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Which Taxes to Raise – A Revision February 27, 2015

In earlier posts I suggested that the top bracket income tax could be raised to up to 40%, as in the Clinton era, without hurting government revenues or damaging the economy.  It still might not, but I have decided that there are changes I would like better.

The payroll tax is a regressive tax that falls mainly on the less affluent.  Make it a flat tax that takes the same percentage of everyone’s income, no matter how earned.  It is, after all, out of this tax, not the income tax, that the major burdens of the government will be paid in future; Social Security, Medicare, Medicaid; these programs dwarf the means tested programs for the ‘poor’.

The capital gains tax should be at a lower rate for the first million of income earned from it.  This encourages people to invest in markets.  Above $1 million, capital gains should be taxed as ordinary income.  The ‘carried interest’ provision, needless to say, needs to be done away with.

I’m not sure what to do about the inheritance tax.  At the very least, it should not be more than the income tax!  The special hardship of the inheritance tax, as with the property tax, is that it is often a tax that has to be paid in cash on the value of a very illiquid asset, rather than on money changing hands; this often requires the forced sale of a very illiquid asset, and is burdensome in a way ordinary income and sales taxes are not.

I can go along with some reforms to Proposition 13 – restoring a simple majority to adjust tax rates, a ‘split roll’ [because commercial property taxes, unlike residential ones, are de facto local income taxes on rents or income, because that is what determines the value of commercial property], but the famous part of Proposition 13 needs to be retained.  In other states there have been communities where the relatively poor actually did own their own homes in older neighborhoods.  When gentrification started coming to these neighborhoods and property taxes began to price existing people out of the neighborhoods, some on the Left suddenly acquired a new appreciation of laws like Proposition 13!

I also wanted to raise the gasoline tax, but technology is making us use less gasoline.  If there were a way of collecting a mileage tax on cars and trucks without invading our privacy as to where we go, I would like to see that replace the gasoline tax.  But I do fear that hacking odometers will become a major occupation; how that can be prevented, I don’t know.

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