A Fairer Tax Code?
When I went through the power point, I noticed that they complained that in 2004 the average person in the middle 20% of income (about $30-45K from my numbers, they don't say) got a $647 tax cut, which they found too small.
Under their proposal, the average tax payer under $200k would see a $600 tax cut. For some reason, that was an okay number under their plans.
Their presentation of the idea to "fix" the tax code has a few problems, and one thing I actually agree on.
What I agree on is restoring "PayGo", which they credit to Bill Clinton, but was actually a GOP compromise so he wouldn't veto tax cuts when they took over Congress. It needs to come back; for those who don't remember, PayGo required tax issues to be revenue neutral, you cut taxes you cut spending.
The presentation gives no other spending based solution, and because CAP's proposal is (supposedly) going to increase revenue (be a tax increase), it wouldn't require any spending cuts under a PayGo plan. Anyone who's looked at federal income since 2002 realizes it's gone up faster since then than it did from 1999-2001; revenue isn't the problem, it's spending.
That's where their second problem is. By lumping all kinds of taxing and spending, in a manner that is never explained into one group, the presentation is very skewed. For instance, it claims we've become more and more reliant on the payroll (FICA) tax to cover federal spending. DUH!, Social Security spending has increased by about 25% over the last 15 years due to retirements.
The CAP proposal addresses that by lumping all taxing into one category, money earned, and and removes the distinction between social security and other spending that's written into law now. Not necessarily a bad idea, but a reform of what's done with the Social Security Surplus would probably be better for the economy than the massive tax hike they suggest. Their suggestion only delays Social Security going broke. Their solution only reduces the 75 year imbalance by 50%, just pushing off fixing the system another 15 years or so.
The other portions of their proposal have been shown, time and again, to fail miserably, yet CAP want's to try one more time, thinking this time will be different. The first bad idea is treating all revenue sources as straight income, in other words capital gains, dividends, etc. become just another line on a tax form.
Why treat them differently like we do now? Because those are generally where a large amount of economic investment occurs. As I mentioned a week or so ago, since the latest reductions in the capital gains tax the number of small start up ventures that benefit from those reductions has tripled from when the rate was 28%.
The second job killer will be the method they've decided on to increase social security revenue, which is to lift the income cap on the employer end of the contribution. While it sounds good in theory, in practice what it will do is slow wage growth for the upper middle class pretty quickly. Companies aren't going to just hand out money over $90k per year, because it will cost them an extra 7.65% for each dollar over that amount.
For some folks that sounds like a nice wage, but if you live in San Diego County, or Alexandria Virginia $90,000 doesn't qualify you for the average mortgage. How will companies make up for that extra taxing, the way they always do, cut spending on wages by laying folks off to make up the difference.
The number of layoffs to make up the tax differences on companies aren't discussed. I understand why, when you are trying to sell the point that "evil corporations" need to be taxed more, why put the down side of the equation into the story. (The right is as guilty when it comes to the first year revenue drops that come with tax cuts).
The bottom line, with the editorial, and tax policy in general is that we still rely on linear models to calculate non-linear behavior. Does anyone at the Center really believe that if you put me into a 36% tax bracket I'm not going to find a way to reduce that to a reasonable number?
Do they truly believe that no business is going to adjust it's payroll to make up for the extra taxes, or that investors won't just hold onto investments, instead of paying 36% on gains again?
If they really do believe those things I'd suggest they do a study on the effects of cuts and increases over the last 45 years (Since JF Kennedy cut taxes because they were too high), and see how the economy reacted.
Technorati Tags: taxes, and Center For American Progress, Social Security