What's an slowly mode to larn going on progressive income taxes? Simply take away all limits on contributions to as well as withdrawals from IRAs. (I give cheers my Hoover colleague Michael Bernstam for this clever idea, as well as the Hoover java room for bumping us into each other.)
Background: Once people encounter that a consumption tax, inwards house of income tax, corporate tax, estate tax, etc. is much simpler as well as to a greater extent than economically efficient, the natural enquiry is "what most progressivity?" The response is that in that place are lots of ways to brand a consumption taxation progressive.
My favorite (today) is a apartment consumption tax, alongside the same charge per unit of measurement on everything, collected equally a VAT.
Then, realize that progressive taxation is the same affair equally apartment taxation addition redistribution. If I pay 40% taxation as well as yous pay 20% tax, that's the same affair equally both of us paying 40% taxation as well as yous receiving a banking concern jibe from the government. So, I think, separate taxation (raising revenue for the authorities at minimum cost), subsidy, as well as redistribution. Make redistribution coherent, integrate it alongside other programs, as well as implement it past times sending people checks, on budget.
Most countries endeavour to overstep far progressive past times charging dissimilar rates for things that rich people purchase vs. misfortunate people. But that is a error equally it distorts the economy. Even rich people tin purchase to a greater extent than tacos as well as less yachts, as well as perchance a misfortunate mortal wanted to purchase a yacht as well as showtime a rental business.
An option implementation is to plow the electrical flow income taxation organisation into a progressive consumption tax. If yous tin fully deduct savings from income, the "income" taxation becomes a consumption tax. Alternatively, pay taxes on all "earned" income, but no taxation on dividends, interest, or majuscule gains. That industrial plant out to the same affair -- no taxation distortion on whether yous eat the twenty-four threescore minutes catamenia yous larn the income, or after after returns compound.
That approach leads to all sorts of definitional problems, which is why I haven't been a huge fan. (Though I'm non strongly opinionated, recognizing that people who advocate it know a lot to a greater extent than most the taxation code than I do.)
So, along comes Michael. Why non only take away all limits on IRAs? Contribute equally many pre-tax dollars equally yous want. Interest, dividends, as well as majuscule gains accumulate taxation free. No minimum distributions, estate taxes, etc. But when yous accept coin out of the IRA, to eat it (otherwise you'd exit it in!) yous pay income tax.
Yes, it's imperfect. It doesn't solve the Trump upshot that what is "income" is an elastic concept inwards the hands of lawyers as well as lobbyists. But it's a quick as well as slowly stride that gets us a long mode there.
Our taxation code sort out of recognizes that taxing rates of provide is a bad idea. We taxation "unearned" income -- but as well as thence in that place is a huge listing of complex exemptions. 401(k), 526(b), IRA, Roth IRA, wellness savings accounts, college savings accounts, stride upwards of majuscule gains at death, like-kind exchanges, as well as on as well as on, each alongside complex rules to follow. Just removing all limits on IRAs would live a big stride towards a consumption tax, as well as and thence nosotros wouldn't ask all these other ones either.
Objections? I'm non swell on taxation law, thence it volition live fun to listen comments.
Background: Once people encounter that a consumption tax, inwards house of income tax, corporate tax, estate tax, etc. is much simpler as well as to a greater extent than economically efficient, the natural enquiry is "what most progressivity?" The response is that in that place are lots of ways to brand a consumption taxation progressive.
My favorite (today) is a apartment consumption tax, alongside the same charge per unit of measurement on everything, collected equally a VAT.
Then, realize that progressive taxation is the same affair equally apartment taxation addition redistribution. If I pay 40% taxation as well as yous pay 20% tax, that's the same affair equally both of us paying 40% taxation as well as yous receiving a banking concern jibe from the government. So, I think, separate taxation (raising revenue for the authorities at minimum cost), subsidy, as well as redistribution. Make redistribution coherent, integrate it alongside other programs, as well as implement it past times sending people checks, on budget.
Most countries endeavour to overstep far progressive past times charging dissimilar rates for things that rich people purchase vs. misfortunate people. But that is a error equally it distorts the economy. Even rich people tin purchase to a greater extent than tacos as well as less yachts, as well as perchance a misfortunate mortal wanted to purchase a yacht as well as showtime a rental business.
An option implementation is to plow the electrical flow income taxation organisation into a progressive consumption tax. If yous tin fully deduct savings from income, the "income" taxation becomes a consumption tax. Alternatively, pay taxes on all "earned" income, but no taxation on dividends, interest, or majuscule gains. That industrial plant out to the same affair -- no taxation distortion on whether yous eat the twenty-four threescore minutes catamenia yous larn the income, or after after returns compound.
That approach leads to all sorts of definitional problems, which is why I haven't been a huge fan. (Though I'm non strongly opinionated, recognizing that people who advocate it know a lot to a greater extent than most the taxation code than I do.)
So, along comes Michael. Why non only take away all limits on IRAs? Contribute equally many pre-tax dollars equally yous want. Interest, dividends, as well as majuscule gains accumulate taxation free. No minimum distributions, estate taxes, etc. But when yous accept coin out of the IRA, to eat it (otherwise you'd exit it in!) yous pay income tax.
Yes, it's imperfect. It doesn't solve the Trump upshot that what is "income" is an elastic concept inwards the hands of lawyers as well as lobbyists. But it's a quick as well as slowly stride that gets us a long mode there.
Our taxation code sort out of recognizes that taxing rates of provide is a bad idea. We taxation "unearned" income -- but as well as thence in that place is a huge listing of complex exemptions. 401(k), 526(b), IRA, Roth IRA, wellness savings accounts, college savings accounts, stride upwards of majuscule gains at death, like-kind exchanges, as well as on as well as on, each alongside complex rules to follow. Just removing all limits on IRAs would live a big stride towards a consumption tax, as well as and thence nosotros wouldn't ask all these other ones either.
Objections? I'm non swell on taxation law, thence it volition live fun to listen comments.
