Comment: LA Times article today - title was "add your 2 cents to ideas for a tax code makeover" soliciting ideas for improvement. Our family/friends group meets every year or so (this is our fourth year) to take on pithy topics for debate and concensus. This most recent year we included a good debate on federal taxation - see attached. I believe that there are some good ideas here. Good that you go to the grass roots to get ideas for improvement and change. I am sending this email to a bunch of folks who, over the years, have helped me in my considerations on this important topic. Dale Reed 672 Whispering Oaks Place Thousand Oaks, CA 91320 Chickering Cottage Concords (CCC) A continuing discussion on the issues and what to do about them Chickering Cottage Concords, October 2004 – we met during the first two weeks of October and hammered out how to change the world for the better, confining our task to the questions previously defined. On-site participants and contributing thinkers included Phil and Camille Cox, friends from Thousand Oaks, CA on site at Chickering (OSAC); Robyn Reed of Arlington, VA via correspondence (VC); Lorie Reed of Irvine, CA (VC); Jennifer Storey of LA, CA (VC); Dale and Barbara Reed of Hamilton, VA (VC); Jan Ramquist of Cary, NC (VC); Chris and Randy Jones of Chicago, Il (OSAC); Dustin Reed of San Diego, CA (OSAC); Lindsey Reed of San Francisco, CA (OSAC); Dave Pollack of San Francisco, CA (OSAC); Allison Reed of San Francisco, CA (OSAC); Gayle Reed of TO, CA (OSAC); Joanna May of Brighton Beach, UK (OSAC); Julia of San Francisco, CA (OSAC); Stacey and Tera Bowen (unmarried names) of CT (OSAC). I, Dale Reed, have had the honor to serve as primary instigator and your faithful scribe. Progressive taxation topic – we have had a socialist bias regarding income taxes for decades, this is not new information. The rich (let’s call this a household declaring more than $100k of W2 income per year) pay a much higher percent of their income as tax than do the less rich. And if you cut taxes, particularly an across the board rate cut like Bush did, you certainly will help the rich since their dollar gain was far greater than the less rich since they pay most of the tax. If you took the total population of working people who pay taxes and did the math, you discover that 80% of all income taxes and fully 60% of the entire revenue of our federal government is paid for by the top 20% of wage earners, sorted by income. The top 5% of taxpayers, sorted by income, pay 54% of all the federal taxes raised by the IRS. Clearly, this is a highly progressive tax structure. Very mixed results here on a consensus of what to change. One of our group persistently maintains that no additional taxes can accrue to government; they have enough of our money already and can’t seem to spend it wisely. There was considerable support for the current Kerry/Edwards plan to add back the Bush tax cuts on families who earn more than $200k per year, not because consumption would change but because it would help balance the budget with additional federal revenue (the comeback argument is that this would damage small businesses who are taxed as subchapter S corporations on the earnings of the owner as normal income). Some confusion continues to exist on the issue of tax cuts helping only “the rich” – please remember that you can’t benefit from a tax cut if you don’t pay taxes at all with your current income (not really true, some years ago we put in the earned income credit whish is a negative income tax). Arguments for a flat tax on consumption (sales) are DOA (dead on arrival) since this is not an income tax, which was the topic. If it is a sales tax (to give the government their cut based on spending or based on earning is a choice, possibly a good topic for some future CCC), it is like the European value added taxes (and we don’t really want to copy the Europeans on tax policy - our economic model is based on selfish and excessive consumption, we certainly don’t want to slow that down by taxing it). ? After some spirited debate, we ended up proposing a new minimum income tax condition that kicks in as a reduction off whatever bracket tax rate is in play above $80k of income and drops to 1% for those under $80k of income (see “skin in the game” comments below*). This would absolutely end the fairness issue now worrisome to some that the rich can use loopholes to escape income tax (example #1, if your W2 shows $200k of income and your incremental tax rate from the tables usually is 40% at that earning point, the minimum income tax would be set at 10 points less or 30% of your W2 income ($60k in this case) regardless of your deductions – this would take the “army of accountants” out of the equation for the rich who can afford that; example #2, if your W2 shows $40k of income and your incremental tar rate from the table usually is 5%, your minimum tax would be $400 regardless of deductions). *One argument that we heard that has merit is that there perhaps should be a minimum income tax of 1% of income for everyone, regardless of tax bracket, so that everyone has some “skin in the game”. That may increase our voter turnout for elections, which currently ranges around a disappointing 50% of all eligible voters (voter turnout is yet another topic for some future CCC). It certainly would eliminate the earned income tax credit, which seems to be a form of welfare hidden in our tax system. Let me know if you want to participate, going forward. I am taking issues now for consideration next year or whenever we feel like we have an occasion to debate and publish…. Dale |