I asked Claude how much more revenue we could raise via income taxes if we made the tax code Laffer-optimal, and what that would entail. IIRC, the top marginal rate would go up into the high 40-something percent range, the cap gains tax would go up a point or two, and many deductions would have phaseouts at higher incomes. And, yes, taxes would go up on most Americans.
This would raise about an additional $400-600B a year.
Unfortunately, the annual deficit is pushing $2T, and that additional revenue would only cover about a fifth to a third of it, and we still haven't paid a penny of the national debt off at all.
Many of my GOP friends blanch at the idea of raising taxes at all, and many of my Dem friends blanch at the idea of cutting any spending.
I suppose we could look at additional revenue sources like a VAT, but those do have macroeconomic effects that need to be considered. Wealth taxes are probably a nonstarter; there's just not that much there, there are macroeconomic effects there as well, and the more extreme versions of those kinds of taxes you can only do once.
I think this is going to go on until we have a crisis that forces everyone's hand to do the unpopular things.
This may not be the best way, but Democrats should not leave tax reform to Republicans! They should definitely aim to simplify and reform (cut out many stupid loopholes and breaks) the tax code.
I disagree with the final statement. American Consumers are contributing to the economy from both ends of thier paychecks. They are responsible for maintaining consumer demad to drive the economy on one end, and supporting corporate welfare programs on the other. Senator Van Hollen's plan is a step,however, it is incomplete. Nobody's addressed the healthcare costs that will absorb most of that relief before families feel it. I've spent the last several months building a framework that fixes both ends at once. Here's why one end isn't enough — and what the complete answer looks like." https://lakesidegrammy.substack.com/p/democrats-just-fixed-one-end-thats
The tax proposal isn't necessarily bad, but should be paired with minimum wage increases and a tax on natural resources (to be phase in over numerous years). Adding these policies would: 1) provide benefit to all the people who wouldn't benefit from the tax proposal; 2) ensure that everyone is contributing to funding the federal government; 3) drive efficiency in our manufacturing sector; and 4) reduce pollution and waste. We need comprehensive policies, not "one-off" proposals.
I agree there should be no federal (or state or city) tax on business or personal _income._ Income is good! As society we should encourage people to produce more income, the more the better!
In general, the things that make money for one person do so only if it does for other people. If Bezos had not gotten filthy rich from Amazon, he is not the only one who would be worse off. True, a couple of more points on his marginal income tax rate will not send Bezos to the desert with vows of poverty (nor chastity!:)) but why nudge?
Why discourage income earning at all? Instead let’s tax _consumption_.
The consumption taxes that pay for social insurance (transfers to permit greater consumption during defined life circumstances, greater than the beneficiary’s market income woud otherwise allow) could well be flat, no greater a percentage of consumption for high consumption than for low. A consumption VAT woud fit that bill.
Government purchase of public goods and redistributive transfers could be paid for with a progressive personal consumption tax with rates set to raise revenue (net of revenues from any Pigou taxation of negative externalities such as CO2 emissions) sufficinet to reduce the deficit to the amount of public investment.
With social insurance financed with a flat consumption VAT, it would be appropriate for the personal consumption tax to have a significant zero band and a redistributive Earned Consumption Tax Credit, tweaked to be more of a wage subsidy that an income supplement.
"If federal policymakers chose to levy the surtax, the collected revenue should be directed towards addressing problems head on — whether it would be to support smoother job transitions, reduce child poverty, or reverse Donald Trump’s cuts to Medicaid and food assistance."
The highest priority should be to reduce the deficit, in effect to roll back part of the tax cuts in the Republican One Budget Bashing Bill.
And, as mentioned in another comment, tax consumption, not income, more progressively.
Van Hollen might be on firmer ground if he proposed increasing the standard deduction, and paying for it by closing a lot of loopholes, especially the big ones that mainly go to the affluent (like the SALT, mortgage, and pass-through deductions). That would both give working families more money and make the tax code simpler, a frequent source of frustration.
Agreed, with caveats. The real problem is not that the tax code is progressive. Rather, the problem is actually twofold: (1) The top tier tax rate is too low, and (2) there are too many exemptions that favor the wealthy, specifically the areas from which the wealthy dray their income. The attraction for this issue, like most, is the quick band-aid fix. But the tax code is voluminous and the only way to truly improve it is to simplify it, while providing specific exemptions that favor the lower and middle class: child care, education, health care, etc. One additional goal should be that anyone or any business should be able to file their taxes quickly and easily, without having to hire an accountant or a tax attorney.
This is what we're up against.
I asked Claude how much more revenue we could raise via income taxes if we made the tax code Laffer-optimal, and what that would entail. IIRC, the top marginal rate would go up into the high 40-something percent range, the cap gains tax would go up a point or two, and many deductions would have phaseouts at higher incomes. And, yes, taxes would go up on most Americans.
This would raise about an additional $400-600B a year.
Unfortunately, the annual deficit is pushing $2T, and that additional revenue would only cover about a fifth to a third of it, and we still haven't paid a penny of the national debt off at all.
Many of my GOP friends blanch at the idea of raising taxes at all, and many of my Dem friends blanch at the idea of cutting any spending.
I suppose we could look at additional revenue sources like a VAT, but those do have macroeconomic effects that need to be considered. Wealth taxes are probably a nonstarter; there's just not that much there, there are macroeconomic effects there as well, and the more extreme versions of those kinds of taxes you can only do once.
I think this is going to go on until we have a crisis that forces everyone's hand to do the unpopular things.
“I asked Claude” is now considered to be sufficient analysis?? Yikes
Well, when you don't get paid (yet) to write stuff like this and you want a quick-and-dirty answer, yes it is.
If I got paid six figures to do this kind of research, then that would be different.
FWIW, Claude told me that the primary source was research done at Penn.
💯 Let’s not proffer tax proposals as if they are somehow independent of our economic, social, and national security objectives.
This may not be the best way, but Democrats should not leave tax reform to Republicans! They should definitely aim to simplify and reform (cut out many stupid loopholes and breaks) the tax code.
I disagree with the final statement. American Consumers are contributing to the economy from both ends of thier paychecks. They are responsible for maintaining consumer demad to drive the economy on one end, and supporting corporate welfare programs on the other. Senator Van Hollen's plan is a step,however, it is incomplete. Nobody's addressed the healthcare costs that will absorb most of that relief before families feel it. I've spent the last several months building a framework that fixes both ends at once. Here's why one end isn't enough — and what the complete answer looks like." https://lakesidegrammy.substack.com/p/democrats-just-fixed-one-end-thats
The tax proposal isn't necessarily bad, but should be paired with minimum wage increases and a tax on natural resources (to be phase in over numerous years). Adding these policies would: 1) provide benefit to all the people who wouldn't benefit from the tax proposal; 2) ensure that everyone is contributing to funding the federal government; 3) drive efficiency in our manufacturing sector; and 4) reduce pollution and waste. We need comprehensive policies, not "one-off" proposals.
I agree there should be no federal (or state or city) tax on business or personal _income._ Income is good! As society we should encourage people to produce more income, the more the better!
In general, the things that make money for one person do so only if it does for other people. If Bezos had not gotten filthy rich from Amazon, he is not the only one who would be worse off. True, a couple of more points on his marginal income tax rate will not send Bezos to the desert with vows of poverty (nor chastity!:)) but why nudge?
Why discourage income earning at all? Instead let’s tax _consumption_.
The consumption taxes that pay for social insurance (transfers to permit greater consumption during defined life circumstances, greater than the beneficiary’s market income woud otherwise allow) could well be flat, no greater a percentage of consumption for high consumption than for low. A consumption VAT woud fit that bill.
Government purchase of public goods and redistributive transfers could be paid for with a progressive personal consumption tax with rates set to raise revenue (net of revenues from any Pigou taxation of negative externalities such as CO2 emissions) sufficinet to reduce the deficit to the amount of public investment.
With social insurance financed with a flat consumption VAT, it would be appropriate for the personal consumption tax to have a significant zero band and a redistributive Earned Consumption Tax Credit, tweaked to be more of a wage subsidy that an income supplement.
"If federal policymakers chose to levy the surtax, the collected revenue should be directed towards addressing problems head on — whether it would be to support smoother job transitions, reduce child poverty, or reverse Donald Trump’s cuts to Medicaid and food assistance."
The highest priority should be to reduce the deficit, in effect to roll back part of the tax cuts in the Republican One Budget Bashing Bill.
And, as mentioned in another comment, tax consumption, not income, more progressively.
Van Hollen might be on firmer ground if he proposed increasing the standard deduction, and paying for it by closing a lot of loopholes, especially the big ones that mainly go to the affluent (like the SALT, mortgage, and pass-through deductions). That would both give working families more money and make the tax code simpler, a frequent source of frustration.
Agreed, with caveats. The real problem is not that the tax code is progressive. Rather, the problem is actually twofold: (1) The top tier tax rate is too low, and (2) there are too many exemptions that favor the wealthy, specifically the areas from which the wealthy dray their income. The attraction for this issue, like most, is the quick band-aid fix. But the tax code is voluminous and the only way to truly improve it is to simplify it, while providing specific exemptions that favor the lower and middle class: child care, education, health care, etc. One additional goal should be that anyone or any business should be able to file their taxes quickly and easily, without having to hire an accountant or a tax attorney.