← Autodidact Archive · Original Dissent · Walter Yannis
Thread ID: 17098 | Posts: 7 | Started: 2005-03-04
2005-03-04 10:14 | User Profile
[URL=http://www.nytimes.com/2005/03/04/politics/04tax.html?pagewanted=1&th&adxnnl=1&oref=login&adxnnlx=1109931082-Epor+VFcT6OBUFebrg2Rxw]New York Times[/URL]
Fed's Chief Gives Consumption Tax Cautious Backing By EDMUND L. ANDREWS Published: March 4, 2005
WASHINGTON, March 3 - Alan Greenspan, the Federal Reserve chairman, cautiously endorsed a shift in the nation's tax system on Thursday from one that primarily taxes what people earn to one that taxes what they spend.
Testifying before a presidential advisory panel on overhauling the tax code, Mr. Greenspan steered away from sweeping plans to replace the income tax with a national sales tax.
But he supported what many of President Bush's advisers see as a backdoor version of a consumption tax: expanding the role of tax-free savings accounts so that people could shield their income from taxes until they actually spend it.
"Many economists believe that a consumption tax would be best from the perspective of promoting economic growth - particularly if one were designing a system from scratch - because a consumption tax is likely to favor saving and capital formation," Mr. Greenspan said.
But the Fed chairman warned that shifting to a new system would raise difficult "transition issues," and he cautioned against "going for purity" in any kind of tax overhaul.
President Bush, struggling to sell a reluctant Congress on his ideas for partly privatizing Social Security, said he would wait to see what the panel proposes at the end of July.
"I've told the American people I want to work to simplify the tax code to make it easier to understand so that people are spending less time filing paper," Mr. Bush said Thursday afternoon. "I'm looking forward to what the commission has to say."
But many lawmakers in his own party would like to combine Mr. Bush's goals for Social Security with his goal of transforming the tax code. Republican analysts say the two efforts could dovetail in Congress around the idea of private retirement accounts.
The centerpiece of Mr. Bush's Social Security plan is to let people divert part of their payroll taxes to individual investment accounts. Similarly, the kind of "consumed income tax" implied by Mr. Greenspan would be based on a major expansion of tax-free savings accounts like Individual Retirement Accounts. People could put in as much money as they wanted, withdraw it any time and not pay any tax on the investment.
Supporters say that kind of a system might resemble a traditional income tax. But by letting people shield savings and investment income, supporters say, the system could in practice leave only a tax on consumption.
The president's advisory panel, which is bipartisan, is to develop at least one recommendation that alters the basic structure of today's income tax, though the expectation is it will produce more than one proposal. Its recommendations are to be submitted by July 31 to the Treasury Department, which will then devise its own recommendation and present it to Mr. Bush.
Mr. Bush has refused to endorse a particular approach to tax overhaul, but White House officials have made it clear they favor some sort of consumption tax.
The Economic Report of the President, published last month, argued that consumption taxes could increase personal savings by as much as 43 percent in the first year and ultimately lead to higher output and higher wages.
"By removing the tax on the return to savings and investment, a consumption tax would increase savings and investment," the report contended. "With a larger stock of capital, workers would be more productive and output and wages would rise."
Representative Bill Thomas, the California Republican who is chairman of the Ways and Means Committee, has argued since early January that tax overhaul and Social Security should be part of the same agenda. John B. Breaux, the former Democratic senator from Louisiana who is co-chairman of the advisory panel, said recently that he saw merit in combining the issues as well.
"I just think they want to deal with these simultaneously," said Bruce Bartlett, a senior fellow at the National Center for Policy Analysis, a conservative research group. "It opens up a lot of options for them to put together a package. That's what I've been hearing for weeks. The problem is the president - he doesn't want to do it."
In contrast to the partisan divide over Social Security, where Congressional Democrats are almost uniformly opposed to Mr. Bush's plans, the issue of tax overhaul has attracted some Democrats.
Representative Steny H. Hoyer of Maryland, the House Democratic whip, vowed on Thursday to "make progress" on tax overhaul this year and echoed Mr. Bush's rhetoric about the need to make the system "simpler" and "fairer."
But Mr. Hoyer and many other Democrats say they oppose any form of a consumption tax, contending that it would primarily benefit the wealthy, who would escape taxes on investment income.
Some Democrats are also furious with Mr. Greenspan, who they say contributed to the record budget deficits incurred under President Bush by condoning the tax cuts he pushed.
"I'm not a big Greenspan fan," said Senator Harry Reid of Nevada, the Senate Democratic leader, in an interview with CNN on Thursday. "I think he's one of the biggest political hacks we have in Washington."
Mr. Greenspan tried to avoid specific recommendations about taxes, but told the panel that a consumption tax could raise savings and still place more of the tax burden on higher-income households.
A report by the Treasury Department in 2002, though, concluded that almost any form of consumption tax or flat tax would shift some taxes from upper-income to middle-income households.
Mr. Bush also faces a potential contradiction between his own goals. In initiating the advisory panel, Mr. Bush insisted that any new system would have to protect tax breaks for homeowners, the biggest of which is the deduction for mortgage interest.
But William Gale, a senior fellow at the Brookings Institution, a Democratic-leaning research group, said that the mortgage-interest deduction would allow rampant tax avoidance in a system where people did not have to pay taxes on their savings.
"If interest income isn't being taxed and interest payments are deductible, you and I could just lend each other $1 million," Mr. Gale said. "Neither of us could be taxed on our income, and both of us could deduct the interest payments."
James A. Baker III, who was treasury secretary when President Ronald Reagan pushed through a tax overhaul in 1986, warned the panel of the political minefields.
Mr. Baker noted that the Reagan administration originally proposed a sharp limit on the mortgage-interest deduction to reduce tax rates as much as possible.
But that provoked a storm of protest from the real estate, construction and home-finance industries. Only by capitulating, Mr. Baker said, was it possible to pass a bill that sharply lowered tax rates and eliminated scores of special tax breaks.
"This is a political exercise as much as it is an economic exercise," Mr. Baker noted. "A basic recognition of political reality will help you shape recommendations that can survive the legislative process."
2005-03-04 10:25 | User Profile
I wouldn't mind so much if instead of scrapping the Income Tax and replacing it with an NRST, Congress simply expanded IRAs greatly. The economic effect with be similar, except of course that we'd still have the terrible administrative burden of the income tax.
My fear is that we'll get a federal sales tax AND an income tax. That would really suck big time. The worst of all possible worlds.
2005-03-04 10:52 | User Profile
[QUOTE=Walter Yannis]I wouldn't mind so much if instead of scrapping the Income Tax and replacing it with an NRST, Congress simply expanded IRAs greatly. The economic effect with be similar, except of course that we'd still have the terrible administrative burden of the income tax.
My fear is that we'll get a federal sales tax AND an income tax. That would really suck big time. The worst of all possible worlds.[/QUOTE] That's what'll happen.
I caught a snibbet on TV - I think it was Alan Green$pan, saying that in an ideal world, starting from scratch, a consumption based tax system was superior to an income tax system, but that the problem was trying to move from the one to the other, and there had to be a compromise or transition period of some kind, where you had both.
Problem is, once you have both, you'll never get rid of either. Politicians will keep discovering new ways to spend the money.
Maybe that's the real game plan.
2005-03-04 11:17 | User Profile
[QUOTE=grep14w]That's what'll happen.
I caught a snibbet on TV - I think it was Alan Green$pan, saying that in an ideal world, starting from scratch, a consumption based tax system was superior to an income tax system, but that the problem was trying to move from the one to the other, and there had to be a compromise or transition period of some kind, where you had both.
Problem is, once you have both, you'll never get rid of either. Politicians will keep discovering new ways to spend the money.
Maybe that's the real game plan.[/QUOTE]
Yeah, that's right.
Once we have both we'll never get rid of it.
Most devoloped countries have such a system, they'll say. Germany has a VAT and a very progressive income tax, and they're not poor.
It will be terrible.
We should probably do it by constitutional amendment, if we're going to attempt it at all. Repeal the 16th Amendment, and replace it with one that disallows a federal income tax but allows a NRST (or a VAT) without apportionment and within certain limits.
2005-03-04 14:15 | User Profile
There is nothing wrong with the Social Security System if only the government would keep their greedy hands away from it.
The government wants to trade a secure thing for a Russian rulette where no one can be sure if there will be any gold at the end of the rainbow.
The only ones that will benefit will be the moguls at Walt Street the bankers and the poleticians.
And how about the elderly with a fix SS? will they also have to pay taxes once again when ever they buy something?
Once again the little peple will be the ones to get screw because the big money will go overseas in order to buy their BMW and Mercedez.
2005-03-04 18:48 | User Profile
It may be instructive to look at Canada's situation, where they have added a 7% "Goods and Services" tax, I.E. federal sales tax, on top of the income and excise taxes that the drones already pay.
[url]http://www.cra-arc.gc.ca/tax/business/topics/gsthst/menu-e.html[/url]
2005-03-06 21:40 | User Profile
One would expect the following from a notorious poverty pimping race baiter.
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[url]http://www.cnsnews.com//ViewPolitics.asp?Page=\Politics\archive\200503\POL20050304b.html[/url]
Congressman Charles Rangel: Equal Taxation 'Not Fair' By Jeff Johnson CNSNews.com Senior Staff Writer March 04, 2005
(CNSNews.com) - New York Democratic Congressman Charles Rangel Friday responded to suggestions that the federal income tax be gradually replaced with some form of consumption tax, saying that equal taxation is unfair.
Federal Reserve Chairman Alan Greenspan told the President's Advisory Panel on Tax Reform Thursday that the current U.S. tax code is so complicated as to be a drain on the economy.
"A simpler tax code would reduce the considerable resources devoted to complying with current tax laws," Greenspan said, "and the freed-up resources could be used for more productive purposes."
Rangel responded that any tax of that nature, such as a national sales tax, would be an injustice.
"When you have a tax, where you pay the same tax whether you're wealthy or you're poor," Rangel said, "that's not fair."
Rangel's response to the idea that all Americans would pay the same percentage of their income in taxes, commonly referred to as a flat tax, or that Americans would be taxed based on an equal percentage of what they spend, rather than what they earn, a consumption tax, was broadcast on CBS Radio news Friday morning.
Grover Norquist, president of the conservative group Americans for Tax Reform, told the Cybercast News Service that, "Rangel is wrong. The only fair taxation is to treat all people equally.
"We do not have two prices of bread - one for the poor and one for those who earn more. All goods and services have one price for all Americans," Norquist said. "Government should be the same. We should all pay the same price (tax) for government."
Norquist said those who benefit from the redistribution of income through the current progressive income tax system are unlikely to want to see it end.
"Some politicians are elected by voters that do not pay the true cost of government," Norquist said. "We should not be surprised that voters who get subsidized government want more of it."
Former U.S. Treasury secretary James Baker also contradicted Rangel's assertion that equal taxation would be unfair.
"While I am no expert on the subject, I believe that consumption-based taxation has much to commend it," Baker told Associated Press Tax Writer Mary Dalrymple. "If properly crafted, a consumption tax could certainly meet the fundamental criteria of being simple, fair and pro-growth."
Rangel's unfair taxation comment came just two days after he accused President Bush of committing fraud in the war on terror. He appeared on CNN's Crossfire program March 1, and was asked about a CNN/USA Today/Gallup Poll taken February 25 through 27 that showed high public approval - 60 percent -- for President Bush's current handling of terrorist threats. Rangel was asked if those polling results were because of public stupidity.
"No," Rangel said. "I think that Bush has done a fantastic con job on the American people."
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