Tag Archives: capital gains tax

A flat tax is the answer

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

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Dan Mitchell hits the nail on the head again.

A Flat Tax Is the Answer

by Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

Added to cato.org on January 31, 2012

This article appeared on US News and World Report Online on January 31, 2012.

The class-warfare crowd is predictably outraged that Mitt Romney supposedly paid just 13.9 percent of his income to the crowd in Washington. Surely this is a sign of both inequity and iniquity. Meanwhile, previewing a theme for the general election, President Obama said in his State of the Union address that “millionaires and billionaires” should cough up at least 30 percent of their earnings to the IRS.

This is bad policy based on inaccurate data.

Let’s deal first with the flawed numbers. Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent.

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

More by Daniel J. Mitchell

Here’s a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren’t allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments.

Welcome to the world of double taxation.

The Obama approach is also bad economics. Every economic theory — even socialism and Marxism — agrees that saving and investment are the key to long-run growth and higher living standards. So does it make sense to deprive the economy of productive capital by imposing punitive layers of double taxation? To make matters worse, double taxation means transferring the money to the buffoons in Washington, where it will be squandered on inefficient and wasteful programs.

Europe’s welfare states are on the brink of collapse because they adopted the mentality that government spending was better than private saving and investment. Should we copy their failures?

The right way to ensure both fairness and growth is the flat tax. Get rid of the 72,000 pages of corruption and complexity in the Internal Revenue Service code and replace it with a postcard-sized flat tax. One low tax rate with no double taxation. That’s good for the economy and competitiveness.

And if Mitt Romney makes 100,000 times more than me, he’ll pay 100,000 times more in tax.

A flat tax is the answer

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

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Dan Mitchell hits the nail on the head again.

A Flat Tax Is the Answer

by Daniel J. Mitchell

 

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

Added to cato.org on January 31, 2012

This article appeared on US News and World Report Online on January 31, 2012.

The class-warfare crowd is predictably outraged that Mitt Romney supposedly paid just 13.9 percent of his income to the crowd in Washington. Surely this is a sign of both inequity and iniquity. Meanwhile, previewing a theme for the general election, President Obama said in his State of the Union address that “millionaires and billionaires” should cough up at least 30 percent of their earnings to the IRS.

This is bad policy based on inaccurate data.

Let’s deal first with the flawed numbers. Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent.

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

 

More by Daniel J. Mitchell

 

Here’s a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren’t allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments.

Welcome to the world of double taxation.

The Obama approach is also bad economics. Every economic theory — even socialism and Marxism — agrees that saving and investment are the key to long-run growth and higher living standards. So does it make sense to deprive the economy of productive capital by imposing punitive layers of double taxation? To make matters worse, double taxation means transferring the money to the buffoons in Washington, where it will be squandered on inefficient and wasteful programs.

Europe’s welfare states are on the brink of collapse because they adopted the mentality that government spending was better than private saving and investment. Should we copy their failures?

The right way to ensure both fairness and growth is the flat tax. Get rid of the 72,000 pages of corruption and complexity in the Internal Revenue Service code and replace it with a postcard-sized flat tax. One low tax rate with no double taxation. That’s good for the economy and competitiveness.

And if Mitt Romney makes 100,000 times more than me, he’ll pay 100,000 times more in tax.

Cato Institute grades Perry’s flat tax

I really like to read Dan Mitchell’s opinions.

Grading Perry’s Flat Tax: Some Missing Homework, but a Solid B+

Posted by Daniel J. Mitchell

Governor Rick Perry of Texas has announced a plan, which he outlines in the Wall Street Journal, to replace the corrupt and inefficient internal revenue code with a flat tax. Let’s review his proposal, using the principles of good tax policy as a benchmark.

1. Does the plan have a low, flat rate to minimize penalties on productive behavior?

Governor Perry is proposing an optional 20 percent tax rate. Combined with a very generous allowance (it appears that a family of four would not pay tax on the first $50,000 of income), this means the income tax will be only a modest burden for households. Most important, at least from an economic perspective, the 20-percent marginal tax rate will be much more conducive to entrepreneurship and hard work, giving people more incentive to create jobs and wealth.

2. Does the plan eliminate double taxation so there is no longer a tax bias against saving and investment?

The Perry flat tax gets rid of the death tax, the capital gains tax, and the double tax on dividends. This would significantly reduce the discriminatory and punitive treatment of income that is saved and invested (see this chart to understand why this is a serious problem in the current tax code). Since all economic theories – even socialism and Marxism – agree that capital formation is key for long-run growth and higher living standards, addressing the tax bias against saving and investment is one of the best features of Perry’s plan.

3. Does the plan get rid of deductions, preferences, exemptions, preferences, deductions, loopholes, credits, shelters, and other provisions that distort economic behavior?

A pure flat tax does not include any preferences or penalties. The goal is to leave people alone so they make decisions based on what makes economic sense rather than what reduces their tax liability. Unfortunately, this is one area where the Perry flat tax falls a bit short. His plan gets rid of lots of special favors in the tax code, but it would retain deductions (for those earning less than $500,000 yearly) for charitable contributions, home mortgage interest, and state and local taxes.

As a long-time advocate of a pure flat tax, I’m not happy that Perry has deviated from the ideal approach. But the perfect should not be the enemy of the very good. If implemented, his plan would dramatically boost economic performance and improve competitiveness.

That being said, there are some questions that need to be answered before giving a final grade to the plan. Based on Perry’s Wall Street Journal column and material from the campaign, here are some unknowns.

1. Is the double tax on interest eliminated?

A flat tax should get rid of all forms of double taxation. For all intents and purposes, a pure flat tax includes an unlimited and unrestricted IRA. You pay tax when you first earn your income, but the IRS shouldn’t get another bite of the apple simply because you save and invest your after-tax income. It’s not clear, though, whether the Perry plan eliminates the double tax on interest. Also, the Perry plan eliminates the double taxation of “qualified dividends,” but it’s not clear what that means.

2. Is the special tax preference for fringe benefits eliminated?

One of the best features of the flat tax is that it gets rid of the business deduction for fringe benefits such as health insurance. This special tax break has helped create a very inefficient healthcare system and a third-party payer crisis. It is unclear, though, whether this pernicious tax distortion is eliminated with the Perry flat tax.

3. How will the optional flat tax operate?

The Perry plan copies the Hong Kong system in that it allows people to choose whether to participate in the flat tax. This is attractive since it ensures that nobody can be disadvantaged, but how will it work? Can people switch back and forth every year? Is the optional system also available to all the small businesses that use the 1040 individual tax system to file their returns?

4. Will businesses be allowed to “expense” investment expenditures?

The current tax code penalizes new business investment by forcing companies to pretend that a substantial share of current-year investment outlays take place in the future. The government imposes this perverse policy in order to get more short-run revenue since companies are forced to artificially overstate current-year profits. A pure flat tax allows a business to “expense” the cost of business investments (just as they “expense” workers wages) for the simple reason that taxable income should be defined as total revenue minus total costs.

Depending on the answers to these questions, the grade for Perry’s flat tax could be as high as A- or as low as B. Regardless, it will be a radical improvement compared to the current tax system, which gets a D- (and that’s a very kind grade).

Here’s a brief video for those who want more information about the flat tax.

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The Flat Tax: How it Works and Why it is Good for America

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

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Last but not least, I’ve already receive several requests to comment on how Perry’s flat tax compares to Cain’s 9-9-9 plan.

At a conceptual level, the plans are quite similar. They both replace the discriminatory rate structure of the current system with a low rate. They both get rid of double taxation. And they both dramatically reduce corrupt loopholes and distortions when compared to the current tax code.

All things considered, though, I prefer the flat tax. The 9-9-9 plan combines a 9 percent flat tax with a 9 percent VAT and a 9 percent national sales tax, and I don’t trust that politicians will keep the rates at 9 percent.

The worst thing that can happen with a flat tax is that we degenerate back to the current system. The worst thing that happens with the 9-9-9 plan, as I explain in this video, is that politicians pull a bait-and-switch and America becomes Greece or France.

Romney wants to eliminate Capital Gains Tax for everyone except those who are real job creators

Obama: Raise Taxes, Capital Gains – “For Purposes of Fairness”

Everyone knows that if you eliminate the capital gains tax then those who are wealthy will put more money into creating jobs. However, Mitt Romney feels so guilty about being wealthy that he has proposed eliminating the capital gains for everyone except for those making over 200,000 dollars.

  • OCTOBER 21, 2011, 7:08 P.M. ET

Romney’s Guilty Republican Syndrome

A leading GOP contender defines ‘rich’ as $200,000 in income. Funny. So does President Obama.

As the GOP casts about for a response to Occupy Wall Street, at least one prominent Republican isn’t sweating it. In the war over class, Mitt Romney is already waving a white flag. And therein lies one of his chief liabilities as a Republican nominee or president.

The Occupy masses don’t have a unified message, though the Democrats embracing them aren’t making that mistake. President Obama helpfully explained that the crowds in New York and elsewhere are simply expressing their “frustrations” at unequal American society. The answer to their protests is, conveniently, his own vision for the country. If wealthier Americans and corporations are just asked to pay their “fair share,” if “we can go back to that then I think a lot of that anger, that frustration dissipates,” said the president.

Associated PressGOP Presidential candidate Mitt Romney on the trail

This is a campaign theme in the making, and one with which Mr. Obama has already had plenty of practice. Congressional Democrats, too, see the value of pivoting off Occupy Wall Street to build an election-year class-warfare argument.

Senate Majority Leader Harry Reid’s latest answer to any spending proposal is a “millionaire’s surtax,” which he intends to make Republicans vote against ad nauseam. Labor unions, liberal activist groups—all see an Occupy opportunity to refocus the blame for a faltering economy away from President Obama and to greedy, rich America.

But here’s the other big prize, from the White House’s perspective: The man they most expect to become the Republican nominee, Mitt Romney, is already running from this debate. Mr. Romney, they see, is in the full throes of Guilty Republican Syndrome.

It’s a curious illness, even if its source is clear: success. Mr. Romney is a multimillionaire, and through his own hard work. It’s a great American story, yet the Republican is paralyzed at the thought of what his opponents might do with it in a 9% unemployment economy. Democrats have already pounced on his time at Bain Capital, accusing Mr. Romney of “stripping down” companies and “laying off” employees for profit. The press has run exposés on his privileged upbringing, his “oceanfront” vacation home, his use of private jets.

Even his Republican opponents, who should know better, are lobbing anti-wealth pot shots. Herman Cain has taken to comparing his own “Main Street” business experience to Mr. Romney’s “Wall Street” past. Rick Perry is running an ad that hits Mr. Romney on his state health-care plan but ends with this bit of class: “Even the richest man can’t buy back his past.”

Having initially fought these caricatures, Mr. Romney has since begun to exhibit all the syndrome’s symptoms. He’s put forth a 59-point economic plan that eliminates the capital gains tax—but only for people who earn less than $200,000 a year. He’s declared, at a New Hampshire town hall (and at every other opportunity): “I’m not running for the rich people. Rich people can take care of themselves. They’re doing just fine.” He’s developed a form of Tourette’s that causes him to employ the term “middle class” in nearly every sentence.

Related Video

James Taranto on how Mitt Romney’s guilt as a millionaire feeds Democratic class warfare.

Mr. Romney is clearly hoping that his own passive form of class warfare will head his opponents off at the blue-collar pass. Really? The 2012 election is shaping up to be a profound choice. Mr. Obama is making no bones about his vision of higher taxes, wealth redistribution, larger government.

Mr. Romney has generally espoused the opposing view—smaller government, fewer regulations, opportunity—but only timidly. This hobbles his ability to go head to head with the president, to make the moral and philosophical case for that America. How can Mr. Romney oppose Mr. Obama’s plans to raise taxes on higher incomes, dividends and capital gains when the Republican himself diminishes the role of the “top 1%”? How can he demonstrate a principled understanding of capital and job creation when latching on to Mr. Obama’s own trademark $200,000 income cutoff?

At a town hall in Iowa Thursday, Mr. Romney took it further: “For me, one of the key criteria in looking at tax policy is to make sure that we help the people that need the help the most.”

These are the sort of statements that cause conservative voters to doubt Mr. Romney’s convictions. It also makes them doubt the ability of a President Romney to convince a Congress of the need for fundamental tax reform. If anything he owes a debt to Newt Gingrich, who in a recent debate gave him a taste of how politically and intellectually vulnerable he is on this argument, asking Mr. Romney to justify the $200,000 threshold.

Mr. Romney’s non-responsive response included five references to the “middle” class and another admonition that the “rich” are “doing just fine.” Mr. Obama can’t wait to agree, even as he shames Mr. Romney over his bank account.

Mr. Romney isn’t the first Republican to develop Guilty Syndrome, and one option would be to form a support group with, say, George H.W. Bush. A better cure might be the tonic of Ronald Reagan, who never let his own wealth get in the way of a good lower-tax argument. Reagan’s message, delivered with cheerfulness and conviction, was that he wanted everyone in American to have the opportunity to be as successful as he had been. If Mr. Romney is looking for a way to connect with an aspiring American electorate, that’s a start.

Write to kim@wsj.com

5 reasons class warfare is stupid, response to “Sound Policy” blogger

President Obama and other politicians are advocating higher taxes, with a particular emphasis on class-warfare taxes targeting the so-called rich. This Center for Freedom and Prosperity Foundation video explains why fiscal policy based on hate and envy is fundamentally misguided. For more information please visit our web page: www.freedomandprosperity.org.

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Today I read this below from the Arkansas Times Blog:

Since the top 20% of Americans have roughly 91% of the total wealth, any solution to the budget deficit should call on those 20% to be responsible for AT LEAST 91% (I would argue 100%) of what it costs to balance the budget. To do otherwise would be a reverse Robin Hood, taking from the poor and middle class to give to the rich.

Posted from my Chamber of Commerce work computer on C of C time.

Posted by Sound Policy on July 22, 2011 at 11:21 AM | Report this comment

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The video clip above gives 5 reasons why class warfare is stupid. The article below also addresses some of the same reasons.

The White House Has Declared Class War on the Rich, but the Poor and Middle Class Will Suffer Collateral Damage

Posted by Daniel J. Mitchell

The 2001 and 2003 tax cuts are scheduled to expire at the end of this year, which means a big tax increase in 2011. Tax rates for all brackets will increase, the double tax on dividends will skyrocket from 15 percent to 39.6 percent, the child credit will shrink, the death tax will be reinstated (at 55 percent!), the marriage penalty will get worse, and the capital gains tax rate will jump to 20 percent. All of these provisions will be unwelcome news for taxpayers, but it’s important to look at direct and indirect costs. A smaller paycheck is an example of direct costs, but in some cases the indirect costs — such as slower economic growth — are even more important. This is why higher tax rates on entrepreneurs and investors are so misguided. For every dollar the government collects from policies targeting these people (such as higher capital gains and dividend taxes, a renewed death tax, and increases in the top tax rates), it’s likely that there will be significant collateral economic damage.

Unfortunately, the Obama Administration’s approach is to look at tax policy only through the prism of class warfare. This means that some tax cuts can be extended, but only if there is no direct benefit to anybody making more than $200,000 or $250,000 per year. The folks at the White House apparently don’t understand, however, that higher direct costs on the “rich” will translate into higher indirect costs on the rest of us. Higher tax rates on work, saving, investment, and entrepreneurship will slow economic growth. And, because of compounding, even small changes in the long-run growth rate can have a significant impact on living standards within one or two decades. This is one of the reasons why high-tax European welfare states have lost ground in recent decades compared to the United States.

When the economy slows down, that’s not good news for upper-income taxpayers. But it’s also bad news for the rest of us — and it can create genuine hardship for those on the lower rungs of the economic ladder. The White House may be playing smart politics. As this blurb from the Washington Post indicates, the President seems to think that he can get away with blaming the recession on tax cuts that took place five years before the downturn began. But for those of us who care about prosperity more than politics, what really matters is that the economy is soon going to be hit with higher tax rates on productive behavior. It’s unclear whether that’s good for the President’s poll numbers, but it’s definitely bad for America.

Treasury Secretary Timothy F. Geithner took the lead Sunday in continuing the Obama administration’s push for extending middle-class tax cuts while allowing similar cuts for the nation’s wealthiest individuals to expire in January. …The tax cuts, put in place between 2001 and 2003, have become an intensely political topic ahead of the congressional elections this fall. Republicans have argued that extending the full spectrum of tax cuts is essential to strengthening the sluggish economic recovery. Geithner rejected that notion, telling ABC’s “This Week” that letting tax cuts for the wealthiest expire would not hurt growth. …On Saturday, the president used part of his weekly address to chide House Minority Leader John A. Boehner (Ohio) and other Republicans who oppose the administration’s approach, saying the GOP was pushing “the same policies that led us into this recession.”