Cut out almost every income tax loophole, make all income (capital gains on investments included) taxed using the same simple model, lower rates across the board (especially for lower and middle income earners – where the money will mostly go to boosting demand, where the economy is weakest right now) and put at least half of the savings towards cutting the deficit. Common sense ideas like this are how we could, in one fell swoop, make the tax system more fair, cut deficit spending and stimulate the economy where it needs stimulation – if we lived in a saner world.
Fellow Omaha resident Warren Buffett (whose house I used to walk by often, having no idea it was his) talked at length about part of this equation in an op-ed in the New York Time on Sunday, saying that we need to “stop coddling the super-rich”. I would have gone farther, saying we need to stop giving special deals to anyone.
For example, why should investment income be treated any differently than regular income? Why should someone who brings home $100,000.00 from profit on an investment get to pay significantly less on that income than someone who is pulling a paycheck for the same amount? Buffett has long used the example of how he actually pays the lowest percentage of income than anyone else in his office (about half as much as the office average) while making far more than anyone else (in the entire world, at times).
Loopholes are an even easier thing to expose. Why should a business in this industry get lower taxes than this other one? It’s really just because someone greased the hands of the right congresspersons. Get rid of almost all of them, except ones that could apply to everyone, like the child tax credit, and mortgage interest (only on your primary home, and no breaks for million-dollar homes – if you can afford a million dollar home, you are light years from needing government help).
Great thing about this is you not only bring in more revenue from cutting out loopholes, but you can save people time and hassle. The only ones who lose here are tax preparation and tax attorneys. Imagine how much we’d all save if our tax return was so simple that it could fit onto a large postcard (as conservatives often pretend to support – before turning around and adding more complexity and loopholes)?
In fact, several polls have shown that a surprisingly large amount of people would choose taxes being simplified over a small tax break.
The right’s kneejerk reaction to treating investment income the same as earned income is to say that it would stop people from investing. But again, this is obviously ridiculous, as Buffet says in this part of his op-ed:
Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.
I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.
It really is quite telling that the defenders of unfair tax policies use such a flimsy response. Just as absurd as the above arguments, this idea that people will just stick their money in an account making far less than even a mediocre investment would, because taxes on any profit they make will go up a bit… it just doesn’t hold water.
A radically more simple tax system, lower taxes across the board, cutting the deficit, stimulus without adding to the debt, savings in tax compliance and a much more fair system – that’s what our country could use right now.