Would this tax plan work? If so why, if not why?

[mirage62 0]

I know this is a long read for some, others will be turned off by who wrote it but to me it seems a fair approach. I had to cut and paste but believe I got it right.

Quote

The proposition that entitlement curbs are the key to maintaining national solvency is widely accepted, though not by many congressional Democrats. President Obama, however, has endorsed it on various occasions. And he could make it happen.
If he wants. I remain skeptical that he does. But national solvency is important enough to test this proposition at least once more. The obstacle is Obama’s current position that entitlement cuts must be “balanced” with new revenue from closing loopholes.

Republicans are adamantly opposed. No more revenues, Mr. President. You got your tax hike on Jan. 1.
Is there a solution? Yes: tax reform with a twist.
The problem begins with definitions. By tax reform, Obama means eliminating deductions, exclusions, credits of various kinds with all the money going to the Treasury.
That’s radically new. The historic 1986 Reagan-O’Neill tax reform closed loopholes with no extra money going to the Treasury. The new revenue went directly back to the citizenry in the form of lower tax rates.
This is called revenue-neutrality. The idea is that tax reform is a way not to fatten the Treasury but to clean the tax code. It means eliminating special-interest favors and behavior-altering deductions that create waste and inefficiency by inducing tax-preferred rather than market-oriented economic activity. And it introduces fairness by removing breaks and payoffs for which only the rich can afford to lobby.
As a final bonus, tax reform’s lower rates spur economic growth. A unique win-win-win: efficiency, fairness, growth.
Obama’s own Simpson-Bowles deficit-reduction commission offered a variant. First, it identified an astonishing $1.1 trillion per year of these “tax expenditures.” That’s more than $11 trillion in a decade. In one scenario, it knocked them all out and lowered marginal tax rates to just three brackets of 8 percent, 14 percent and 23 percent.
But here’s the twist. Using the full $1.1 trillion annually of newly redeemed “loophole” revenue, Simpson-Bowles could have dropped the rates a bit below 23 percent. But instead it left some of that money in the Treasury, an average of almost $100 billion a year, or about $1 trillion over a decade. It was a reasonable compromise, so reasonable that even the Senate’s most fierce spending hawk, commission member Tom Coburn, signed on.
Now, Simpson-Bowles is not on the table but it could be a model. Obama’s “tax reform” would send 100 percent of the revenue to the Treasury. Reagan-O’Neill sent 0 percent. Simpson-Bowles fell somewhere in between. So should any grand compromise.
Before deciding exactly where to locate that compromise, however, we have to decide which deductions to cut, yielding how much revenue. The bad news is that, given all the lobbying and haggling this would occasion, it could take years to work out. The good news is the formula proposed by Harvard economist Martin Feldstein. Before even picking and choosing which deductions should remain permissible, it simply allows no one to reduce his tax bill by more than 2 percent by using any or all of the deductions and loopholes in the current tax code (except charitable contributions).
There should, of course, be separate negotiations over which of the hundreds, thousands, of loopholes/deductions should be tossed out as corrupt or counterproductive rent-seeking. But the 2 percent ceiling means that we don’t have to wait until full tax reform — because the Feldstein formula significantly and immediately reduces the impact of all the loopholes.
Feldstein calculates that his tax reform would yield $2.1 trillion in new revenue over a decade. Now we can cut the pie. Obama wants the government to keep it all. The GOP wants to give it all back to reduce tax rates. Let’s be Solomonic. Divide the revenue in half — 50 percent to the Treasury for reducing debt, 50 percent to the citizenry for reducing rates.
That’s roughly $1 trillion each. Everybody gets something. Republicans unexpectedly get a rate cut, minor but symbolic after having had to swallow the “fiscal cliff” rate hike. The country gets the first significant tax reform in a quarter-century. Obama gets $1 trillion worth of “balance,” his price for real entitlement reform. And if he turns out to be serious about that, we get the Holy Grail — tax and entitlement reform all at once.
Which means a deal that manages to simultaneously promote efficiency, fairness, growth, debt reduction and a return to national solvency. In other words, the best deal since the Louisiana Purchase.

Kevin Keenan is my hero, a double FUP, he does so much with so little

[rehmwa 2]

silly poster - "compromise" doesn't mean picking a position that both sides can live with.

"compromise" = do everything I say, and then lay naked in the mud while I stand on your face

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Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[kallend 2,219]

Why exempt charitable deductions from the 2% limit?

We already have too many "charities" where the administration gobbles up the bulk of the donations.

...

The only sure way to survive a canopy collision is not to have one.

[billvon 3,173]

A few issues:

>As a final bonus, tax reform’s lower rates spur economic growth.

A revenue neutral tax reform does not lower taxes overall. Overall they are exactly the same. You'd see some industries get hammered (like the housing industry) and other industries do well (like the tobacco industry) as taxes were reapportioned that benefit or hinder those industries.

You could make the argument that "well, the market should decide" which is fine. But you can't make the argument "we'll see lower rates overall."

>Before deciding exactly where to locate that compromise, however, we have to
>decide which deductions to cut, yielding how much revenue.

That's the rub.

>Feldstein calculates that his tax reform would yield $2.1 trillion in new revenue over a
>decade. . . . . Divide the revenue in half — 50 percent to the Treasury for reducing
>debt, 50 percent to the citizenry for reducing rates.

That seems like a very reasonable compromise. Sign me up.

>Republicans unexpectedly get a rate cut . . ..

Agreed, although overall taxes go up. (Not a bad thing, just want to make sure people aren't misled by promises of a cut.)

[Bertt 0]

It's a good idea, but it won't happen. Here's why. A guy who has $30 million income from dividends took your congressman to lunch. Now the congressman is firmly convinced that taxing qualified dividends at a lower rate than ordinary income is absolutely essential to the creation of jobs in this country. ( he's also convinced that the rich guy is going to donate $1 million to his next re-election campaign, but that doesn't influence his strong feelings of patriotism and civic duty)
Every one of those deductions is supported by a few people who take a few congressmen to lunch. So here we are, and here we will remain.
Do you think you could get enough voters to focus on even one of those loopholes throughout a congressional session and get it eliminated ?

You don't have to outrun the bear.