Taxation

[magid]

There's an article in today's NYT on the proposals of Bush's tax advisory commission (mirrored at the Houston Chronicle, as well).

What do they want to do? Limit the deductions for mortgage interest and employer-provided health insurance. I thought that home ownership was a value to these home-and-hearth guys? And a decrease in a health insurance deduction will go over like a lead balloon too. The reason they're suggesting this? To make up for revenue that will be lost if their recommendation to abolish the alternative minimum tax goes through. (The article ends with a great quote:
'The panel's vice chairman, John Breaux, a former Democratic senator from Louisiana, acknowledged the political difficulty but said, "We've got to make bold recommendations without regard to politics."'
As if anything in Washington these days could be politics-neutral. *snort*)

Luckily, they've decided that consumption taxes have more drawbacks than advantages, so they're not suggesting scrapping the income tax entirely. Consumption taxes fall a lot harder on the poor than the rich: they still have to buy food, clothes, medical care, and so on, but now it's all taxed. Rich people not only are able to absorb the cost better (especially since a greater percentage of their spending is discretionary), but are more likely to be able to save or otherwise avoid official consumption. In other words, the rich get richer.

However, they're still considering a flat tax, which I also think is foolish, for similar reasons. Bill Gates can afford a higher tax rate on his income without noticing a practical difference than I can on mine. And I can afford more than someone making minimum wage.

The one thing I think is a good recommendation is trying to figure out how to let people who don't itemize taxes to be able to take a deduction for charitable donations. A lot of people don't itemize if they don't have a mortgage and/or don't have huge health expenses, but that shouldn't be a reason not to be able to deduct charitable gifts. I mean, if they're tax deductible, they should be for everyone.

Comments

[cellio]

None of the following should be read as support for this particular proposal, which I haven't read. I'm speaking more generally.

Consumption taxes fall a lot harder on the poor than the rich: they still have to buy food, clothes, medical care, and so on, but now it's all taxed.

Income taxes would fall harder on the poor too, if there weren't exemptions for the first however-many thousands of dollars of income. Neither income taxes nor consumption taxes have to be across-the-board, universally-applied. In PA, for instance, items like food and clothing are exempt from the sales tax, while items like stereos and airline tickets are not.

In principle I favor consumption taxes over income taxes, because (1) we should reward saving 'cause social security is doomed, and (2) people can more easily adjust their consumption rates if needed. But I think abstracting away the stuff that everyone needs, by not taxing that, would be fair to everyone. In practice, I recognize that there are lots of implementation details to be worked out.

I mean, if they're tax deductible, they should be for everyone.

I agree with you there. Adjust the standard deduction amount to not include whatever portion of it is assumed to be charitable deductions (I imagine that's a fairly small number), and instead let people fully deduct what they give.

[magid.livejournal.com]

In MA, there's a 5% sales tax, with food and clothing excluded (barring some luxury items, like fur coats and such). Since I didn't see anything in the article about exemptions, I didn't assume they would be making any, which was not a good assumption. Of course, then it comes down to what's necessary, which could be a loaded gun in and of itself.

I agree that savings should be rewarded, but I don't think that this will encourage saving as much as is needed: we're too much a credit-based economy right now. Thought catastrophic things happen to people, on the whole, savers know they should save, and spenders see the new and shiny and accept the interest they pay for getting it now as part of getting the new and shiny.

Not that it'll help adults, but I think that economics should be a required course. Not guns and butter, but credit (both cards and ratings), savings, investments, budgeting, understanding how money flows as part of one's earning adulthood.

[danger-chick.livejournal.com]

Growing up, in high school IL passed a law making "Consumer Economics" a required course for high school graduation, along with it's other requirements Driver's Ed (whether you are blind or not), 4 years of English, etc. I was able to pass out of CE by taking a test. I passed it, but sometimes I wish I had taken it.

[magid.livejournal.com]

That's cool that IL required consumer economics. Assuming the class was good, of course :-).

Driver's ed was required? Even for blind people? At my high school, it was an optional after-school class that cost (which is not to say that everyone didn't take it as soon as possible).

Lessee... we had 4 years of English, 2.5 of social studies (the .5 was for Your Governments, which could've been a really good class, but was dull as dishwater. I got a lot of homework done for other classes during that), 2 of science, 2 or 3 of math, 3.5 of gym (there were semester-long electives after sophomore year). I don't remember there being placement tests at all.

I have the same feeling about the freshman writing seminar I placed out of (based on SAT scores, which, having no essay at the time, is fairly ridiculous); I wish I'd taken it.

[danger-chick.livejournal.com]

I wouldn't know how well the class was taught, since I skipped it. Knowing my high school, it was probably bad. :-/

IL pays for Drivers Ed. About every 5 years some outraged rightfully tries to waive Drivers Ed unsuccessfully. The state of IL's official position is "Well, it will make you a better *passenger*." Can you imagine a blind, back seat driver!? "Are you turning right? I don't hear a turn signal! Are you trying to kill us!?"

There were all sorts of required classes, most of which I can't remember. I can't remember how I got out of 4 years of PE and 4 years of English considering that I graduated in 3.5 years. The school I spent most of the time at didn't have electives. Hell, the year before me was the last year (that I know of) that they offered pre-calc. Only two people went to college straight out from my year and one of them was me and I was gone. I taught myself trig in high school to keep up with other schools.

Most of my history education past the seventh grade is biased. My 8th grade history teacher was a misogynist and NRA member. The only high school history was the head of the Klan for the area.

[magid.livejournal.com]

On the one hand, it makes sense for the state to pay for driver's ed, given that some kids can't afford it. On the other hand, it still seems to me to be an extra.

I don't buy the blind person = better passenger argument, though; what a waste of their time.

It's easier for me to remember high school requirements since I went to only one of them. I remember that for math, calculus had a co-requisite of (some kind of) analysis, in which almost everything taught was done more rigorously in the calc class. It was annoying. On the other hand, there was a calculus class, and a pretty good one, too (one class/year, with my graduating class being about 425).

I don't think I would've taught myself trig (or known I'd've needed to, really). I'm lucky I went to a suburban high school that assumed kids were going on to college; I didn't have to push myself to learn on my own. Though perhaps now that's a mixed blessing...

I remember being extremely excited that our brand-new history books in 7th (or was it 8th?) grade started before Columbus, with the natives and how they got here (the land bridge of Alaska from Asia theory). In general, though, US history bored me: we always started over at the beginning. I never learned past carpetbaggers and other Reconstruction.

They had the head of the local Klan as a history teacher?! Ick. Talk about your doctrination opportunities...

[danger-chick.livejournal.com]

No one buys the better passenger argument. They've also tried saying that it would be important for blind people to know how to drive in case the person driving them was incapacitated. (Forget blind back seat driver...how about a blind driver!?) I don't know why they just don't make an exception.

My brother ended up having to learn trig in college. I was three years behind him at that point, so I knew it was going to happen to me. I was bored in Geometry, so worked my way through that book early. Then worked my way through my brother's trig book. My geometry teacher helped me when I got stuck. Trig was really easy. I didn't really have to push myself, since I could take breaks whenever.

I don't really remember much about history class. I vaguely remember learning *something* about Vietnam, but I can't remember what or how (textbook or discussion). As for the Klan leader, I figured out that he was at least part of Klan based on some little trick he played in class one day. He took a Klan flag out of his desk drawer and said he found it in a ditch while out walking the night before. He flashed it and then put it away. He didn't explain what it was. I asked someone later what it was and that person said it was a Klan flag. A few years later I brought it up with one of my older relatives and that person told me he was some big yahoo in the local Klan.

[magid.livejournal.com]

I hope the teachers don't bother the blind kids if they bring books to read... Totally stupid, not to make an exception, but bureaucracy can find stupidity unerringly, it seems.

I don't have a problem with trig per se, it's just that it's not intuitive in my head the same way. I can never remember the more complicated trig identities, for instance.

The only 20th century history I learned was through outside reading/movies. I focused on medieval European (and some early Islamic) history; somehow that fascinated me much more. I think now that some of that is how the history is more settled. Modern stuff is much more unclear; the math side of me likes the clarity.

[(Anonymous)]

In Mass, there was, a few years ago, a line-item on the state tax return for charitable deductions, so one could deduct without itemizing on the federal return. It was to encourage charitable giving, as Mass had a really bad rate of such. But it was only for one year! Folks got it passed, then other folks got it suspended because of budgetary reasons, I think. But now it's been suspended for more than a few years.

[magid.livejournal.com]

MA has a number of differences from the federal returns; that one I hadn't noticed, though.

The things that annoy me about MA taxes are that mortgage interest isn't deductible (despite half of rent (up to an absurdly small maximum, but still) being deductible), and that capital gains are taxed at different rates for things held less than a year, 1-2 years, 2-3 years, 3-4 years, and either 5+ years, or 5-6 and 6+ years. With the feds, it's just "has this been owned longer than a year", not this enormous breakdown. It's a pain.

Oh, and they changed the layout of the main page to have the signature at the bottom of the front, which means that instead of carrying over one number from the front to the back, it's in the middle of a clump of things to calculate. Really bad layout decision.

[(Anonymous)]

You might not have noticed it because it got passed, was on there for one year, then was suspended.

The rental deduction was put on not because of its own proposal, but because it was attached to some proposal about deductions for mortgages or homeownership or the like.

Sounds unfair and cumbersome, what you describe regarding mortgage and capital gains, but, oy, I wish I had such problems as my own home and money earning money. (Please don't read that as my trying to put you in your place or anything. I know that you appreciate what you have, recognize where you are in the spectrum of those more well-off and less well-off than yourself, and that your stating that these differences on the state return are a pain was simply that. I just had my reaction because . . . because that was my natural reaction.)

Yeah, wonder why they changed the signature section from back to front. That confused me, and you are right that it complicates what was the tranferring of one number.

[magid.livejournal.com]

I didn't know that about the rental deduction. Interesting how some of it was put into effect while the rest wasn't.

I didn't read it as you trying to put me in my place. I'm lucky in that my parents saved aggressively for my education, with some left over; they helped me with a down payment; and I've been lucky enough to have steady work that's reasonably well-paid for a long time. It's really due to my parents that I'm in a decent financial position today. I hope that someday soon you, too, will have such problems :-).

When I think about the signature section moving, even from a logical (rather than copyeditorial) point of view it doesn't make sense: you're supposed to sign to verify that all this is true and accurate, once you've finished completing the return. So it should be at the end. I wonder if there's some technology reason like some scanner can deal with it better this way or something.