tag:blogger.com,1999:blog-2135788133426971614.post6427521004401187019..comments2024-03-06T02:25:35.487-08:00Comments on 21st Century Taxation: Deficit Commission Co-Chairs Issue Their Draft ProposalsProfessor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2135788133426971614.post-47362939592534957962010-12-05T00:56:08.061-08:002010-12-05T00:56:08.061-08:00The elimination of tax expenditures should be bala...The elimination of tax expenditures should be balanced out with lower tax rates to make sure tax collections from taxpayers for their given income level remain the same. To eliminate deficit, the government should first encourage economic growth rather than increase tax revenue. Our goal should be for economic recovery and high employment eventually to bring in additional revenue. As private investments are important factor for economic growth, the government needs to encourage individual investments and thus individual tax rate should not be increased. However most deficit reduction plans including those put forward by President Obama's deficit reduction commission, don't lower rates enough to make up for eliminating tax expenditures. Consequently, they raise taxpayers’ tax burden. The report of the President's deficit reduction commission seeks to lower individual income tax rates to 8%, 14%, and 23% and the corporate rate, now 35%, to 26%, and eliminate all tax expenditures. It sounds like taxes would be lower, but this would raise $900 billion over 10 years. So there is net revenue gain to government. According to the proposal recently unveiled by Erskine Bowles and Alan Simpson, the co-chairmen of the president's bipartisan fiscal commission, http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf, a way to cut budget deficits is to reduce tax expenditures rather than raise tax rates. That would increase revenue without reducing incentives to work, save or invest. However if elimination of tax expenditures is not balanced out with lowers tax rates, the effective tax rate is increased and as a result individuals pay substantially higher taxes on the same income. Higher taxes mean that families will have less money to consume and to cycle through the economy. Higher taxes and higher marginal tax rates mean that individuals will work less, hire fewer employees, invest less in their businesses, and look to invest more resources overseas. Decreased consumption and investments from private sector will finally choke economic growth and result in even larger deficit.Anonymoushttps://www.blogger.com/profile/08269076586233064383noreply@blogger.comtag:blogger.com,1999:blog-2135788133426971614.post-73542129459808253572010-11-18T11:00:03.708-08:002010-11-18T11:00:03.708-08:00Interestingly, at about the same time the proposal...Interestingly, at about the same time the proposal was released by the President's fiscal commission, there is also another proposal,calling for drastic cost cutting and a new 6.5% national sales tax. <br /><br />This proposal was forwarded by former Senator Pete V. Domenici and former Clinton administration budget director, Alice M Rivlin. The 6.5% national sales tax will be offset by a combination of a one year payroll tax "holiday" and lower overall income tax rates. <br /><br />Many deductions and credits will be eliminated in favor of a flat 15% credit which is more equitable to taxpayers. <br /><br />However, I find it interesting that they went on to cite their proposal as "simpler and pro-growth". It is arguably simple to eliminate the old complex rules for deductions and credits, but it is not any simpler or pro-growth to have a national sales tax at all. The structure of a sales tax is just simply flawed. States already implementing the sales tax cannot solve pyramiding issues (causing multiple layer of taxes on business inputs) and cannot capture cross-border transactions (causing loss of revenue and a significant tax gap). <br /><br />And the plan calls for a one year payroll tax "holiday" that is believed to ignite growth, possibly through encouraging increased productivity of American workers. This "temporary measure" is alike to the one off Homebuyer Credit which caused a blip in (housing) spending, but tapered off once the credit expired. It is simply unsustainable. <br /><br />But both proposals did have similarities in that they both called for extreme austerity measures. Drastic cuts in spending coupled with a tax reform which we badly need to balance our budget. An interesting comparison of both plans by IHT on the link below:<br />http://www.nytimes.com/imagepages/2010/11/18/us/politics/18fiscalGrfxA.html?ref=politics<br /><br />And a good article summarizing the proposal from Pete V. Domenici and Alice M Rivlin below:<br />http://www.bloomberg.com/news/2010-11-17/rivlin-proposes-6-5-national-sales-tax-as-part-of-deficit-reduction-plan.html?cmpid=wsdemandLisa LZJhttps://www.blogger.com/profile/15408842708018772084noreply@blogger.com