in the air, even Washington seems to be developing a sense of urgency about unavoidable issues.
Regardless of who winds up taking the White House a year from now, one thing seems clear. Tax reform is on everyone's mind and is sure to be a crucial issue. Perhaps on his own, perhaps as an attempt to keep up with Herman Cain's growing popularity, Rick Perry has thrown his hat into the reform ring.
Perry's plan centers around an optional 20% flat-rate income tax and a spending cap at 18% of GDP. Though many are not fans of Perry's lackluster debate methods, it is pretty hard to argue with the economic health of his home state. Even though New York and California have largely formed the political mindset of America for the last half-century, Texas has long been kicking their coastal asses in the prosperity department. Local taxation attitudes and policies are a huge factor in that equation.
Please don't twist this into a presidential or Republican nomination debate. I know that a lot of Perry's editorial is mired in party politics, but I honestly think that taxes should be exempt from a politically oriented discussion. Ideally, I would like to expand on the tax debate we began here.
Clearly, many of the economic issues we face today are rooted in attitudes and policies towards taxation. I cannot say for sure whether Perry's ideas would translate to success, but I am absolutely certain of one thing...
For the first time in my life, our ancient, overweight, overcomplicated tax code is being addressed with an eye towards reform. That doesn't mean that it will change overnight, but the fact that actual front line politicians are talking about it, is very exciting.
I am still not clear as to how Mr. Perry plans to "save up to $483 billion in compliance costs" but seeing the free market competition of ideas come to politics is pretty damn cool.
Let's hope it continues and that each candidate's desire for victory leads to a balanced budget and a sturdy economy sometime in the near future.
california and new york dont have oil...
California has some oil, albiet not as much as Texas, but they do have a moderate amount
California doesn't have oil LOLZ
Probably going to be easier to reform death than taxes, actually.
I'm not in favour of flat rate taxes (I'm UK based btw). I genuinely feel that those of us fortunate enough to be in the top tax bracket (I pay 50% on most of my salary and all of my bonus) should pay a fair share and in my opinion my fair share is more than the Brazilian lady who cleans my house.
I also dont believe that reducing high earners taxes will stimulate growth, it will just increase the pace of personal deleveraging.
Also, isnt texas' economy almost entirely linked to the energy boom of the last few years, rather than Perry's astute financial management?
Couple of questions: 1) Where do you think the line is drawn between what is a fair amount of someone's income to keep (in terms of percentage of income, and i'm talking about people in your tax bracket)? Also, curious at what income level you would start reducing the percentage of taxes paid that you consider fair.
2) Which members of society should be exempt from taxes all together? Or should everyone pay, even if its only a little bit?
Anyone who thinks handing 50% of what they earn to the government is fair is INSANE.
Half your life you work for someone else? Get the fuck out of here. You see the riots in England? Those animals were paid for by your efforts.
Taxes should be cut because it is morally correct. It doesn't matter what the person does with it because IT IS THEIR MONEY.
I dont think 50% is a great tax rate, I would rather it was 2%. But I believe that the government provides services and someone needs to pay for them and as a relatively better off member of society, I have a responsibility to pay a greater share.
Also, my company pays me out of its profits, which are generated (obviously after a bit of corporation tax) on earnings which would be all but nullified if it wasnt for government services (if they had to educate every employee, and their children and pay for their parent's care homes, and build individual roads so every employee can get to work, and raise a private militia to protect everyones home).
QFT.
I like Ron Paul's economic plan but I'm afraid that it's too muscular for America.
Oh well. I could care less what you pay on the other side of the pond. If you think that it takes 50% of your income to provide these basic services you are brainwashed.
Taxes should continually be driven down. Government has no incentive to be efficient or productive. 25% feels about right. God asks for 10%, no way the government needs 50%.
I like parts of Perry's plan better than the 9-9-9. I think in the editorial he said that people could either choose to pay their current rate or the proposed flat rate of 20%. It would eliminate a lot of incentive to defraud the system if everyone's paying the same rate. It was also going to eliminate the AMT and not introduce a consumption tax.
I'm a fan. If only he had been this concrete in the debates, he wouldn't be in such bad shape.
Agree 100% Ant. This guy is abosolutely brainwashed.
Samoanboy, how do you feel about you working while some government welfare slug sits on his/her front porch boozing?
Of course it is frustrating that some people rely on government welfare programmes, I am not jealous of them however. I think the issues are far more deep rooted than an assumption that these people are somehow 'slugs' and whilst there are undoubtedly people that take advantage of the system, I dont believe that my taxes being lowered will incentivise others to get a job.
I believe in the 'veil of ignorance' and apply that theory to tax issues, from there I'm afraid I get to a progressive, rather than flat tax system.
How about a flat tax with a rebate for the bottom 20% or something. 50% of the rebate would be forcibly saved and used as a college tuition rebate or something for the poor. The other 50% would be given back at the year end. Basically forced savings.
This would eliminate the argument for the tiered system.
I never can understand how people can think that the bottom 50% of Americans have the right to pay no federal taxes. Do we not all enjoy the benefits of this country? Do the poor not use roads and cities like the rich do? Everyone should pay in or we created a system where people get something for nothing.
How has the Fair Tax not come up in any of the debates? The Fair Tax has been introduced to congress over and over and seems like a solid concept based on reading the book. Does anyone have an opinion on this?
Full disclosure, I have not watched all the debates so it may have been brought up. It certainly has not created any meaningful impact if it has.
http://www.fairtax.org/site/PageServer?pagename=about_main
Fair Tax will never happen simply because of the spending built into the tax code. So many special interests or social engineering in the code that eliminating it would be political suicide.
I agree, but Perry's plan is pretty great. The working poor would be mostly exempt, and it would greatly simplify the code. The mandatory spending cap is a nice thought, but it seems like GDP volatility would make it difficult to implement.
Hopefully Perry can articulate this plan well in future debates. He is more electable on the national stage than Cain or Paul (I mourn that great man's campaign). Romney seems to be more of the same.
would the 20% be in addition to the payroll tax
Pr-exemptions and deductions, the effective tax rate for a person making $83,600 is 20.4%, based on 2011 tax rates. Quite honestly, not really sure why the public thinks the current tiered tax rate system is that complex.
It's more the numerous exemptions, deductions, and generally tax loopholes that make things a pain in the ass.
Easy solution would be to eliminate all tax deductions, exemptions, credits, and other unnecessary crap, and adjust the tax tiers accordingly.
First $11,000 - 0% tax (based on federal poverty line, seriously why tax a person in poverty?) Next $25,000 - 15% tax Next $50,000 - 25% tax Next $50,000 - 30% tax Next $100,000 - 33% tax Everything above $236k - 35% tax
Only adjustments would be for # of dependents in family, up to a limit. Still don't see why people with 8 kids should be subsidized on taxes.
I would be fine with the above also. Deductions need to be eliminated.
As a Canadian, I really with my country would take a good look at the current tax code. I don't care which way they would go with it, but it would be nice to see a good set of alternatives presented with their assumptions.
That being said, I do like a progressive tax system, and even more if some of the tax deductions at the lowest level were "forced" into savings for education as suggested by Ant. There are however a few things I do take issue with:
1) Low corporate tax rates. If you track the data from the 1950's onward you would see that corporate tax rates have very little impact on capital spending. Companies spend when they think they can make money. Generally, lower corporate tax rates translate into a higher dividend, which does not really boost an economy as they go to savings.
2) Bailing out large institutions is something I certainly don't believe in. Mainly because I tend to recognize that you need push and pull economics, with pull being stronger. Saw back of the envelope math somewhere that showed if the US had paid every mortgage in America for 6 months it would half only cost ~ $500B, versus $700B to the banks. Logistically is it difficult? Well I can e-file my taxes and e-mail transfer money around the world...I bet it was a potential. That would still put the money to the banks for the mortgages, and for those who were on the line would have disposable income to go into the economy.
3) A government needs to have a few key priorities to ensure a healthy economy. Tier 1 - Human Capital (population, education, length of working-life). Better education from bottom to top. Free health care. I firmly believe there needs to be a baseline (I don't care if you have a premium+ system), but you need a good supply of long term workers who are healthy. Multiply that by your population. Solid, well thought out plans on continuing to grow the population.
Tier 2: Culture. America has this honestly. A drive to succeed, laws that protect private property and income etc. Basically, that a person who works hard will be rewarded. 40 hours a week should get a person the essentials.
Tier 3: Supporting infrastructure / protection etc. This is tier 3 because infrastructure should follow growth. Having great streets/electricity etc. doesn't drive growth, therefore it should follow growth in taxes from economic growth (not increasing taxes). Although, I would say strategic priorities could be found in here that would bump them up.
Health-care would include things like social programs...but evaluate them on their ROI. Often it is the cheap, street level programs that cost $40k / year that have the best return, so cancel overly bureaucratic programs that drain the system. Kill the pork projects, and actually act like a government. Governments aren't private companies, and have a different mandate - and that is to support their people and private enterprise. So they should act that way.
Honestly, more than enough is currently collected in taxes, but is so very mismanaged by special interests.
Just my humble thoughts,
Tyler
I don't understand why you start off attacking the idea of lower tax rates, and then say more than enough is being collected in taxes. Lower corporate taxes => higher dividends and not capital spending? Well, I guess that might be partially true but also keep in mind that those who care most about dividend payments tend to be the elderly who rely on them to supplement the socialized pension system we have here that returns less than the inflation rate on the taxes it collects from payrolls [increasing unemployment by affecting the marginal cost of labor] and paychecks.
Why do you attack savings? The savings rate is correlated to the growth of capital stock in a given country, meaning more productivity and less debt for the future. After a debt crisis gave us this mess, why would you attack the idea that people should save more?
The one thing this country needs less of is assurances of a quality of life coming from other people, and a bigger government with a bigger purview over the lives of its people to justify higher revenues, which will inevitably be wasted through special interest graft and mistaken good intentions.
Good thing that post was prefaced with "As a Canadian" or I might have had an aneurysm at the sight of all the socialism therein.
Corporations never pay taxes. They simply collect them for the government.
Not all costs can be passed on to consumers, especially when the economy is in as bad shape as it is right now.
True, in bad times when you can't pass all costs through you lay people off. Either way people pay.
It is like putting a finger in the dike. Another hole opens up. People think taxing corporations will punish them, but it only punished the consumer.
I think last year corporations paid out some 1.5% of GDP in taxes. Not much when you think about it. Most get around by using transfer pricing to park money abroad, then beg the US to let it back in tax free. Hey dickheads at IRS, why not just close the loopholes allowing this money to leave in the first place.
You can't make the argument that they will pass on the "costs" to the consumer or by firing employees, since this money parked abroad is PURE PROFIT. I am not one to say that it is unreasonable to make a profit in this country. I do think it is unreasonable to have a tax code where one can make a profit and use illusive accounting methods to avoid paying a fair and proper tax on those profits.
I wouldn't call foreign operations not sending money back to US corporate a loophole.
Companies always pass through costs. Why wouldn't they? Even in a competitive environement, all effected participants will pass it through.
Honestly, I am happy about this. It is how it should be. Anyone who begs and bleats for more taxes deserves to get fucked.
I agree with this but wouldn't companies with lower operating margins be driven out of competing in a scenario with higher corporate tax rates versus one with a lower rate? At some point, if they continue to pass on costs, they may face a competitor who chooses to eat it because they have the capacity to do it and still have competitive pricing.
ANT, you are a smart guy, I'm sure you are familiar with transfer pricing.
Taking profits made in the US, and then booking them overseas using illusive accounting methods (such as having a unit in Bermuda sell pens to an American entity for $1000 a piece - or a less obvious method using intellectual capital sales) is plain wrong. These companies operate here, make profits here, and book the profits in offshore entities. That isn't foreign earnings being made abroad. It is earnings here being moved abroad in order to avoid paying taxes.
http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-b…
The US loses 60 billion in revenue each year due to transfer pricing. It isn't illegal, nor is it unethical. However, it can be prevented by simply closing the tax loopholes that allow companies to do this. Profits earned here should be taxed here as demanded by our laws. Remember, these are profits, and thus the argument that these "costs" will be passed on to consumers is also moot, because the companies have already earned that money. Instead, they will need to eat it in their margins.
Yes, I suppose. But once the company that is willing to eat it drives out the other guy, won't they just pass it through also? I mean a company would only truly eat the costs if they were willing to accept lower profits and investors had no other option.
End of the day, with limited exceptions (and only then temporarily), the consumer gets fucked.
Yes, but the market will also be less competitive, which is good for that company and its peers but bad for everyone else.
Not saying that transfer pricing is right or if we should allow it, but many companies have legitimate operations overseas and choose to keep that money overseas. We also have the highest tax rate which doesn't encourage companies to bring funds back home.
Also, once you eliminate that tax loophole, companies will simply adjust their prices or variable input costs. This will happen because investors will not accept lower earnings.
What happens when a business misses earnings? Stock sells off. What happens when it continually misses earnings? It gets acquired by a company that can manage the business better.
If the right wants a lower corporate tax structure, then there needs to be quid pro quo of lower subsidies.
Every $ of tax decrease needs to be supported by $10 in subsidy decreases. No industry should be subsidized by the government. The only exception I can think of that would economically make sense is government support for small - medium sized businesses (under $50M revenue). More competition = better.
I think we really need to think about a model of creative destruction rather than preserve and sustain. I get the feeling the economy and society would be better off with greater number of smaller enterprises rather than fewer number of larger enterprises. Would be nice if government policy moved in that direction...
I support ending subsidies also. End all government manipulation.
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