2011 Resolution #11.

In my “Resolutions for 2011,” #11 was “I shall make a 11th resolution before April 30th, 2011.” I now have one (aside from changing “before” to “by” next time around, since that’s what I intended).

In a recent chat about times long past, I mentioned that my second-least favorite part of my high school art classes was the teacher I had from eighth through twelfth grade. She was a nice lady, but she was a loon. By the end of my junior year, I’d had enough of her and registered for Creative Writing instead of her art class. At senior orientation, she told me that “they” had put me in the wrong class by mistake, so she got me switched “back” into AP Portfolio. I didn’t have the heart to tell her it wasn’t a mistake, and suffered another year.

I then mentioned that my least favorite part of those classes was ruining a pencil sketch by painting over it. Granted, painting over the sketch was the point of most assignments, but I could never get those sketches back. We didn’t have a copier in the room, we didn’t have any pantographs lying around (though in the art room, there could’ve been a hundred of them and we might never have found them), and cameras were still several years away from being everywhere.

Sketching was the most funnest part of my art classes. That in mind, I hereby resolve that:

11. I shall make a pencil sketch at least once a week.

I’m off to buy a sketch book and some art pencils.

Here’s an article about a tax reform proposal called the Purple Tax Plan, purple because it’ll appeal to both blue and red states. Regardless of the merits (or lack thereof) of the plan itself, the article is a reminder of the importance of tax simplification. If tax collection is less confusing, we’ll be better able to think about who pays how much, about whether taxes are too high or low, and whether we’re getting a good product for the price we pay.

9 comments

  1. So, after reading the article:

    If I’m reading the Purple Tax Plan correctly, the net government revenue would be 15 percent of GDP, plus 15 percent of wealth in present dollars. Current spending is about 24 percent of GDP. That brings two questions to mind:

    1. Is the additional revenue from taxation of wealth equivalent to 9 percent of GDP?
    2. If the answer to #1 is no, what spending should be cut to reduce the resulting structural deficits?

    Another question comes to mind about the wealth tax. Is it a one-time tax? If so, then you have a one-time boost in revenue, with future revenues pegged to about 15 percent of GDP.

    Better hope for some serious economic growth to bring 15 percent of GDP in line with the current plan for outlays. And I haven’t even figured in the per-person tax rebate subsidy.

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  2. It is difficult to answer your questions because their plan is not very detailed. Would government purchases be taxed? What exactly do they mean by wealth? Do we get to make the choice once per year, or once ever? What about imports and exports? And so on.

    By the way, you missed an important element of the Purple Tax Plan, one that addresses your concerns about the shortfall. First time I read it, I missed it, too– they kind of just snuck it in there. See if you can find it. Suffice it to say, this plan is NOT purple, it is Red. And I don’t mean “red state” red, I mean красный red. (I hyperbolize a bit, but it is May Day.)

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  3. I did catch the “from each according to his ability, to each according to their need” implied by the per-person subsidy. More kids, more subsidy.

    There’s also that nice tidbit on payroll contributions in the form of business ownership rights. So Social Security gets paid for through government takeover of business. Lovely.

    Mr. Marx would be proud.

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  4. 1. I wouldn’t say the per-person subsidy (or “demogrant” as the authors called it, “prebate” as the FairTax guys call it) implies “from each…” because everybody gets the subsidy, including the rich.

    2. I think the “business ownership rights” thing was a reference to charging FICA taxes on capital gains, stock options, etc. Not great, but not quite a government takeover.

    3. They want to restructure FICA. Right now, you pay 15.3% FICA tax (employer and employee contribution) on everything you earn up to $106,800. Under the Purple Plan, there would be no “employee contribution” on the first $40,000 (inflation-indexed) per year, but there would be no ceiling on FICA taxation. So, effectively, there’d be a 7.65% tax (employer contribution) on your income up to $40,000, and then a 15.3% tax (employer and employee contribution) on everything above that. They weren’t kidding about making the tax system even more progressive.

    I hyperbolized more than a little bit in my previous comment. Kotlikoff supports the FairTax– which is certainly not a Marxist proposal (and which I think is overly complicated). So I can’t help but look at the Purple Plan and think, “Why this?” I get why people would be obsessed with progressiveness; I just wish they’d show me evidence that it’s any more better than proportionality. Said evidence is lacking.

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  5. The numbers in my point #3 are a little imprecise… currently, you pay 7.65% FICA tax on everything you earn up to $106,800, and your employer contributes an amount equal to that. If you earn $106,800 or more this year, the “employee contribution” is $8,170.20 and the “employer contribution” is also $8,170.20, for a total contribution of $16,340.40. That is your maximum total contribution no matter how much additional salary you earn this year. The more you earn, the closer the total contribution comes to averaging zero percent of your total income.

    Under the Purple Tax Plan, if you earn $106,800, the employee contribution is $5,110.20 (7.65% of [$106,800-$40,000]) and the employer contribution is still $8,170.20, for a total contribution of $13,280.40. Each dollar earned after that increases the employee contribution by 7.65¢ and the employer contribution by 7.65¢. You pass the old total maximum contribution at a salary of $126,800. You double it at a salary of $233,600. The more you earn, the closer the total contribution comes to averaging 15.3% of your total income.

    The concept of employer/employee contribution is a little bit misleading. Who actually bears the burden of the tax depends on the elasticities of supply and demand curves in the labor market, but the burden is almost certainly not split down the middle as the employer/employee contribution labels would suggest.

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