This is starting as a total spitball, but we’re all allegedly smart people, I’m relying on at least a few of you to help refine this idea.
What if the U.S. cut the corporate tax rate to 0% - because ultimately, corporations don’t pay taxes; people do - and taxed all individual income as “income” regardless of its source - meaning, no lower rates for dividends, capital gains, etc., but then all state aid and such becomes taxable income - and increased tax rates on say the upper 10% of income earners? No, this is not “the fair tax” though it picks up certain elements on it - like, the “government benefits are treated as income” part.
Things that need to be addressed / things I have issues with that I don’t have an answer for (yet):
Individual tax rates have to be set so that tax receipts are at least neutral as a result. I don’t know where individual rates need to be set for that, but
I would like to increase the standard deduction to $30,000 for single people, $60,000 if married and then $10,000 for each child, and
Have taxes increase on the upper 10% - which, they will because “income is income regardless of source” and so they’ll go up from that standpoint already, but then as you go up the income scale some more they’re really making a shitload of money, a few more percentage points after that isn’t going to leave any of them remotely destitute.
In theory, I could see the rich deciding “you know what, I think I’ll just move elsewhere to escape higher taxes in the U.S.” Which, they might do that and find somewhere with no income taxes / have significantly lower income taxes, so that’s probably a loophole that needs to be plugged. But, there may also be ugly sticks for that.
The problem is that for a number of laws corporations are people. They can own things, enforce contracts …
This creates a situation where even more power would accrue to corporate management and people who hold high levels of voting stock. Senior management and directors would simply keep things in the company name. Especially for closely held, read “family held”, companies. Then give themselves massive perks on the company dime. The US is already on that trajectory with the proportion of non-public companies going way up.
Also, there may be some intricacies of lowering taxes I’m not aware of, but unless they renounce their US citizenship, I understand income tax to still be levied even if earned abroad. Of course, they could renounce citizenship.
Money flowing into the corporation’s coffers can sit there, sure. Stockholders aren’t going to want a company amassing a cash hoard and then doing nothing with it and it’s out of their reach. They’re not going to let the corporation earn tens of millions of dollars and say *well, look, on paper we’re worth $1 billion, … * I could get a cut of that, but that’s more valuable to me if it’s in the company’s vault, I’ll leave it there.
Once money is paid out to the shareholders, that’s income. And, if you’re buying/selling stock and realize a profit on it, that’s also income.
The perks would count as income.
That’s a banking problem, not a taxation problem.
I’m less concerned about that, it’s like saying “my wealth went from $250,000 to $500,000 because my house went up twice in value.” OK, did you sell your house and book the $250K gain? No? Then it’s paper wealth. Not to mention, unrealized gains could be gamed by manipulating the alleged value of the asset. Once it exchanges hands, we know what its value was; if someone else wants to pay an inflated price for it, that’s their problem (chance of loss later on) and yours (you pay more in taxes for that gain than you should have).
Right, that’s one of the parts I got stuck on. My 7-second solution is “individuals who renounce their citizenship after [date before this goes into effect] and receive monies for income, capital gains, dividends, etc. are presumed to be in the highest tax rate, corporations withhold income taxes accordingly before making a payout.”
Renouncing your citizenship probably comes with other costs that aren’t financial in nature, but that may be a different discussion.
This is a good idea. You are saying “make large corporations pass-through entities”. Almost all businesses in the US are already pass-thrus, including most corporations. The exception is large corporations.
The complexity is foreign ownership. What happens to profits assignable to people who don’t pay US taxes?
I think we can handle that. Have the corporation calculate its taxable profits. Send the US gov’t 30% of that amount. Do 1099s for shareholders who are US taxpayers. Those 1099s show both my share of profits and my share of taxes already paid. I include both on my 1040. If my marginal rate is below 30% this will generate a refund. If it is above 30% I will owe additional taxes.
For non-US-taxpayers, the 30% is just their charge for doing business in the US. This is roughly what happens with our current corporate income tax. The US can do bi-lateral tax treaties to adjust for this in certain situations.
I assume you are also increasing the tax on capital gains and eliminating tax-free munis.
(I’d go further and tax all income at the same rates regardless of source, use, or form.)
Note that the US has an exit tax which includes a tax on unrealized capital gains. That’s where Zuckerman and similar uber-wealthy have most of their money.
I think that if you get out a sharp pencil, you’ll discover that doubling the standard deduction will cost more than a few percent on the wealthiest. Note that this also shifts all the brackets for everybody. Although there is an offset in that we should be able to adjust EITC rates.
I suspect that if we got rid of step-up-in-basis we’d eliminate much of the value in using appreciated assets for loan collateral.
I also think we could capture most of the unrealized gains on the wealthiest Americans by limiting the tax to publicly traded stocks (and private firms over $X in revenue or $Y in profits). I’d include a deductible of $1 billion of unrealized gains at first, grading down with time to $100 million of unrealized gains.
It’s easy to value publicly traded stocks and there are hundreds of people who value large corporations for a living, we should be able to get an estimate for the few very large private firms.
In the environment you’re describing, I would be extremely tempted to recast my household as a shell corporation.
I would invest all my assets in the new corporation. Since the corporation pays no income taxes, this would circumvent taxation of those assets’ income.
Instead of being directly employed by my current employer, they would contract with my shell corporation for my services. De facto employer would pay my shell corporation (tax free income, again), and my shell corporation would pay me in the form of room and board (presumably moving me to a lower tax bracket).
The accounting would be a b*tch, but I suspect that there would be tools created pretty damned quick to make it easier.
When I pass, my heirs will inherit my shares in my shell corporation. They could opt to split up my shell and merge their fraction with their own shell corporation.
Can I suggest a trade? My goal is to have everyone pay taxes. No std deduction. Heck, as few deductions as possible. It’s the " special cases" that create the demand for tax attorneys. And lobbyists.
The trade I envision is govt healthcare, parental leave, and pensions. The hope is that for many, that would be a positive trade. At the bottom end of the income spectrum, the healthcare would be more than what they have to spend on insurance today. They’d see a tangible benefit. Perhaps add a bit of social cohesion in doing so.
Is the premise that “What if the U.S. cut the corporate tax rate to 0% - because ultimately, corporations don’t pay taxes; people do” reasonable where many US companies are exporting products from the US? Yes, people eventually buy the product, but often, they aren’t US tax payers, so the profits from those sales would never be taxed in the US.
Also, many of the owners of shares in companies are often not Americans, and tax treaties often shield non-American owners from US taxes on their earnings from those shares.
Kinda this.
I think that mostly you would get a lot of bank deposits and vestment companies spawn from that off shore money. Most firms have pretty big appetites for $ denominated assets. Easy to swap.
The standard deduction for a single person is $14,600. That person already gets free healthcare via Medicaid. I don’t know how people cover their other expenses – food, shelter, transportation, clothes, and cleaning supplies on $14,600. It seems that anything we would tax away would need to be repaid by some gov’t program.
In fact, they do pay Social Security taxes, and we do refund the SS taxes via the EITC. (The single $14,600 earner only gets $231 back.)
I’m not clear what the" Medicaid makes it free" means. If taken literally, then we should put everyone on Medicaid and watch as the % of GDP devoted to healthcare drops to zero. I know that isn’t what you intend, but I’m not sure what free means there.
And my goal was to avoid this situation where less than half of tax payers pay any FIT at all. M not concerned with fait equity for every individual. I am after a situation where everyone has skin in the game. Without question, it’s redistributive. A lot of people get back more than they put in, and my suggestion won’t change that. Just looking for the psychological impact, not the net change in current accounts for each individual. I think think it would make the “trade” of higher taxation for less variance in income distribution apparent. We seem to have a problem in communicating that today.
Try shifting from a system that relies heavily on income taxes to a system that relies heavily on VAT/sales taxes or property taxes.
Property taxes might not be ideal for your goal, as the tax becomes invisible to renters unless you attempt to tax personal property or motor vehicles.
Such a shift would create potential conflicts with a desire for taxation to be progressive, but perhaps those conflicts could be addressed by introduction of a basic income mechanism, at a level intended to offset the tax burden at a subsistence level of living.
I would get rid of property taxes and personal property taxes. Once you buy property, you shouldn’t have to pay a yearly fee to the government to keep it.
Registration fees for vehicles are different. You own the vehicle, you pay for the right to drive it around on the road.