America's Richest Will Pay More Under Obama's Tax Plan

[Nessa 23]

as the president of the United States I'll give cookies for tax refund.

[one...two...tree 2,762]

An interview with

Edward J. McCaffery

author of Fair Not Flat: How to Make the Tax System Better and Simpler

Question: No one likes to pay taxes. But is the income tax system so broke that it needs a complete overhaul?

McCaffery: Well, yes, and that's a large part of the reason I wrote Fair Not Flat. To explain how badly broken it is, why it needs repair, and how we can make that repair happen. The wealthiest people in the United States with property pay little to no taxes today, while ordinary wage earners like you and me can't escape from paying high taxes, ranging from a third to half of our earnings! Add to that the tremendous complexity and inefficiency of our system, and you have what I take to be a disaster on your hands.

Q: OK, so the present system isn't fair to everyone. Can't we just reform it or close the loopholes in the tax code to make it more equitable?

McCaffery: If we try minor, ad hoc reforms just to close loopholes here and there, we do nothing about the deep, fundamental, and structural problems in the tax code. These all relate, as I explain in the book, to our obsession with taxing savings directly. Until we rethink that, tax reform is doomed. Take, for example, the Tax Reform Act of 1986. This was a major piece of bipartisan legislation—the centerpiece of Ronald Reagan's second term as president—and it did indeed close a vast array of loopholes and lower tax rates. But less than two decades later, we're right back where we started. The income tax is still far too complicated, inefficient, and fundamentally unfair. Worse, we can see in hindsight that the Tax Reform Act of 1986 mainly shored up the income tax's status as a wage tax—it did nothing about the surprisingly simple ways in which the rich can avoid taxes. Until we fix that, we're stuck with a system that overburdens the working classes while letting the wealthy off scot-free.

Q: There have been a variety of proposals for a flat tax on income—from folks like Congressman ####### Armey, Senator Arlen Specter, and presidential candidates Steve Forbes and Jack Kemp. How does your proposal differ from theirs?

McCaffery: My plan, the Fair Not Flat tax, is progressive. It won't raise tax rates on the middle classes to pay for tax reduction for the rich. You can get almost all of the benefits of these flat tax proposals—in terms of simplicity, economic efficiency, and the fairness of the tax base—without abandoning America's longstanding and sensible commitment to at least moderate progressivity in tax burdens. The wealthy can and should pay a bit more at the margins of their luxurious lifestyles.

Q: But how does it work? What does it mean to have a progressive national sales tax?

McCaffery: A supplemental tax on spending for the wealthiest individuals would make the sales tax progressive. Under the system I propose, a family of four would pay no tax on their first $20,000 in spending, and 10 percent on the next $60,000. Only the few families who spend more than $80,000 a year would be subject to the supplemental tax. Necessities would be taxed less than ordinary and luxury items. And no one would be taxed directly on savings or investments. It's that simple.

Q: This sounds like the USA Tax plan that was proposed about seven years ago by Senator Pete Domenici and then-Senator Sam Nunn. Is your proposal any different?

McCaffery: Yes and Yes. Yes, it is very similar to the Nunn-Domenici "USA" or "unlimited savings accounts" plan, proposed in Congress in the mid-1990s, and I give credit to that proposal in the book. But the Fair Not Flat plan differs from that proposal in being more technically consistent and in substituting an actual national sales, or value added tax (VAT) for the lowest brackets of the tax. That latter change poses a huge and welcome simplification for most Americans: they'll no longer have to fill out tax forms or file tax returns.

Q: So this is a national sales tax?

McCaffery: Everyone would pay taxes on the things, or the goods and services that they buy. Then the upper middle and upper classes would fill out a "supplemental spending tax" form every April. As I said, only families of four spending more than $80,000 need pay this supplemental tax, and at rates starting at 10%. For these relatively affluent families, this tax adds to the actual sales tax or VAT to get progressivity. Rates keep going up, until families that spend more than a million dollars a year ($1,000,000) on themselves pay a total tax on their marginal purchases of 50%.

Q: But isn't it dangerous to tax consumption? Spending is the engine of the economy isn't it?

McCaffery: Funny, that's the most common question I get, and the one I use to start the Question and Answer section at the back of Fair Not Flat. Look, consumption is good. And it is the engine of our economy, especially now that we are in the throes of a recession. But taxing consumption won't slow down our economy further as many fear. Under my plan, tax rates wouldn't increase for any but the wealthiest spenders. For many lower- and middle-class Americans, taxes would actually decrease. And with that money, a vast majority of Americans would be able to spend more if they wanted to. With my proposal, we'd be increasing consumer confidence, and making spending more possible than ever before.

Q: But doesn't taxing the wealthy more amount to class warfare?

McCaffery: Well, there are some who would call my proposal that. But that's not the case at all. What I propose in my new book is class teamwork. Most wealthy people, as books like The Millionaire Next Door teach us, want to and, in fact, do save and invest their riches back into the economy. And there's no reason to tax them when they do. Capital helps us all. It keeps interest rates low, and that's good for homebuyers, students, and workers. I'm not proposing that we simply tax the wealthiest people in our country. Simply those who spend the most. I think that's fair, and I think it's in line with classic American values.

Q: Why do you recommend an end to the death tax?

McCaffery: We should kill the federal gift and estate or so-called death tax for the simple reason that dead people don't spend. We shouldn't punish people for working hard, saving well, living prudently, and dying with savings in store. My Fair Not Flat tax has an automatic mechanism for taxing heirs when they spend instead of when they inherit. It's all simple, consistent, and fair. We should tax people when they spend, not when they work or save, and we should do so at moderately progressive rates, so that luxurious living bears a higher tax burden than ordinary living. Dying and giving aren't the kind of activities that the federal government ought to be taxing.

Q: Well, that's all interesting and persuasive, to us anyway. Do you think anyone in Washington will listen?

McCaffery: Well, I sure hope so. I found with Taxing Women, my first book, that there is a tremendous interest in—a palpable hunger for—proposals to make the tax system better, fairer, and more in step with the times. Tax is so complicated, people need help seeing through the morass to get their way to seeing more hopeful possibilities. This time around, I tried to write an even simpler book to read about this complex subject. The hope is that lots of people can read it, understand it, and help get involved in trying to make this massive tax system more equitable. If I succeed in that-if people get empowered to stand up and call for change—I think Washington will have to listen. Let's all hope so, anyway.

http://www.press.uchicago.edu/Misc/Chicago/555607in.html

[Trumplestiltskin 5,791]

I guess if the top 0.1% hold approximately 25% of the wealth that amounts to quite a bit of income...

[Sister Fracas 5]

rich people pay more =

[Heracles 417]

You did read the post where it was explained that such an approach would lead to there being an even greater deficit in the federal budget and the average guy in the street (that's you and me) would be a lot worse off?

Fair's fair though, of course.

Taxes need to be raised as a whole to help the country out. Both the rich and the poor need to pay more. I am more than happy to pay more tax if I see it used appropriately. A country should based on helping one another. Everyone doing their part.

In my opinion the best way to fix this country's tax system is the following:

• Get rid of state taxes
• Get rid of state income taxes etc.
• Increase Federal taxes for everyone. At least until the country gets back on its feet and out of this mess.
• Institute a Federal Goods and Services / VAT style tax of 6%. Then distribute the taxes to the states according.

The last being the most important because it closes the tax loophole in the black market. This way everyone will have to pay tax sometime or another. No more buying stuff cross states and not paying any tax. The GST / VAT taxes are extremely successful overseas. Edited August 6, 2008 by Aficionado

[Heracles 417]

Just realized I agree with this author on some points..

Edited August 6, 2008 by Aficionado

[Trumplestiltskin 5,791]

Get rid of State taxes....? In other words... remove the ability of States to manage their own economies... Hmmm... Just a few problems there.

BTW - I thought you were a Federalist BY?

[Heracles 417]

Get rid of State taxes....? In other words... remove the ability of States to manage their own economies... Hmmm... Just a few problems there.

BTW - I thought you were a Federalist BY?

Get rid of individual state sales and income taxes that is.

All of the taxes should be going to the federal government. Who should then allocate the cash accordingly.

[Heracles 417]

Plus get rid of the inefficient county systems. Counties should only be responsible for local planning issues and services.

Schools, Police, Fire etc should be handled on a state level. More buying power and less doubling up of managerial positions. Once again a highly effective approach used abroad; which saves billions a year. Money that could be better spent on those services rather than administration jobs.

Why not even combine those services in poorer states with other states. Bigger buying power, less inefficiency, less waste and better services delivered to Americans.

Now that is ###### change..

Edited August 6, 2008 by Aficionado

[Trumplestiltskin 5,791]

Get rid of State taxes....? In other words... remove the ability of States to manage their own economies... Hmmm... Just a few problems there.

BTW - I thought you were a Federalist BY?

Get rid of individual state sales and income taxes that is.

All of the taxes should be going to the federal government. Who should then allocate the cash accordingly.

According to what?

Seriously... how is that going to work? You have States that are budget strapped as they are... without having their income arbitrarily redistributed by the Federal Government.

If you get rid of State-run economies you might as well do away with the States entirely.

[Trumplestiltskin 5,791]

Plus get rid of the inefficient county systems. Counties should only be responsible for local planning issues and services.

Schools, Police, Fire etc should be handled on a state level. More buying power and less doubling up of managerial positions. Once again a highly effective approach used abroad; which saves billions a year. Money that could be better spent on those services rather than administration jobs.

I'm not sure quite how that would work either - given that police and fire service salaries vary greatly across the country. What do you think will happen there if the purse-strings are held by the Federal Government? They'll still be underfunded - and everyone will take a paycut to subsidise the rest of the country.

[Heracles 417]

According to what?

Seriously... how is that going to work? You have States that are budget strapped as they are... without having their income arbitrarily redistributed by the Federal Government.

If you get rid of State-run economies you might as well do away with the States entirely.

Even though we know the UK does have a federal VAT system, lets look at Canada or Australia who have highly effective state systems.

Aus has gotten rid of state tax systems. The only difference is that the federal government collects all of the taxes and then distributes it accordingly. This way the poorer states can also get more money to help them out. Effectively lifting up the nation as a whole.

The other thing is that the GST systems eliminate money lost because you have to pay tax on all goods and services no matter where you buy or use something. Has the system worked, you tell me. Since Australia switched to the GST system, a few years ago, it now has a $55 billion dollar surplus in revenue. Money that is clearly being collected from the cash economy or people who dodged the system. Money that is now being pumped back into the state services like education, police, battling poverty etc.

PS As a result the government has now reduced the income tax rates as well as increased the thresholds used to determine the tax people pay. WIN / WIN situation

Edited August 6, 2008 by Aficionado

[Peikko 1,575]

I don't know enough about the Australian system to comment but I do agree that if the American system is broken - and it does seem to be so - then a total rethink of the tax system, both federal and state, should be up at the top of any party/candidates priorities.

It may very well be that the US can benefit from cherry picking ideas from successful systems that are working outside of the US.

Edited August 6, 2008 by Purple_Hibiscus

[Trumplestiltskin 5,791]

Well for one the US has quite a few more people than Australia - and it doesn't have a Parliamentary central government (more authoritarian than the US Federal Govt).

Also States with the highest income are those with budget shortfalls. Take California, for example: Arnold Shwarzegger just this week signed the executive order to fire 20,000 government workers and put another 200,000 on minimum wage.

Do you honestly think that redistributing the nations wealth through the Federal Government is going to make this situation better - or is it going to ensure a general level of across the board mediocrity (while the states with the biggest incomes go down the pan?)

[Heracles 417]

Plus get rid of the inefficient county systems. Counties should only be responsible for local planning issues and services.

Schools, Police, Fire etc should be handled on a state level. More buying power and less doubling up of managerial positions. Once again a highly effective approach used abroad; which saves billions a year. Money that could be better spent on those services rather than administration jobs.

I'm not sure quite how that would work either - given that police and fire service salaries vary greatly across the country. What do you think will happen there if the purse-strings are held by the Federal Government? They'll still be underfunded - and everyone will take a paycut to subsidise the rest of the country.

Interesting because teachers now start on $51K in the state of Victoria and will soon be able to earn up to $110K under a proposed performance based system. Plus high performing teachers in lower socioeconomic areas will be given a bonus to work there and improve scores.

I don't know enough about the Australian system to comment but I do agree that if the American system is broken - and it does seem to be so - then a total rethink of the tax system, both federal and state, should be up at the top of any party/candidates priorities.

It may very well be that the US can benefit from cherry picking ideas from successful systems that are working outside of the US.

That is all I am suggesting.

Why reinvent the wheel when someone else has a system that works well and better..

...

I am starting to believe you just like to argue for the sake of arguing. Which explains a lot of your flip flopping on stuff.