as seen on tv
Senator
. . . before Trump's proposed changes . . .
https://www.axios.com/million-dollar-bracket-in-the-works-for-gop-tax-plan-2499930587.html
Pop quiz – what’s the “highest tax bracket” (as a percentage of income) levied in the USA?.
You’re wrong. No matter what you answered. Because the top federal rate of 39.6% is just the starting point. On top of that some fortunate high income folks pay state income tax (between 9-13% in places like NY, NY, DC, California); city income tax (2-4% in places like NYC, SF, Philadelphia); state sales tax on consumer purchases (at least 10 states have sales tax rates of 8% or higher; 45 states levy in total levey SOME sales tax); property taxes (sky high rates make home ownership an out of reach dream in places like California, NY, NJ); etc etc.
So the concept that “the rich” aren’t taxed enough is a ludicrous non-starter. Some studies have demonstrated that you could tax the ultra-wealthy at 100% of income, and still run a federal deficit.
Enter team Trump. They’re struggling to get “tax reform” right.
Earlier this month, team Trump floated a trial balloon serving up lower rates/simplified brackets. To pay for this, they proposed limiting or eliminating deductions for IRA/401K contributions (would be capped at $2,400 a year); state and local income taxes; mortgage interest . . .
The outrage was predictable, along 2 fronts:
- People without defined benefit plan pensions (most people who don’t work for the government) howled, because it would become almost impossible to save enough (tax free) to retire without relying on welfare.
- People who live in high tax/deep blue states (California, NY etc) would pay MUCH higher federal rates if they could no longer write off their outlandish state and local tax rates. And McMansion mortgages.
This is going to scoop up NFL superstars (but not journeymen linemen or bench players); an "A list" stars/producers in Hollywood; and CEOs . . . .
Well, perhaps not CEOs so much. They already have the cleverest tax accountants on planet earth. Trump pays very little in tax – he structures his real estate empire to take advantage of every conceiveable loophole regarding deductions, depreciation, amortization, operating expenses, write offs, etc. These are things which millionaire/entertainer socialists are going to find it difficult to achieve, since their face is their fortune, even though that deteriorates over time as well.
Even the Clintons have very good tax accountants. In 2015 they earned $11 million (speeches!!!???) and paid a tax rate of around 30%, not the 40% top federal rate. Don’t know if they got a deal on their NY state income taxes as well, but I wouldn’t bet against it.
Where do I stand on “tax reform”? Glad you asked.
- Don’t mess with tax advantaged accounts to save for retirement and college. They’re the most important break for middle class apartment dwellers with kids (like me).
- Cap, and phase out the state/local income tax deduction. You can’t take it away in a day. People would go bankrupt. They need time to adjust their living standards/expenses. Sell off second and 3rd homes; downsize fleets of leased luxury cars. That sort of thing.
- Same with mortgage interest – phase it out over some reasonable period (5 years?) at 20% per year. Kill off mortgage interest deductions on vacation homes, foreign castles (John F. Heinz-Kerry, are you paying attention?); no tax deduction on mortgages for unimproved/vacant land, held for speculative purposes – put that land back to work as farms, ranchland, or sell it to someone who will.
None of this is going to create jobs, however. It’s simply going to slice the pie in a different way. At the end of the day I remain skeptical that over tax payments to the government will go down, because federal programs seem immune to spending reform.
Spending Reform? That said, if you seriously wanted to cut federal taxes – and return control over some aspects to government to the states, as the founding fathers intended, it's worth discussing the following:
- Zeroing out all federal assistance/programs/spending on education. States can decide what courses to offer at public colleges, and how much to charge; what standards and training should apply to education professionals; what to serve in the cafeteria; whether their high school actually needs a swimming pool, indoor track, 30,000 seat football stadium, or parking garage. (Has anyone ever thought of charging students for parking passes? $10 a day? If not, I call dibs on this idea. No - im not talking about the $15 once a year application fee. Any high school kid whose parents are rich enough to buy him/her a car should have to pay for parking not. Not taxes on parents who can't afford to give their kids cars.)
- No more crop price supports. No more paying farmers not to farm. Or to grow ethanol instead of food. No more “strategic” reserves of cheese, peanut butter, and soybeans. No subsidies for foodstuff sold overseas – market prices rule!
- Phase out all federal revenue transfers to states (5 years?) in a manner similar to the tax reform. Give states time to draft and debate legislation to pay for all their new responsibilities themselves (via taxes) or wind them down with a soft landing.
Now, the left may speak. I anticipate your complaint, and it’s probably true.
I’m being incredibly naïve. State and local government officials are every bit as incompetent and corrupt as Capitol Hill. That’s why various communities have toxic levels of lead in their municiipal water supply; failing dams; unprotected flood plains masquerading as suburban neighborhoods; high speed rail proposals from nowhere to nowhere . . . zoning laws which provide wide swaths of green space next to upper class neighborhoods, while urban kids play in vacant lots and condemned buildings.
But if local voters cannot depend on the Capitol Hill for a bailout every time they spend all their tax money (and more) on huge salaries and benefits to state/local public employees, they just MIGHT come to the realization that “the other 49 states” aren’t responsible for sustaining their quality of life. Voters may be incented to hold local politicians responsible for local communities.
As it is, nobody is really responsible. Things break, congress authorizes a bailout/disaster relief, then we stumble along to the next time. No one is held accountable at the voting booth.
An ounce of prevention is worth a pound of federal disaster relief.
