Paul L. Caron

Wednesday, October 12, 2011

Johnston: Orwellian Tax Talk

Reuters, Orwellian Tax Talk, by David Cay Johnston:

Political tax talk is becoming Orwellian: Secrecy is Democracy. Auditors Reduce Collections.  Tax Cheats Will Be Caught With Fewer Auditors. ...

In Washington the mantra that spending, not revenue, is the problem was repeated endlessly last week. The idea that cutting tax rates, especially at the top, will pave a path to renewed prosperity is promoted by just about everyone in national politics except President Barack Obama and the few Capitol Hill Democrats who do not fear liberal as a political epithet.

Fact is, falling revenue is a problem. In fiscal 2011, which ended on Sept. 30, federal income tax revenues were smaller than in 2001, a recession year when the George W. Bush tax cuts began.

In fiscal 2001 the individual income tax brought in $994.3 billion and in just-ended fiscal 2011 it brought in an estimated $956 billion. That’s 4% less money before taking into account 10 years of inflation. Per capita the federal income tax brought in 31.5% less in real terms in 2011 than in 2001. ...

Cain’s 9-9-9 tax plan would scrap the current tax code and replace it with 9% levies on corporate profits, on income and on spending. The already rich would only be taxed on their spending since capital income would be tax-free, part of the little known flat tax premise that labor should be taxed, but taxing returns to capital discourages saving....

Cain’s plan also imposes a one-time 9% tax on existing wealth, which may surprise his wealthy friends. He also would double-tax interest income, though, as Kleinbard noted, that must be a mistake.

Under Cain’s plan workers would have far less to spend after taxes. Cain insists that critics don’t understand. But as the chart illustrates, rich investors would pay less, helping their wealth snowball.

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>The idea that cutting tax rates, especially at the top, will pave a path to renewed prosperity is promoted by just about everyone in national politics

Deficit-financed tax cuts will have a similar non-stimulus effect to deficit-financed spending. The problem is an overhang of debt and the fact that we are adding 10% of GDP per year to it. People naturally hoard resources when they sense a fiscal hurricane approaching.

The best stimulus would be quick resolution of the fiscal imbalance, mostly through cuts in promised benefits for the non-poor but also through tax increases. Effective dates can be a few years from now, but the change needs to be seen as politically impossible to reverse. Then people and markets will begin to invest and spend normally, free from fear of a fiscal collapse.

In summary, it's not the spending, it's not the taxes, it's the government's failure to how the two will EVER match up. The two cannot match up as long as government health care spending is not changed to eliminate the very idea that everyone is entitled to unlimited health care at taxpayers' expense. That idea leads to bankruptcy.

Posted by: AMTbuff | Oct 12, 2011 1:02:59 PM