A Showtime Stride To Progressive Consumption Taxes
What's an tardily fashion to teach going on progressive income taxes? Simply take all limits on contributions to in addition to withdrawals from IRAs. (I give thank yous my Hoover colleague Michael Bernstam for this clever idea, in addition to the Hoover java room for bumping us into each other.)
Background: Once people encounter that a consumption tax, inwards house of income tax, corporate tax, estate tax, etc. is much simpler in addition to to a greater extent than economically efficient, the natural query is "what almost progressivity?" The respond is that in that place are lots of ways to brand a consumption taxation progressive.
My favorite (today) is a apartment consumption tax, amongst the same charge per unit of measurement on everything, collected equally a VAT.
Then, realize that progressive taxation is the same affair equally apartment taxation summation redistribution. If I pay 40% taxation in addition to yous pay 20% tax, that's the same affair equally both of us paying 40% taxation in addition to yous receiving a banking enterprise jibe from the government. So, I think, separate taxation (raising revenue for the authorities at minimum cost), subsidy, in addition to redistribution. Make redistribution coherent, integrate it amongst other programs, in addition to implement it yesteryear sending people checks, on budget.
Most countries endeavor to arrive progressive yesteryear charging dissimilar rates for things that rich people purchase vs. misfortunate people. But that is a fault equally it distorts the economy. Even rich people tin purchase to a greater extent than tacos in addition to less yachts, in addition to mayhap a misfortunate individual wanted to purchase a yacht in addition to commencement a rental business.
An option implementation is to plow the electrical flow income taxation organisation into a progressive consumption tax. If yous tin fully deduct savings from income, the "income" taxation becomes a consumption tax. Alternatively, pay taxes on all "earned" income, but no taxation on dividends, interest, or uppercase gains. That industrial plant out to the same affair -- no taxation distortion on whether yous swallow the solar daytime yous teach the income, or afterward after returns compound.
That approach leads to all sorts of definitional problems, which is why I haven't been a huge fan. (Though I'm non strongly opinionated, recognizing that people who advocate it know a lot to a greater extent than almost the taxation code than I do.)
So, along comes Michael. Why non only take all limits on IRAs? Contribute equally many pre-tax dollars equally yous want. Interest, dividends, in addition to uppercase gains accumulate taxation free. No minimum distributions, estate taxes, etc. But when yous get got coin out of the IRA, to swallow it (otherwise you'd exit it in!) yous pay income tax.
Yes, it's imperfect. It doesn't solve the Trump upshot that what is "income" is an elastic concept inwards the hands of lawyers in addition to lobbyists. But it's a quick in addition to tardily pace that gets us a long fashion there.
Our taxation code classify of recognizes that taxing rates of provide is a bad idea. We taxation "unearned" income -- but thence in that place is a huge listing of complex exemptions. 401(k), 526(b), IRA, Roth IRA, wellness savings accounts, college savings accounts, pace upwards of uppercase gains at death, like-kind exchanges, in addition to on in addition to on, each amongst complex rules to follow. Just removing all limits on IRAs would live a big pace towards a consumption tax, in addition to thence nosotros wouldn't quest all these other ones either.
Objections? I'm non swell on taxation law, thence it volition live fun to take heed comments.
Background: Once people encounter that a consumption tax, inwards house of income tax, corporate tax, estate tax, etc. is much simpler in addition to to a greater extent than economically efficient, the natural query is "what almost progressivity?" The respond is that in that place are lots of ways to brand a consumption taxation progressive.
My favorite (today) is a apartment consumption tax, amongst the same charge per unit of measurement on everything, collected equally a VAT.
Then, realize that progressive taxation is the same affair equally apartment taxation summation redistribution. If I pay 40% taxation in addition to yous pay 20% tax, that's the same affair equally both of us paying 40% taxation in addition to yous receiving a banking enterprise jibe from the government. So, I think, separate taxation (raising revenue for the authorities at minimum cost), subsidy, in addition to redistribution. Make redistribution coherent, integrate it amongst other programs, in addition to implement it yesteryear sending people checks, on budget.
Most countries endeavor to arrive progressive yesteryear charging dissimilar rates for things that rich people purchase vs. misfortunate people. But that is a fault equally it distorts the economy. Even rich people tin purchase to a greater extent than tacos in addition to less yachts, in addition to mayhap a misfortunate individual wanted to purchase a yacht in addition to commencement a rental business.
An option implementation is to plow the electrical flow income taxation organisation into a progressive consumption tax. If yous tin fully deduct savings from income, the "income" taxation becomes a consumption tax. Alternatively, pay taxes on all "earned" income, but no taxation on dividends, interest, or uppercase gains. That industrial plant out to the same affair -- no taxation distortion on whether yous swallow the solar daytime yous teach the income, or afterward after returns compound.
That approach leads to all sorts of definitional problems, which is why I haven't been a huge fan. (Though I'm non strongly opinionated, recognizing that people who advocate it know a lot to a greater extent than almost the taxation code than I do.)
So, along comes Michael. Why non only take all limits on IRAs? Contribute equally many pre-tax dollars equally yous want. Interest, dividends, in addition to uppercase gains accumulate taxation free. No minimum distributions, estate taxes, etc. But when yous get got coin out of the IRA, to swallow it (otherwise you'd exit it in!) yous pay income tax.
Yes, it's imperfect. It doesn't solve the Trump upshot that what is "income" is an elastic concept inwards the hands of lawyers in addition to lobbyists. But it's a quick in addition to tardily pace that gets us a long fashion there.
Our taxation code classify of recognizes that taxing rates of provide is a bad idea. We taxation "unearned" income -- but thence in that place is a huge listing of complex exemptions. 401(k), 526(b), IRA, Roth IRA, wellness savings accounts, college savings accounts, pace upwards of uppercase gains at death, like-kind exchanges, in addition to on in addition to on, each amongst complex rules to follow. Just removing all limits on IRAs would live a big pace towards a consumption tax, in addition to thence nosotros wouldn't quest all these other ones either.
Objections? I'm non swell on taxation law, thence it volition live fun to take heed comments.
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