Thursday, October 25, 2007

Taxes and snake oil!

The House Democrats have unveiled an ambitious tax overhaul package. It’s not clear to me how or when it would be passed, or how many bills it would take, but I like most of what I’ve seen so far. It phases out the AMT, reduces the top corporate tax rate, eliminates off-shore deductions, taxes investment management income at income tax rates instead of capital gains rates, and slightly increases the standard deduction for a married couple. Those seem to me like sensible and fair measures, because it’s always seemed to me that we could cut taxes for both the middle class and the affluent if we simply enforced existing tax rules. Of course, what hedge fund manager would RATHER pay 35% than 15%? And which corporation taking a massive deduction for being located in the United Arab Emirates WANTS its breaks eliminated?

Republicans reacted predictably.

"This is the largest individual income tax increase in history," Rep. Jim McCrery of Louisiana, Rangel's low-key GOP counterpart on the committee, wrote fellow Republicans. Rangel, he said, "is selling pure snake oil."

Mmm, snake oil! I’ll take two!


-The plan phases out the Alternative Minimum Tax, which was originally designed to prevent wealthy people from taking too many tax breaks but was never indexed for inflation, by applying a replacement tax of 4 percent of married couple income above a certain level, not to be less than $200,000. The tax would be 4.6 percent on income in excess of $500,000, or $250,000 in the case of a single taxpayer. High-income individuals would see a limitation on itemized deductions and a phase-out of deductions for personal exemptions, raising $29 billion over 10 years.

-The plan reduces the top corporate marginal tax rate from 35 percent to 30.5 percent, at a cost of $364 billion over 10 years. This would be paid for in part through such measures as repealing the domestic production activities deduction and requiring that U.S. corporations that defer income through controlled foreign corporations also defer the deductions that are associated with this income. The last-in-first-out accounting method would also be eliminated, saving $106 billion over 10 years.

-Married couples filing jointly would be entitled to take an additional $850 as a standard deduction, at a cost of $48 billion.

-The number of lower-income taxpayers qualifying for earned income credit would grow, at a cost of $29 billion.

-The refundable child credit would be increased, at a cost of $9 billion.

-Investment fund managers would be prevented from paying taxes at capital gains rates, raising $26 billion.

-Hedge fund managers would be prevented from using offshore tax haven corporations to defer taxes on compensation received for providing investment services, raising $23 billion.

-There would be mandatory cost basis reporting by brokers for transactions involving publicly traded securities, raising $4 billion.


At 11:55 AM, Blogger RJ said...

Congress is made up of the hedge-funders.

The US has the largest middle class in the history of the world.

The Upper Class allows the middle class to exist because the middle class strikes the correct balance in stability, morality and finance for them.

The upper class will never pay taxes like the middle class. If we attempt to enforce it, they will cut us down, and force us to be the poor dirty people I throw bottles at.

And that's what I hate your idea, idiot.

At 12:10 PM, Blogger Justin said...

I agree, let's tax the shit out of those greedy hedge fund managers.

What seems more problematic to me is that we're changing tax rates on specific categories of people. Is this slippery slope land, or is investment management a sufficiently defined and separated category?

You tell me.

At 12:21 PM, Blogger CharlesPeirce said...

Look, no one called hedge fund managers greedy, and it wasn't hedge fund managers who decided that up until now they would pay capital gains rates on their income--it was politicians. As I pointed out in my post, what hedge fund manager would RATHER pay 35% than 15%? If they decided to put a 2% surcharge on knowledge workers in an attempt to balance the budget, I'd probably fight it too.

What's your position on investment management income?

At 1:55 PM, Blogger Justin said...

My position on investment management income related to what? Tax structure?

My principled position on tax structure is that system is absolutely retarded. We need to scrap it, start over, with something like a flat tax, which could be tiered. Make less than 40k? Pay 10%. Make more than 450,000? Pay 25%. Or something. I'd prefer to have it be the same for everyone, and then just factor in things like child credits, marriage credits, low income credits, etc... but I've got a lot of room for compromise on this.

My realistic position? I don't know enough about tax code or the current system to have any ideas that are plausible in the current framework. I'm totally ignorant. I think we should stop double taxing dividends?


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