The debate on taxes and tax rates is mind numbingly stupid these days. Take a look at Social Security, Medicare, and Medicaid; is there any doubt that taxes need to increase? Not that I like paying more, not that I want to pay more, but give me a break; the money is already spent and so we must tighten the belt and get ready to pay more.
How much? See my earlier post of how to salvage Social Security. I don’t have a tax/entitlement calculator, but if we increase the retirement age for those of us under 55 years and ratchet to life expectancy at our birth dates, and likewise for Medicare eligibility I would guess maybe 1% more on average than today to balance, and another 1% to start chipping away at the debt.
But there is a catch. Tax increases do over the long haul negatively impact economic growth and so we need an offsetting stimulus. And we have one, lower the maximum personal and corporate tax rate.
Lower rates do need to be “paid” for, and for that we reduce/phase out the various tax deductions. Obama in his SOTU address proposed adding several new deductions and adding several new surcharges. The first to incentivize investment and job creation in the US and the second to penalize investment and job creation overseas. While I like the intent I challenge that adding tax code complexity is the best way.
Instead I advocate dropping the US corporate tax rate to be among the lowest in the world. This alone will incentive US investment and job growth over overseas investment. And then to “pay” for the rate reduction eliminate tax deductions and preferences.
Same on the personal side. Reduce or eliminate deductions for medical expenses, taxes paid, charitable contributions, home mortgage interest, etc. And treat all income as income with no preference for capital gains over wages and tips or vice-versa. If we had a flat tax of 15% with no deductions then the so called “Buffet Rule” would keep capital gains taxed at a 15% rate; problem solved. 15% may not be enough, but 20% surely so.
And if we want to protect those below the poverty line, then exclude all income below $20K or so and tax the rest. But I argue don’t; I think it a good thing that all pay taxes. I think it a good thing that all have “skin in the game.” We should focus the safety net on the most needy and can do so by means testing, but all should pay in.
Republicans tend to argue always for lower taxes, and sometimes for both lower taxes and lower tax rates. Democrats tend to argue for higher taxes and higher tax rates. And so both miss the boat. Let’s acknowledge the need to increase taxes, but then offset the economic drag by eliminating preferences and lowering tax rates.