I mentioned this in another thread but thought it might need it's own thread. I have never heard a plan like this proposed before and think it could garner some bi-partisan support. How about a variable tax plan indexed to economic growth. The Plan 1) Pick a target growth rate. (3% would seem to be a good number) 2)Pick a target base tax rate. (I believe the current 35% rate would work) 3) For every 1/2% the economic growth rate drops below the target, the tax rate drops by 2% below the base rate. 4) For every 1/2% the economic growth rate is above the target rate, the tax rate goes up 2% above the base rate. Right now our growth rate is around 1.5%. This would trigger a 6% tax drop down to 29%. As the economy gets stronger and starts growing the tax rate would go up. When we achieve a 3% growth rate we would be back at 35%. If the economy continues to grow to say 4.5%, the tax rate would go up to 41%. A system like this gives both sides a little of what they want. When the economy tanks, taxes drop and give the conservatives the supply side tax cuts they like. When the economy is soaring it gives the liberals the higher tax rates they like. A plan like this could possibly help shorten recessions. I am not sure if anyone has every proposed a plan like this. What do you guys think?
I said in the other thread that I think this is a great idea and should apply to major spending programs as well (capital investment). It's good for a number of reasons - it's immediate, so you don't have to deal with a hostile Congress. It gets rid of the political fight of lowering taxes (easy) but then someone having to raise them later or having them expire like the Bush cuts. And, from a policy perspective, it would smooth out the business cycle. However, while it's great policy, its not great for politicians. They want control of policy, and this takes it out of their hands. They want to be able to say, during the next recession, that they lowered taxes. They want to blame the other party for raising taxes as a campaign issue. And on and on - Congress doesn't like doing things that don't give them power, so unfortunately, I don't know that anything like this will happen.
I sincerely believe people and businesses would ultimately accept higher taxes over fluctuating ones.
35% of GDP? I think current federal revenues are proportional to 18% of GDP. A 95% increase in government revenue to match its spending (equal to about 25% of GDP) would generate a surplus. I cannot see how a fiscal conservative would oppose this in light of the mounting debt.
A fiscal conservative would oppose it because such a surplus would just be used an excuse for more spending.
Ignoring the fact that this plan actually has nothing to do with creating a surplus, are you suggesting that fiscal conservatives oppose both deficits and surpluses?
No, I'm suggesting that fiscal conservatives would have a problem with setting the rate so high as to create a massive surplus to begin with, because there would be the temptation to spend it. I actually like this plan. One question though, since you're only specifying the top marginal rate, would the other rates be fixed or set as percentages of the top rate? So as the economy slows and taxes are cut, is the benefit entirely to the top income earners?
I really like these kinds of ideas, but I think people in general distrust algorithms. And if you put something like this in place, it would really rob most modern politicians of half their speeches and talking points. Nice idea for a thread!
The idea of basing tax rate on a giant national spreadsheet seems reasonable, but the formula itself would be a huge matter of debate. I would love for that debate to be between mathematicians rather that monied interests with law degrees.
I would suggest that all the rates stay as they are right now for the base rates and all would go up or down with the top rate. Possibly the lower tax brackets could cap out at their current max so they benefit from the tax cut when the economy tanks and are not punished as much when it goes up. I know there would be a lot of details to work out but I think something like this would be a good starting point and as Major pointed out would help keeps the up and down swings in the business cycle in check.
dha, I am not 100% sure how they measure the economy but most things I have read say we are currently growing at 1.5%. I assume it has to do with the GDP for the fiscal year verses the prior year. I admit I am no economist, I am a chemist by trade. I just think we need a plan that both sides can agree on so the bickering and gridlock stops. This would take a lot of the political games away from politicians. We need a plan that doesn't piss off 50% of the country. I think this is a good starting point.
I am quite sure both sides would have different ideas what the base tax rates should be. It seems the current rates would work well. If implemented, there would be an immediate 6% tax cut which would no doubt get the economy rolling however it would automatically increase as the economy recovers. Once a plan like this is implemented there would be no political bickering over tax rates since they are set by how well our country is doing economically.
Unfortunately for your plan, there is no evidence whatsoever that lowering taxes increases growth rates. Here is my plan, which balances the budget each and every year without the need for a balanced budget amendment or yearly government intervention. http://coffeepartyblogger.blogspot.com/2011/02/isnt-it-time-for-consumption-tax.html In a recent discussion, a tangent regarding tax policy developed in which I stated that I would support a consumption tax, much like the FAIR Tax, but with a couple of caveats, changes that I would make. This post will describe the tax I would implement to replace the income tax. Basic Structure: The Consumption Tax (CT) that I would create would not have a set percentage rate, but would have a "base rate" set each year (automatically, no ability for politicians to interfere) to generate the amount of money spent by the federal government plus five percent. This implementation has a couple of goals, the first of which being a balanced budget and the second being a plan to retire the debt over time. In addition, setting the tax rate based on last year's spending would create a completely transparent system of taxation as everyone would be completely aware of government spending because the base rate would rise with increased spending. Exemptions: I would give every adult a $5000 annual tax exemption and the parents of dependent children $2500 for each child. This exemption would be implemented using the same infrastructure that currently exists for food stamps and flex accounts. I would exempt food and medicine from the tax and, after the debt is paid off, would give a CT holiday every year at back to school time, much like Texas does already. Application: The CT would apply to new goods and would not be charged on used items. Refurbished goods would only be taxed on the value of the new parts used to refurbish the item. Applying the tax only to new goods would give people a market in which they could avoid the tax altogether if they wanted. This application would also encourage the production of more durable goods as such products would hold their resale value. It is likely that such a system would encourage more recycling of products rather than the production of disposable goods that are so prevalent today. Optional component: It is my opinion that some goods should have higher tax rates applied to them than other goods due to the potential for societal damages or costs that are higher. The prime examples would be tobacco products (which cause cancer, leading to higher healthcare costs for people who use these products). For such products, I would allow for a "tax multiplier" to be applied. If the tax multiplier were 1.5, then the base tax rate would be multiplied by 1.5 to calculate the total tax rate for that product. This kind of system would ensure that tax rates would be completely transparent if the product in question was taxed at a higher rate than the base rate.
Rowdy, I disagree with you about the tax cuts not stimulating the economy however I don't won't to derail this thread with a bunch of back and forths. Let's agree to disagree. Now to your tax plan. I like it. I have no issues with a consumption tax and think it would be good for the country. You could set your own tax rate based on what you buy. I like when we can find common ground.
I actually think that a consumption tax could eventually reduce or eliminate the need for SS. People would have more incentive to save if their earnings were untaxed, but expenditures were taxable.
We just need to get rid of tax loopholes. There should be a set rate for everyone. NO loopholes. This set rate should be a progressive tax. If there are no loopholes, then revenue will increase, thus leading to the ability to lower taxes accross the board.
