psychohist wrote:
Names, please, not meaningless generalities. I have heard of no one knowledgeable who thinks the U.S. economy is currently robust enough to withstand immediate tax increases without negative economic effects.
I think it is fairly clear that Warren Buffett is the counterexample to your claim. But more generally, reptition of your mantra will not make it true.
First of all, it's entirely uncritical. What constitutes "immediate?" This fiscal year? This tax year? The reality is that any change to tax policy cannot likely be passed and take effect until 2012 at the earliest, and even that would be a Herculean effort. These will not pop up out of nowhere.
What scale and type of tax increases are we talking about? Closing tax cuts for high income earners? Taxing capital gains (or part of them) as income? Introducing a consumption tax? Different taxes have different impacts.
What contitutes "negative economic effects?" Are we looking at indicators in isolation or are we taking a broader view of the overall health of the US economy?
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Sure. He'll pay 1.5% instead of his current 1.1%. Not that big a deal.
According to his own statement, he paid 17.4% on his taxable income. A far cry from 1.1%. Furthermore, that's 17.4% of his taxable income. You can increase revenue by broadening the tax base to a broader spectrum of income without any significant increase in marginal rates. Taxing capital gains as income (you could decide to tax only 50% of gains, to maintain incentive to invest over savings) would instantly capture a broader base, with limited impacts. I would suggest a few limitations on capital gains:
1) exempt capital gains to a person's primary residence (but tax recreational and speculative properties). You could also phase out the tax exemption for mortgage interest on a primary residence, since it would be financing an exempt gain, but maintain it for mortgage interest on a second property as a "carrying charge."
2) establish a deemed disposition on the introduction, so that capital gains are paid only on capital gains realized since the introduction of the tax. Gains realized to date would maintain their exemption.
3) allow offset with capital losses (again, beginning at the date of introduction).
Since capital gains taxes only accrue at the time of disposition (you don't tax paper gains), you are implementing the tax at a time when it hurts least. It does not discourage investment (what else are you going to do with your money, stick it in a box?). It's principal impact is to reduce the amount of capital available in the market for investment. While this impact certainly is negative, it is, in my view, offset by the positive impact of providing a more sustainable base for financing public expenditure.
The key to economic prosperity is consumer confidence. And I suggest that capital gains taxes will have no impact whatsoever on consumer confidence.
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Let's see his reaction if something is threatened that would really capture any significant proportion of his wealth in taxes - like making his kids' charitable foundations taxable, or increasing corporate tax rates to match individual tax rates.
Actually, in my view the United States overtaxes corporations. It's an easy hit because corporations don't vote. If you look at OECD comparitors, the United States has one of the highest corporate tax rates in the world, along with a disproportionately high rate in comparison with individuals.
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--James
