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Tuesday, November 1, 2005

Ron's new tax code

I haven't see much about this in the local press, but one of Oregon's two senators, Ron Wyden (the Democratic one -- I think), has unveiled his proposal for a new federal income tax law, which he says is fairer, flatter, and simpler.

It's simpler, all right. And it's a little bit flatter -- rather than have six tax brackets of 10, 15, 25, 28, 33, and 35 percent, his plan would have only three -- 15, 25 and 35 percent. The big giveaway in the Code for capital gains (on corporate dividends and sales of many types of property) would be repealed entirely. The deduction for state and local taxes would be replaced by a 10 percent credit. The alternative minimum tax, which hits taxpayers from wealthy on down to the upper middle class (including yours truly), would get the boot.

The deductions for home mortgage interest payments and charitable contributions would be kept, but many other popular deductions would be terminated. (The mortgage deduction would apparently be limited to one home -- mortgage payments on the vacation home would no longer be deductible at all.) Workers would be taxable on many different kinds of fringe benefits (although employer contributions to health care and child care would still be tax-free), and "personal choice" and "flexible spending" accounts would be shut down.

You wouldn't be allowed to deduct work-related moving expenses, and gambling losses wouldn't be deductible, even against gambling winnings. Worker's comp and damages in personal injury cases would become taxable.

Corporate taxes would be jacked up to a flat rate of 35 percent, replacing a system of graduated rates that currently start at 15 percent.

Styled as a "flat tax," it looks a lot more like a Democrat income tax. There'd be lots of winners and losers. It will never pass. But it's worth discussing, especially as a counterpoint to the Bush blue ribbon panel's competing recommendations (which are likely to include a national sales tax or something similar). Everyone's in agreement that the tax code needs help, but there's no consensus building on what the fix is.

UPDATE, 8:10 p.m.: The Bush panel's final report came out today. More on that baby a little later.

Comments (14)


Geez, I guess you're a conservative and whatnot, but do you need to use the R's bogus buzz word qualifier "Democrat" income tax --- it's 'Democratic' as in the name of the party. There's no such qualifier as a "Democrat" this or that. It's purely a noun. Whatever.

As for the flatter, fairer claims by Wyden -- I do like the fact that Wyden is leading the way with a proposal of some kind. Let's face it no real legislation can pass in this debauched Bush era that does not come directly out of the combined lower IT's of Karl Rove, Bill Frist, Tom Delay, and Grover Norquist. We will not even touch the surface of raising the corporate tax with those freaks in charge. But that doesn't excuse the Democrats from coming out strongly for reform the way Wyden has done. And hey, you're on board with losing those 20 extra pages of AMT schedules and such from your return right? So come on and help the bill out a bit can't ya? :-) Give us some glimmer of hope on some of the provisions and ideas. Thanks!

Now, now, Ginny... Let's not go calling Jack names. "Conservative"? Nah.... Not a partisan hack (like me), but his blue cred is (mostly) good. Check out the Vicki Walker ad on the home page.

To the topic: Jack, you're uniquely positioned to talk about the tax reform proposals that are now starting to float out there. Keep it up.

I think it's a good thing that Ron has planted a flag at the progressive end of the spectrum. Future proposals from others should be evaluated against his.

It's the last remaining promise of the 2004 campaign that Bush has yet to take up - so count on it hitting soon.

(Disclaimer: I built Senator Wyden's campaign website last year. I don't speak for him.)

Perhaps it was both misguided and mean to say that. But I'm a big Jack Bog fan from L&C Law so I hope he knows I jest. Anyone who makes Corporate Tax "fun" should receive a knighthood, not derision. So I withdraw my unseemly barb, and acknowledge the higher wisdom of the all (blog) seeing Kari.

And I agree, Kari --- Let's move with extra speed to take away the ridiculous caterwalling that the Democrats just complain and do not propose and fight for something. Well, Wyden has at least proposed "something," and it's (finally!) a batch of ideas that are on the progressive edge of the DLC turf. Maybe he's trying to cover the tracks from his appalling lack of spine on the Oct. 11 Iraq War resolution? I'd be worrying about that right now if I were him.

I use "Democrat" and "Democratic" interchangeably. I hadn't caught on to the Lars-ish connotations of the former. I guess it's going the way of "librul."

Finally, a democrat with a possitive comment rather than just a second-queser. That has to be a first.He must be hanging out too much with the Pendelton guy.

Glad to see someone giving this some time. I haven't had the fuel to light a fire under this. I am regularly disappointed by Wyden's wimply warbles made under the guise of bipartisanship. This proposal looks uncharacteristically reasonable, but as I have only been able to read highlights so far.

Something doesn't seem to compute. (Maybe it's me.) We don't like the AMT because it is creeping into the middle-income levels and raising taxes there. So we'd eliminate it, but to claw back the lost tax revenue, we'd limit mortgage interest and state and local tax deductions and raise the capital gains tax -- the benefits that largely trigger AMT for middle-income folks in the first place. So, no net benefit for the middles -- and likely a tax increase there. -- Maybe there'd be less complexity. But the widespread use of tax preparers and tax preparation software means this kind of complexity (alternate calculations) is not a huge burden.

I agree with that last point, Allan. I saw one government estimate that said eliminating the AMT would save affected taxpayers 63 hours a year of tax preparation time, or something like that. Hogwash. With TurboTax, the AMT added exactly zero hours to my tax preparation time.

It did, however, add several hours to my time spent b*tching about taxes. 8c)

I have no problem with Wyden's capital gain proposal. We had no preference for capital gains throughout several of the late Reagan/ early Bush I years, and nobody died. The preference for capital gain is where the rich are really getting richer while the poor get poorer.

One last grammar note on "democrat" party. The issue is a long-term strategy by the GOPers to dissociate little-d "democratic" from the big-d "Democratic" Party.

Two items: From a copy-editing blog and a leading political blog

I favor the Hans and Franz (Saturday Night Live skit) plan for building wealth.

A venture capitalist could even start Pump-Me-Up, patterned after the Pet Rock craze, then sell it as an IPO.

Mortgage debt can be called wealth, and Mortgage Brokering a respectable business enterprise. (Etc.)

How are Gambling Gains defined?
How are Capital Gains defined?
Can we synthesize a definition that wraps around both, such as cash flow accounting?

An objective economist dismisses the morality of transactions and just observes the exchange of dollars and goods. Gambling, if it was not "bad," could be tracked and measured just like any other trade, and would be superior to Edgar Casey style (or stock chartist, home-price chartist) determinations, in aggregate, of fair market value.

-- Otherwise, just merge the standard deduction and AMT.

Make Wyden's plan a little flatter (only two percentage levels, perhaps 15% and 25%), and I support it wholeheartedly.

As for who benefits and doesn't benefit, since the government is collecting way too little tax money for its expenditures right now, I don't think we should be cutting taxes for anyone, upper class or middle class.

And a "consumption tax" is a "sales tax." A sales tax is regressive - the poor pay a greater percentage of their income as tax than the rich. A person earning $10,000 who pays $500 in sales tax on his purchases is being taxed at a 5% rate. A person earning $100,000 who pays $3,000 in sales tax on her purchases is being taxed at a 3% rate. This is a fundamentally unfair outcome.

A national sales tax proposed by these guys is the only way we'll have real reform.


Other proposals are mere window dressing.

And before ya'll get in a lather over how the 'poor' will be adversely effected, read the proposal; everyone gets a monthly rebate check for necessities.

Unfortunately, most Americans are so dependent on the Gubmint, they'd rather swallow inane proposals like Wyden's instead of a fair plan like HR25.

An old but very good book, "Showdown at Gucci Gulch," written by Birnbaum and Murray, remains one of the most readable and accessible guides to our last great tax reform, in 1986.

You can get this real cheap at Powells or other bookstores. It provides a nice bird's eye view into the politics of tax reform.

Mr Bog - I'd love your opinion on what makes a "fair" tax. I think a simple flat taxz is the way to go. Especially since the rich have better tax lwayers/accts to lower their eff tax rate once you get one deduction on line.

I can see the consumption tax, since its gotta be easier to enforce. In addition, if someone wants to save/invest instead of spending, he is encourged to by the taxes.

What do you think are the odds of any major changes?

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