Judge Steve Russell on Tax Reform

uncle-sam-taxes

This question goes out to all my rocket scientist friends. The issue is tax reform.

Long term readers know that I would prefer much higher taxes than we have arrayed in sharply progressive brackets. That’s a non-starter.

I would prefer taxing money made from money at the same rate as money made from labor. That appears to be a non-starter. The sources I read for my stock picking hobby forecast that Trump will manage to lower capital gains even farther.

I am not offended by the amount of Income tax I have to pay. I am offended by:

  1. I pay more by percentage of my income than either Mr. Trump or Mr. Romney.
  2. Preparing my taxes, even with Turbotax, burns hours of time for which I have better uses. Simplify!

There’s a big obstacle to simplification for somebody of my political opinions. Based on the experience of my first career—criminal court judge—I think criminalization should be a last resort when government is trying to get people to act in this or that way.

Tobacco taxes have done more to discourage smoking than years of nudges from the Surgeon General and making tobacco a controlled substance would be idiocy.

The other thing besides the stick of taxation and the carrot of tax credits is that taxes can be used to unleash the creativity of the profit motive.

Cap and trade was a bad idea from the get go to deal with CO2 pollution and complexity is only one reason. I agree that air and water pollution has to be criminal at the egregious end, but the criminal law will not work as the primary control.

A carbon tax works wonderfully to get the result you want without ordering people to do it a certain way. It gives the most efficient methods big advantages and offers a ready method to spread the part of the pain that is unavoidable. Just keep it simple.

Here’s my question.

Many tax dodges involve moving income around between this tax year and that.

Remember the late, great income averaging rule?

What about income averaging everybody on autopilot? That is, you are not taxed on what you made last year but instead on your AGI averaged over the last 3 to 5 years.

It’s simpler than the old income averaging rule bit still cushions the blow of a sudden spike of income. Set withholding by the highest year within the bracket.

It would probably be necessary to recalibrate depreciation rules, but I don’t care about complexity that falls on the IRS. I care about complexity that falls on taxpayers.

What’s the downside to permanent income averaging?

Second post on tax reform. Subject: subsidies.

Subsidies in the tax code are good if undertaken for good goals and repealed when the goals are met.

Impossible? Apparently not. See Germany’s solar subsidies, which were repealed after economies of scale took solar to grid parity.

Subsidies are un-American, say those who conflate capitalism with America.

Well, I don’t know what to say to persons so ignorant of their own history they don’t know how railroad lines came to span North America or how electricity got delivered to rural areas or how the Erie Canal got built.

Another reason to subsidize renewable energy is that there are so many subsidies for fossil fuels that never got repealed.

I’ve never seen a serious public discussion on whether we want to subsidize individual home ownership with many tax breaks but principally the mortgage interest tax deduction.

Note that Canada does OK without subsidizing home ownership.

Assuming it ever made sense, I’m not sure it makes sense in the gig economy. Owning the property makes it harder to follow the jobs.

The conservatives, every time extending unemployment benefits would crop up in the Great Recession, would ask why these shiftless bums drawing unemployment in Detroit didn’t move to North Dakota, where there were plenty of jobs in the Bakken even when it was hard to find work in most of the country.

If all of your net worth is tied up in your home and your mortgage is under water because the market crashed, you are stuck.

The Democrats made an effort to repeal oil and gas subsidies during the Great Recession and got nowhere. Meantime, reauthorizing the tax credits for renewables was a big fight because “we don’t want the government picking winners and losers.”

You wonder why everybody hates the government and does not think it can do anything better or cheaper?

Republicans have won the framing battle among an electorate ignorant of how government works. They have managed to demonize “picking winners and losers” and “tax and spend.” Those two anti memes cover everything government does.

But I digress.

I thought I had found the answer to getting rid of subsidies when they are no longer necessary. I was advocating that every subsidy put into the tax code should have a sunset provision and that sunset provision would contain performance metrics.

Reading some stuff by Larry Lessig convinced me that sunset laws ought to be called “Lobbyist Full Employment Act.” The thing comes up for sunset and if the subsidies have been successful the renewable corporations look at the American Petroleum Institute as a role model. You know, the lobby shop that keeps us subsidizing fossil fuels when they don’t need the money and we don’t need the pollution.

Lessig shook my faith in sunset provisions as answers to the problem of making a temporary subsidy permanent. Having my proposed solution beaten up does not make the original problem less of a problem.

Further thoughts…

If you are in the one percent, complexity is your friend. You don’t do your own anyway and what you pay the preparers is deductible if it gets yuge.

The problem with enforcement in the US is that the Repugs have cut and cut and cut the IRS enforcement division funds–even in the face of studies showing that hiring X number of agent/auditors would bring in more money than their salaries would cost.

When Ted Cruz promises to abolish the IRS, he’s playing to a powerful set of voters.

There are criminal penalties right now we can’t enforce for lack of manpower.

I do think that a primary goal ought to be that citizens look at paying taxes as a duty of citizenship and those who don’t are seen as freeriders rather than, as Trump claims, smart.

My druthers would be to import Finland’s rule: everybody’s tax return is open to all on the WWW.

Greece’s bigger problem that economic recession is the public’s attitude toward taxes, which is about like Trump. Paying taxes is for those not smart enough to avoid same.

And this…

Controlling the behavior of others is what government does.

If you want no controls on the behavior of others, you need no government…but a howitzer in the front yard might come in handy.

The preamble to the Constitution sets out our aspirations and then the document goes on to empower the new government to take actions “necessary and proper’ to reach those aspirations.

Everything government does involves taxing and spending, picking winners and losers, and manipulating behavior. The object of the taxing and spending and the picking winners and losers is to manipulate behavior. Criminal law is a blunt instrument to that end but there are rules with civil penalties, licensing and permits, etc. In the Dust Bowl, the government made a major push and spent a lot of money to change the behavior of farmers to convert them to best practices in anchoring the soil. The government made people stop using freon for refrigeration and lead in paint or gasoline. Do I need to go on?

More…

An unfair tax can be administered fairly. The fair administration just means everybody similarly situated is treated the same. I don’t think there’s much dispute about that.

The dispute comes between folks who think those who have reaped the most rewards from the legal regime and infrastructure should pay the most to maintain those v. those who think a flat tax is fair.

A flat tax leads to more inequality but there are still people who cling to the rational markets theory. Those who have more deserve more. They work harder and they are smarter. Poor people are poor because they are inferior.

Communists believe that the inferiority is poor marksmanship.

Most flat tax proposals have tiers and so are not completely flat. The tiers are necessary to make the arithmetic work. The other way is to do away with the social safety net and let lesser humans fend for themselves.

There are reasons why rich kids go to prep schools and have trust funds. To enable those born on third base to think they hit a triple.

Those of us who are for “equality” are talking about equality of opportunity rather than equality of outcome. That is where how hard you work and how smart you are comes in.

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