Reply to post: Re: Thomas Claburn - Define Wealthy

Re: Thomas Claburn - Define Wealthy

Wealth and income is one of those difficult problems to which there is no correct answer. Take our footballer, makes a mint for a decade, then lives off it. If we tax both wealth and income then that pattern of lifetime earnings pays more tax than earning the same total amount over a lifetime but at a lower annual rate.

Is that a fair way to do it? Dunno myself but it is a problem, one with perhaps no right answer.

My own prejudice (and it is prejudice, this is not an economic point, it's a gut feel) is that people on less than median earnings should not be paying income tax. Pigou taxes (carbon, congestion etc) yes, sin taxes yes, VAT even, but not income taxes. Those on above median should be paying for society. There's a limit on how much you can get out of them meaning that government will be smaller than it is now. But, you know, there's prejudice for you.

Re Trump's tax bill. Some bollocks in it, the cut on pass through entities is bollocksy in a bad, bad way. They already pay much less than other forms of business organisation. The personal tax cuts being time limited is a result of the silly way they measure. It's the effect upon the deficit in a decade's time which is used as the benchmark. Thus tax cuts (like some of Bush's) have a roughly decade sunset clause. The clause to benefit Trump - weeeell....that's much more like making sure than an extant break (depreciation on buildings and yes, buildings do depreciate, even if land doesn't) stays on the code rather than inventing something new.

Good stuff too. Doubling the standard allowance takes many more on less than median earnings out of the Federal tax net (which is largely, not exclusively, taxes on incomes, sales and property tax are State or even more local) which accords with my above prejudice. Limiting the mortgage deduction is good. Reducing the state tax allowance is good (for you can deduct your state and local taxes from your taxable income, thus saving your marginal Federal tax rate on what you've paid more locally. This means that high tax states are being subsidised by lower tax ones at the Federal level, shouldn't be happening at all. People want a high tax state in NY? Great, you pay for it, why should Kentucky?).

All of those above are unremittingly good.

There are good arguments either way about the corporate tax cut. The US rate is waaaay too high (even if we're going to commit the mistake of thinking that companies pay tax, rather than the true mixture of shareholders and workers in some portion). You have to add the dividend tax rate (15%) to the corporate income tax rate of 35% (because dividends can only be paid from tax paid profits, that offshore cash etc cannot be used) and standard economics says returns to capital should be taxed lower, not higher, than labour income.

But what's really interesting here is that no economist - not even Paul Krugman who really doesn't like the idea at all - is saying that it won't boost growth. It will. Absolutely. The argument instead is over "How Much?" Some trivial amount we don't care about while the plutocrats make out like bandits (copyright P Krugman) or a substantial amount that will benefit all (Trump and friends and a few others but not many).

If the state and mortgage deductions had been abolished overall I would have supported this as being excellent, whatever else was going on. Limiting them is a benefit but, you know, Meh for the overall.