T Nation

Repubs Tax Plans

Courtesy of the WSJ - love the indexing for inflation - it should just be a given that the government can’t tax you on what they’ve phantom-taxed already… And I personally think there shouldn’t be any corporate tax at all…

[i]Republicans and Taxes
January 17, 2008; Page A16

As the rugby scrum that is the Republican Presidential race heads to South Carolina, the players are wrestling on conservative turf. So it’s a good time to wrestle ourselves with an issue that has become a conservative signature – taxes.

The good news is that all of the GOP candidates want to make the Bush tax cuts permanent, and each is talking about some kind of new tax cut or reform. Rather than burying Reaganomics, as many in the media want to do, these candidates are trying to update it for our current economic challenges.


The latest bidder is Rudy Giuliani, who last week offered his plan to cut taxes by $6.3 trillion over 10 years. The former New York City mayor wants to cut the corporate income tax rate to 25% from 35%, bringing that rate close to the average of our major trading partners. Mr. Giuliani would chop the capital gains rate to 10% from 15%, and he’d allow capital gains to be indexed for inflation so investors no longer paid tax on phantom gains. He’d also index the Alternative Minimum Tax (AMT) for inflation, and on top of all this he wants to create a one-page, 11-line tax return that would eliminate most deductions and tax credits and install three lower rates of 10%, 15% and 30%.

Filers would have the option of choosing this “fast form” or the current code with its 13,000 pages of rules. Mr. Giuliani would retain the mortgage and charitable deductions on his alternative tax form, no doubt because he fears their political power. In this sense, his plan is inferior to Fred Thompson’s optional flat tax (two rates: 10% and 25%), which is the simplest and best reform in the field. (See “Flat Tax Fred,” Nov. 28.) But Mr. Giuliani’s ideas are a big improvement that would boost the economy.

Messrs. Thompson and Giuliani are also the best in the field at explaining how taxes affect an economy. They understand incentives and aren’t cowed by Democratic arguments that tax cuts favor only “the rich” and produce deficits. Asked at a recent debate whether tax cuts lead to an increase in tax revenue, Mr. Giuliani responded that some tax cuts do and some don’t. He’s exactly right: Tax credits and rebates, the latest fad, lack the bang for the buck that marginal rate cuts offer.

As for the other candidates, we’re told that John McCain is rolling out his tax reform today. It would also cut the corporate rate to 25%, provide immediate expensing for new equipment, and replace the R&D tax credit that expires annually with a credit equal to 10% of wages spent on R&D. He’d also eliminate the hated AMT. This is a welcome and significant conversion for Mr. McCain from his run in 2000, when he opposed tax cuts as a matter of economic principle.

The Arizona Senator is still insisting that any tax cuts be “paid for” with spending reductions, which sounds good but could let Democrats block his tax cuts merely by refusing to cut spending. The better policy and politics is to cut taxes first, while doing one’s best to slow spending growth. A growing economy will shrink any deficit.

Meanwhile, Mitt Romney is proposing to expand tax free savings accounts and he speaks vaguely of cutting tax rates. That’s fine with us, though in his typical fashion it seems like the path of least polling resistance. For all of his talk about “changing” Washington, Mr. Romney so far hasn’t offered a tax reform that would reduce the sway of lobbyists and money changers.

Mike Huckabee is the most unusual, combining an anti-corporate message with the most radical reform of all – the so-called FairTax, or a 30% national sales tax that would replace all federal income and payroll taxes. We have our doubts that such a root-and-branch upheaval could ever pass Congress, even if it did survive a Presidential campaign.

It is fashionable in some media quarters to proclaim that this GOP tax message is tired. And it is true that cutting income tax rates has lost some of its political punch now that nearly half of all Americans pay no income taxes at all. This is due in part to the victory of cultural conservatives who’ve pushed the child tax credit and want to use the tax code as social policy. We’ve been willing to accept such credits as the price of passing something in Washington. But they are no substitute for the pro-growth rate cuts most of these candidates are proposing.


With Democrats insisting on a giant tax increase, taxes will be a major issue this fall no matter who wins the GOP nod. And if a Republican does win the White House, a tax reform showdown is inevitable in 2009. The AMT continues to swallow more taxpayers, the death tax is due to expire for a single year in 2010 and then rise back to 55%, and the Bush tax cuts expire after 2010. This is a perfect storm that means the next President will have no choice but to make taxes a political priority.

It also presents the best opportunity for major tax reform since the 1980s. Even if Democrats retain Congress, Charlie Rangel will run House Ways and Means and he seems open to lower tax rates in return for a broader tax base. Republicans are right to make tax reduction and reform a major campaign theme, and voters who really do want to shake up Washington should consider who’d be best for that job.[/i]

Without slashing the military, this is basically all just putting us deeper into debt.

Yay.

whats kinda funny is…the tax brackets for corporations are nonsensical. Corporations that would be local type corporations pay 39% as their marginal tax rate on income from 100K to 335K. And after that, until they reach 10 million, they pay 34%. 10-15 is 35%, 15-18.3 is 38, then back down to 35 for all earning up to infinity. Now why is there such a high tax on small buisnesses?

One person can incorporate, and if they make good money, keep em down? I dont know. Politicians do very bad things with tax code, such as—write it. Why there isnt a better way to get done yet is probably because we have a congress…and i dont think they like not having control over things that can get them funding (or votes) from special interest groups or their constituency.

Another Issue with making tax simpley for corporations…As an accountant, it would most likely result in major corporations not paying any tax…because alot of tax law is enacted to try and squeeze tax out of the corporations, which still ,I hear, end up paying little taxes. Less criterion, the easier to get around it. Accounting is funny and has lots of methods for showing income and gains. Also most law is reactionary, not preventative…meaning the AICPA/ FASB/SEC dont tend to change things untill there is an apparent problem, meaning that as soon as tax law changes, corporations WILL find a way around it still, and we will have sever years untill we legislate around that at which point highly paid Accountants will find another way to get around taxes…

So maybe income tax isnt the answer, maybe that 35% tax on all consumer good is, cant cheat taxes if you have to pay them to operate i guess, or feed yourself, or buy gas. I dont know. I dont have a solution to anythingin reality because its such a complex issue that i don thing there is a peanutbutter spread answer. I can tell you all though, for certain, that I doubt the candidates have any real handle on the tax law…they just want votes.

that was possibly the most grammatically wrong thing ever typed.

[quote]Beowolf wrote:
Without slashing the military, this is basically all just putting us deeper into debt.

Yay.[/quote]

They could actually restrain domestic spending (in theory anyway).

Regarding the Fair Tax (i.e., a national sales tax):

As Prof. Tyler Cowen put it: “I would say this: push for a Fair Tax and if you’re lucky you’ll get something like a VAT, if only for reasons of enforcement. Plus you’ll also get the same income tax we have now, which isn’t going away anytime soon. New Zealand, of course, did something like this. “Fair Tax = Tax Increase”; it’s a pretty good and simple slogan.”

Regarding corporate taxes, CentralGuy, I think you’re mistaken - it’s my understanding that a lot of small businesses are taxed at high individual rates because those small businesses are not incorporated. (Don’t believe all those lines about “taxing the rich” with higher individual rates - much more pertinent is the taxing of small businesses).

Corporate income is double-taxed in our system, which is ridiculous. They should cut either the corporate income tax or the dividend tax (and maybe the cap-gains tax too) to zero.

Im just talking about incorporated people. And not all corporations are double taxed. There are c-corportaions and s-corporations. Both taxed differently. Some corporate stuctures allow for income from corporations to go directly to the primary shareholders 1040. S corporations pay no federal tax, as they act like a partnership.

However…some states still double tax them…C corporations can possibly get tax advantages as well, such as life insurance and meals/lodging expenses for the shareholders. But the double tax is definitely there.

Btw, the highest individual tax bracket is 35% for amounts over 338k or something like that… So S-Corps in some sates do get a tax advantage if they are a small business.

[quote]BostonBarrister wrote:
Beowolf wrote:
Without slashing the military, this is basically all just putting us deeper into debt.

Yay.

They could actually restrain domestic spending (in theory anyway).[/quote]

So, it’s domestic spending that’s putting us so far in debt?

Oh, that’s right! Iraqi oil is paying for our adventures over there. I always forget about how that war more than pays for itself.

And you’re right, it’s all them welfare queens in NOLA costing us $4B a week. Not to mention all the money wasted on highways, bridges, air traffic control, VA, Medicare, and that other nonsense.

Defense spending vs. Entitlements over the years.

Year: 1966;
Defense: 43%;
Social Security: 15%;
Medicare and Medicaid: 1%;
Net Interest: 7%;
All Other: 34%.

Year: 1986;
Defense: 28%;
Social Security: 20%;
Medicare and Medicaid: 10%;
Net Interest: 14%;
All Other: 29%.

Year: 2006;
Defense: 20%;
Social Security: 21%;
Medicare and Medicaid: 19%;
Net Interest: 9%;
All Other: 32%.
http://www.gao.gov/htext/d08417cg.html

Tax Cuts are nice. But which departments are they getting rid of? What entitlements will our candidates phase out/privatize? Basically, where will they cut spending enough to get us out of debt, and in order to meet future obligations?

This fiscal burden can be translated and compared as follows:

Total major fiscal exposures: $52.7 trillion;
Total household net worth[1]: $58.6 trillion;
Burden/Net worth ratio: 90 percent.

Burden[2]:
Per person: $175,000;
Per full-time worker: $410,000;
Per household: $455,000.
http://www.gao.gov/htext/d08417cg.html

Good luck keeping up the growth of Soc. Sec, SMedicare, and Medicaid.

Growth in Constant dollars, 2007-2032:
GDP: 71%;
Social Security Spending: 127%;
Medicaid Spending: 224%;
Medicare Spending: 235%

Gee. I wonder which present group of people are more dangerous to the next couple of generations of Americans. Islamic terrorist, or this generation of spend and debt happy Americans.

We’ve debated Seccesion here a couple times. If was born a generation or two from the present, I would be all for it. Get a couple states to agree to it, and then basically tell the older generation and the federal government “Screw this! You people and your oversized government did this. You’re not passing off your debt to us. We take no responsibility for your irresponsibility. Therefore, we’ll be going our own way. Dig yourselves out of your own mess.”

Sorry, but this isn’t the country a revolution was fought to establish. This is crazy.

[quote]CentralGuy wrote:
Im just talking about incorporated people. And not all corporations are double taxed. There are c-corportaions and s-corporations. Both taxed differently. Some corporate stuctures allow for income from corporations to go directly to the primary shareholders 1040. S corporations pay no federal tax, as they act like a partnership.

However…some states still double tax them…C corporations can possibly get tax advantages as well, such as life insurance and meals/lodging expenses for the shareholders. But the double tax is definitely there.[/quote]

Yeah, I know - I’ve formed those before. =-) However, they’re a lot less common than C-corps, and as you know there are particular requirements that can be difficult, like all shareholders being U.S. citizens, no more than 35 shareholders, only 1 class of stock, etc.

[quote]BostonBarrister wrote:
CentralGuy wrote:
Im just talking about incorporated people. And not all corporations are double taxed. There are c-corportaions and s-corporations. Both taxed differently. Some corporate stuctures allow for income from corporations to go directly to the primary shareholders 1040. S corporations pay no federal tax, as they act like a partnership.

However…some states still double tax them…C corporations can possibly get tax advantages as well, such as life insurance and meals/lodging expenses for the shareholders. But the double tax is definitely there.

Yeah, I know - I’ve formed those before. =-) However, they’re a lot less common than C-corps, and as you know there are particular requirements that can be difficult, like all shareholders being U.S. citizens, no more than 35 shareholders, only 1 class of stock, etc.[/quote]

I think the rule is no more than 100 shareholders, now. But I could be wrong.

There is no double taxation with the S-Corps.

It is impossible to get cash out of a C-Corp with out double taxation. If they would make dividends tax free distributions, the C-Corp would be a wonderful thing.

Here’s a pretty cool interactive chart showing where all the budget is spent, inluding the rate of change from last year.
i.e.: The Public Health Emergency Fund budget is up 601% this year! Whereas the Office of Violence Against Women is down 11%! Should provide tons of “evidence” to lots of conspiracy theorists, yay!

Source:
http://www.thebudgetgraph.com/site/index.php?main_page=product_info&products_id=1

[quote]tme wrote:

So, it’s domestic spending that’s putting us so far in debt?

[/quote]

Yes. Look at the numbers.

[quote]Zap Branigan wrote:
tme wrote:

So, it’s domestic spending that’s putting us so far in debt?

Yes. Look at the numbers.[/quote]

Have you ever seen a drug dealer roll up to shoprite in an escalade with 10,000 dollar rims and pay with food stamps? Then get back in his escalade and drive off to his government subsidized housing?

[quote]rainjack wrote:
BostonBarrister wrote:
CentralGuy wrote:
Im just talking about incorporated people. And not all corporations are double taxed. There are c-corportaions and s-corporations. Both taxed differently. Some corporate stuctures allow for income from corporations to go directly to the primary shareholders 1040. S corporations pay no federal tax, as they act like a partnership.

However…some states still double tax them…C corporations can possibly get tax advantages as well, such as life insurance and meals/lodging expenses for the shareholders. But the double tax is definitely there.

Yeah, I know - I’ve formed those before. =-) However, they’re a lot less common than C-corps, and as you know there are particular requirements that can be difficult, like all shareholders being U.S. citizens, no more than 35 shareholders, only 1 class of stock, etc.

I think the rule is no more than 100 shareholders, now. But I could be wrong.
.
[/quote]

C-Corps can have no more than 35 shareholders, S-Corps must have fewer than 100.

[quote]dermo wrote:

C-Corps can have no more than 35 shareholders, S-Corps must have fewer than 100.

[/quote]

?

C-corps have no limitations on the number of shareholders. All public corporations are C-corps. I haven’t had to form an S-corp in a few years so I yield to rainjack’s superior knowledge on their current limitations.