ONLY TAX CONSUMPTION:

8 things that we could change about Tax Day forever (John Linder, 4/19/24, Fox News)

Every family that is legally resident in the U.S. would receive a monthly cash advance — a prebate — that would totally cover the tax costs of spending up to the poverty line for that family. Poverty level spending is defined each year by the government to be that spending necessary to buy essentials. The prebate for a family of four would cover the tax costs on spending of $40,880.

We want to encourage wealth creation and investment, yet we tax them?

TAX WHAT YOU DON’T WANT, NOT WHAT YOU DO:

It’s Time the US Abolished the Income Tax: Bring on the consumption tax. (John H. Cochrane, February 12, 2024, CBR)

Here there is an awkward truth of taxation. Unexpected, “just this once and we’ll never do it again” wealth taxes are economically efficient. The problem of taxation is disincentives. If you announce a wealth tax in the future, people respond by not accumulating wealth. They go on round-the-world private jet tours instead of investing and building companies. But if you tax existing wealth, and nobody knew it was coming, there is no disincentive.

This is, however, one of the most misused propositions in economics. That “just this once and never again” promise isn’t credible: if the government did it once, why not again? And it feels horribly unfair, doesn’t it, grabbing wealth willy-nilly? Unpredictability is not something responsive, rule-of-law democracies can or should do.

In any case, as with corporate income, taxing investment income also makes no sense. You earn money, pay taxes on it, and invest it. If you choose to consume later rather than now, why pay additional tax on it? One of the main don’t-distort-the-economy propositions is that we should give people the full incentive to save by refraining from taxing investment income.

So why do we tax investment income? Again, because once you tax income, you have to start plugging holes. Many people can shift labor income to investment income. If you run a business, don’t take a salary but pay yourself a dividend. If you’re a consultant, incorporate yourself and call it all business income. In the 1980s, even cab drivers incorporated to get lower tax rates.

The income tax is the original sin. Taxing income made no sense on an economic basis. The government only did it because it was easy to measure and grab, at least before people started inventing a century’s worth of clever schemes to redefine “income.” It has led inescapably to more sins, such as the corporate tax and the tax on investment income. And now the repatriation tax on accumulated foreign earnings.

What’s the solution? Well, duh. Tax consumption, not income or wealth. Get the rich down at the Porsche dealer. Leave alone any money reinvested in a company that is employing people and producing products. Now we can do it. And we can then throw out the income tax, corporate tax, and estate tax.

AMERICAN GENEROSITY:

How Progressive is the U.S. Tax System? (Thomas Coleman & David A. Weisbach, November 20, 2023, University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. #991)

Notwithstanding some headline results to the contrary, all three datasets show that the tax system has become more progressive and more redistributive over the last several decades, with much of that change occurring in recent years. This increase in redistribution is driven primarily by an increase in transfers to households in the bottom half of the income distribution which is missed by a focus on the top 1%.

THE SOLUTION TO POVERTY IS WEALTH:

$750 a month, no questions asked, improved the lives of homeless people (Doug Smith, Dec. 19, 2023, LA Times)


The results were so promising that the researchers decided to publish results after only six months. The answer: food, 36.6%; housing, 19.5%; transportation, 12.7%; clothing, 11.5%; and healthcare, 6.2%, leaving only 13.6% uncategorized.

Those who got the stipend were less likely to be unsheltered after six months and able to meet more of their basic needs than a control group that got no money, and half as likely as the control group to have an episode of being unsheltered.

“I felt there was enough interest and the initial findings were compelling enough that it was important to get those results out,” said Benjamin Henwood, director of the Center for Homelessness, Housing and Health Equity Research at the Dworak-Peck School, who led the study.

NOW MAKE IT 100%:

More Americans Than Ever Own Stocks (Hannah Miao, Dec. 18, 2023, WSJ)

About 58% of U.S. households owned stocks in 2022, according to the Federal Reserve’s survey of consumer finances released this fall. That is up from 53% in 2019 and marks the highest household stock-ownership rate recorded in the triennial survey. The cohort includes families holding individual shares directly and those owning stocks indirectly through funds, retirement accounts or other managed accounts.

The data provide the most comprehensive snapshot yet of how the Covid-era explosion in investing has reshaped Americans’ personal finances. Stuck at home during the pandemic with extra cash, millions jumped into the stock market for the first time. The elimination of commission fees on stock trading across U.S. brokerages made investing cheaper than ever.

“It created a whole generation of investors,” said Anthony Denier, chief executive of mobile brokerage Webull U.S.

IT’S 2023; TAX CONSUMPTION:


The Income Tax Paradox (John Cochrane, December 6, 2023, The Grumpy Economist)

So why does the government tax income? Because, circa 1913, income was easier to measure than sales, value added, consumption, or other economically better concepts. When money changes hands, it’s relatively for the government to see what’s there and take a share. Tariffs really start from the same concept. It’s relatively easy to see what’s going through the port and demand a share, Adam Smith, David Ricardo and free trade be damned. But the government wanted more money than tariffs could provide.

WHEN YOU DITCH IDENTITY:

Nikki Haley wants to reform Social Security and Medicare. Donors are paying attention (Fredreka Schouten, 12/05/23, CNN)

Haley has called for several changes to the nation’s safety net programs, including increasing the age at which today’s younger workers would become eligible for Social Security retirement benefits and limiting the growth of benefits the wealthy receive. […]

A March CNN/SSRS poll of Republicans and Republican-leaning independents, for instance, found that 59% said it was “essential” that the GOP nominee for president “pledges to maintain Social Security and Medicare as they are.”

And just 7% of Republicans surveyed in October in an AP/NORC poll said that the government was spending too much on Social Security.

It’s little wonder then that Trump has steadfastly advocated keeping the programs as they are – despite his past support for major changes, including raising the retirement age to 70 and privatizing Social Security.

DeSantis has distanced himself from his votes as a congressman for nonbinding resolutions that would have increased the threshold for seniors to collect Social Security benefits to age 70.

THE SOLUTION TO POVERTY IS WEALTH:

The first results from the world’s biggest basic income experiment: Money always helps, but for the very poor, one lump sum can last a long time (Dylan Matthews, Dec 1, 2023, Vox)


The latest research on the GiveDirectly pilot, done by MIT economists Tavneet Suri and Nobel Prize winner Abhijit Banerjee, compares three groups: short-term basic income recipients (who got the $20 payments for two years), long-term basic income recipients (who get the money for the full 12 years), and lump sum recipients, who got $500 all at once, or roughly the same amount as the short-term basic income group. The paper is still being finalized, but Suri and Banerjee shared some results on a call with reporters this week.


By almost every financial metric, the lump sum group did better than the monthly payment group. Suri and Banerjee found that the lump sum group earned more, started more businesses, and spent more on education than the monthly group. “You end up seeing a doubling of net revenues” — or profits from small businesses — in the lump sum group, Suri said. The effects were about half that for the short-term $20-a-month group.

The explanation they arrived at was that the big $500 all at once provided valuable startup capital for new businesses and farms, which the $20 a month group would need to very conscientiously save over time to replicate. “The lump sum group doesn’t have to save,” Suri explains. “They just have the money upfront and can invest it.”

Intriguingly, the results for the long-term monthly group, which will receive about $20 a month for 12 years rather than two, had results that looked more like the lump sum group. The reason, Suri and Banerjee find, is that they used rotating savings and credit associations (ROSCAs). These are institutions that sprout up in small communities, especially in the developing world, where members pay small amounts regularly into a common fund in exchange for the right to withdraw a larger amount every so often.

“It converts the small streams into lump sums,” Suri summarizes. “We see that the long-term arm is actually using ROSCAs. A lot of their UBI is going into ROSCAs to generate these lump sums they can use to invest.”

THESE ARE ACTUALLY THE ARGUMENTS TO TAX ONLY CONSUMPTION:

Cutting inheritance tax is not just fiscally unsound – it’s unfair (Ben Ramanauskas, 11/20/23, Cap X)

[U]sing this increased revenue to cut inheritance tax would not only be fiscally unsound, it would be deeply unfair. It would represent an even greater shift away from taxing wealth and towards wages. Cutting inheritance tax at this time would therefore be a giveaway to the wealthiest funded by working people.

Rather than cutting inheritance tax, the Chancellor should instead eliminate fiscal drag by unfreezing the income tax and national insurance thresholds.

The main reason for this is that it will allow people to keep more of their money. While inflation is returning to target, there is still a cost of living crisis gripping the country. Millions of households across the country are struggling to make ends meet despite working hard, often in multiple jobs. Increasing tax thresholds in line with inflation will mean that they have more money to spend on themselves and their families.

Ending fiscal drag would also boost productivity. We have seen stagnant productivity growth in the UK since the Global Financial Crisis and while the tax rate is far from being the main cause of this, it has almost certainly contributed to it. As Paul Krugman pointed out, ‘Productivity isn’t everything, but, in the long run, it is almost everything’. Productivity is the key driver of economic growth, which has been persistently low and is forecast to be non-existent over the next year. We have already experienced one lost decade in the UK and we are set to experience another if we don’t turn things around. The government should be doing whatever it takes to boost productivity, and so ending fiscal drag should be a priority.

Unfreezing tax thresholds could also help with the labour shortages facing many areas of the economy. While the labour market is loosening, it is tight by historical standards. Firms are really struggling to get staff to work for them, especially in hospitality and social care. If a person knows that they will be no better off in real terms then they are unlikely to say yes to an extra shift or take on another job. Allowing them to keep more of their money will incentivise them to work longer hours or look for another job.

In other words, stop punishing work, investment, and savings to make them more attractive.

THE SOLUTION TO POVERTY IS WEALTH:

We’ve been fighting poverty all wrong (Oshan Jarow, Nov 20, 2023, Vox)

Over the course of 2021, child poverty was cut nearly in half, and the long-running fear at the heart of the American welfare system — that unconditional aid would discourage work — never came to pass.

Then, to the dismay of advocates and recipients alike, Sen. Joe Manchin (D-WV) blocked the Democratic Party’s effort to make the expansion permanent, fearing, among other familiar concerns like the cost, that recipients would just buy drugs (the data shows that recipients spent the money on food, clothes, utilities, rent, and education). Come 2022, phase-ins returned to the CTC, approximately 3.7 million children were immediately thrust back into poverty in January, and the rest of the year saw the sharpest rise in the history of recorded child poverty rates.

Phase-ins have long had critics across the political aisle, but their arguments have generally been grounded in small-scale pilot experiments, appeals to morality, or even philosophizing about human nature. Now that we have real-world evidence from a nationwide, year-long experiment, the expanded CTC’s success should ignite efforts to roll back phase-ins across the board. That also means cutting them from the CTC’s sister program, the earned income tax credit (EITC), which phases in as a supplement to wages for low-income Americans and helps about 31 million Americans.

The expanded CTC is estimated to have reduced child poverty rates anywhere from 29 percent to 43 percent, with the vast majority of that drop attributable to removing phase-ins. Extending that success to include the EITC would cut child poverty by an estimated 64 percent.