flat tax

401(k) Plans Teeter on the Fiscal Cliff

Among the many tax “loopholes” on the chopping block in the fiscal cliff negotiations are the 401(k) contribution limits.  Liberals like to refer to tax deductions, deferrals, and exemptions as “spending through the tax code,” or “tax expenditures.”  Of course, there are certain tax subsidies and credits that might best be described as spending (e.g., subsidized coverage on the Obamacare exchanges).

But conservatives and libertarians recognize that private property rights are at the foundation of individual liberty, and that any just government must be dedicated to protecting the individual’s right to the fruits of his labor.  Treating a legitimate tax deduction as government spending presumes that the government has a right to those fruits by default - that we are privileged to retain any such fruits, and the government spends its funds in permitting it.  This confiscatory mindset is foreign to our founding and inconsistent with our nature.

The proposed changes to 401(k) contribution limits are a good example of the threats to economic liberty we face as the revenue hawks continue to scour the tax code for backhanded tax increases.

What is a 401(k) Plan?

The traditional 401(k) plan is a method of tax deferral.  You contribute with pre-tax dollars, the account grows tax-free, and you pay ordinary income tax on the distributions when you retire.  If your employer offers a Roth option, you can contribute with after-tax dollars, and both the gains and distributions will be tax-free.  In 2012, employees can elect to contribute up to $17,000, and the total employer/employee combined contribution limit is $50,000.

What’s Being Proposed?

Forget Tax Returns, Just Focus on Taxes

There’s been a lot of nonsense lately over Mitt Romney’s tax returns, with Barack Obama’s “truth team” claiming on Twitter that since Obama has released his forms for the past decade, he is better suited to lead this country. Debbie Wasserman-Schultz, chairwoman of the Democratic National Committee, has called for them while refusing to give out her own. But she isn’t the only one. From Politico:

Over the past three months, McClatchy Newspapers asked all 535 members of the House and Senate to release their tax records. Only 17 — or just over 3 percent — handed over the documents. Another 19 percent said they wouldn’t release them. The remainder didn’t respond to McClatchy’s request.

While members of the executive branch are expected to release their tax records either while running for office or as part of the vetting process for Cabinet appointments, members of Congress aren’t held to the same standard. While they fill out annual disclosures, those forms aren’t as detailed as a tax return.

Free Advice for Mitt Romney

Mitt Romney will be the Republican nominee, unless he’s caught with a dead, Muslim, illegal immigrant boy. He will have the difficult task of facing Barack Obama in November. It is no secret that I have my differences with Governor Romney, however for the sake of wanting Barack Obama gone in November, I would like to offer him some free advice.

First thing you need to do Mitt is shut up about the sports team owners you know. We know you’re rich and successful in business, but the problem is, Obama is sending out his class warfare zombies in droves. They will use your success as their best weapon against you. Their goal is to paint you as out of touch with the American people. Also, along those lines, shut up about your dog and his road trip on the roof of your car.

Second piece of advice, be bold on the economy and fiscal policy. Be specific about your proposals and don’t be afraid to defend them. Don’t sugarcoat the fiscal problems we are facing. Propose bold tax reform including a flatter tax with a lot fewer deductions and credits. Eliminate a department or two. Propose real spending cuts and entitlement reform and more importantly, sell it. Outline a free market approach to healthcare as a replacement to Obamacare. Finally, start going after the Federal Reserve by supporting an audit of it.

Third, take a page from the Obama playbook. Set up a version of their “Fight the Smears” web page that they set up in 2008. Eventually Obama and his surrogates will drag the Mormon religion in this race and there needs to be something to address the nonsense they will be putting out.

Fourth, stay out of the social issues trap. The left will try to bring up abortion, gay marriage, birth control, and Lord knows what else to try and change the narrative. Yes, address the issues when they come up but don’t let the media trip up the message. The message needs to be about the economy and jobs first.

The Road To Tax Reform: More Potholes Than I Like

Some panels are off in nowhere, little rooms here and there. Other panels are in giant ballrooms, like the Marshall Ballroom, second largest to the Marriott where all the major speakers are, well, speaking. (Perhaps “blustering” is a better word.) And sometimes, those ballrooms were not full. But then maybe I got there early.

It was certainly an illustrious panel, which explained why it began to fill up shortly after it officially began. It was chaired by Grover Norquist himself, President of Americans for Tax Reforms, and the legendary proponent of the “No New Taxes” Pledge he encouraged (some on the left would say “forced”) politicians to take up. To his right was Lew Uhler , chair of the National Tax Limitation Committee, and to his left were Benjamin Powell of the Independent Institute and Phil Kerpen, Vice President for Policy, of Americans For Prosperity. I went because the subtitle implied there was going to be a debate between supporters of the Flat Tax, Fair Tax, a VAT, and maybe even 9-9-9—and that plan’s author, Rich Lowrie, did show up in the audience. But there really wasn’t any debate on that front.

And let’s face it, what kind of debate can we really have on taxes? Even the left admits that the tax code we have now is horrifically complex, prone to corruption and gaming the system. Though they disagree about “broadening the base and lowering the rates,” I don’t think any sane American, left, right, or center, can look at the miasma we have now and say, “Yeah, it works.” For whom?

There were some interesting points to be made, but ultimately I didn’t think the solutions that Norquist posed during question time were all that good. But let’s focus on the interesting first:

“Let’s Flatten This Joint”

One suspects that the above title might be the new slogan for the Republican Party, with the joint being the Internal Revenue Service’s buildings. Why? Because now Gov. Perry has unveiled a flat tax plan:

 

The code that Perry is proposing would feature a 20% personal income and corporate tax, the elimination of Social Security and capital gains taxes, and the preservation of popular deductions for mortgage interest and charitable giving. Under the “cut, balance, and grow” plan, tax loopholes for corporations would be phased out while the standard exemption for those earning $500,000 or less would be increased to $12,500.

His economic team believes that those changes, combined with deep spending cuts and entitlement reforms including a gradual increase in the retirement age, will encourage so much growth and save families and corporations so much in compliance costs that the budget could be balanced by 2020.

One thing I am glad Perry’s team admits is that the tax, by itself, will not fix our problems. They say “combined with deep spending cuts and entitlement reforms”. That is what we need to fix our problems; however, if we need to have a discussion about tax policy first to get there, then so be it.

Perry’s “Flat” Tax: Good Policy or Hail Mary?

Rick Perry has found himself at the bottom of the second tier after what seemed like a cake walk to the presidency.  But the Rick Perry bankroll has pundits on the ready for the next move upward.  On Monday, Perry tickled the media with a preview of his 20/20 Flat tax.  His overall plan which is named “Cut, Balance and Grow” seems much less catchy, especially if he has his eye on a primetime ABC host slot.

If one were going to summarize the plan, they might suggest that Perry believes in “caps”.  His 20% flat tax is optional, so essentially everyone paying more than 20% currently can move to 20% while everyone paying less can still pay their current rate. It also moves the corporate rate to 20%, kills the death tax, and removes taxes from qualified dividends and capital gains.  The plan also includes capping spending at 18%.  I believe talking about caps on spending as a percentage of GDP are a mistake for the simple fact that if you do this, what are the odds that congress will ever spend less than this amount?  Then again, after what we’ve seen in the last three years, it doesn’t sound half bad.

James Pethokoukis breaks down Perry’s plan over at The American:

—A choice between a new, flat tax rate of 20 percent or their current income tax rate.

—The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.

—Abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.

—Lowers the corporate tax rate to 20 percent—along with a tax holiday for foreign earnings—and moves toward territorial taxation.

Tax Day Tax Reform Ideas

As Americans rush to mail back their tax returns, other Americans are protesting our tax code among other things. Our tax code is overly complicated, creates loopholes for special interests, overburdens Americans, makes American businesses uncompetitive, and is simply unfair to the average American. In addition, nearly 40% of Americans after various deductions and refundable tax credits (ie. welfare payments) are taken into account pay no income tax. The number of nonpaying Americans skyrocketed as a result of policies signed into law by George W. Bush such as the first Porkulus that he signed in 2008. Meanwhile, the nation has racked up a $12 trillion national debt and is running an annual budget deficit in excess of $1 trillion for as long as the eye can see. Clearly something has to be done.

This article will put out five simple but radical ideas to reform our tax code in order to simplify it while increasing revenue. All following dollar amounts should be adjusted for inflation annually unless said otherwise.

1) Create a simple, two-bracket tax system with only three deductions

Dan Mitchell on The Laffer Curve, Tax Progressivity, and Government Revenue. Alternate Headline: Why We Like the Flat Tax

This was originally posted at International Liberty. The follow-up, “Now the White House Wants to Raise Taxes without Congressional Approval!?!?” will be posted here tomorrow.

On the issue of so-called progressive taxation, our left-wing friends have conflicting goals. Some of them want to maximize tax revenue in order to finance ever-bigger government.

But others are much more motivated by a desire to punish success. They want high tax rates on the “rich” even if the government collects less revenue.

Some of them simply pretend there isn’t a conflict, as you might imagine. They childishly assert that the Laffer Curve doesn’t exist and that upper-income taxpayers are fiscal pinatas, capable of generating never-ending amounts of tax revenue.

Conservatives, don’t be fooled: The Value-Added Tax is bad for America

Libertarians are sometimes accused of being unrealistic and impractical because we occasionally talk about unconventional ideas such as competitive currencies and privatized roads.

But having a vision of a free society doesn’t mean we’re incapable of common-sense political calculations.DM VAT Post Image 1

For example, my long-run goal is to dramatically shrink the size and scope of the federal government, both because that’s how the Founding Fathers wanted our system to operate and because our economy will grow much faster if labor and capital are allocated by economic forces rather than political calculations. But in the short run, I’m advocating for incremental progress in the form of modest spending restraint.

Why? Because that’s the best that we can hope for at the moment.

Oklahoma Republican introduces measure to repeal the 16th Amendment

Jim Bridenstine

The Internal Revenue Service (IRS) has come under intense scrutiny this year due to its targeting of the conservative and Tea Party organizations that were trying to apply for tax-exempt status. For many, that scandal highlighted the need to do away with the embattled agency and find a better, less privacy invasive way for the federal government to collect revenue.

Rep. Jim Bridenstine (R-OK) has taken up this cause. He has introduced H.J. Res. 104, a measure to repeal the 16th Amendment of the Constitution, which authorizes the federal government to levy and collect the income tax.

“Viable alternative plans for raising revenue fairly to support constitutionally enumerated functions of the federal government have been proposed. As long as the 16th Amendment is in place and lobbyists dominate Washington, these alternatives will never be considered,” said Bridenstine in a press release.

Bridenstine is a cosponsor to the Fair Tax Act, which would also repeal the 16th Amendment and eliminate the income tax. The “Fair Tax” would establish a 23% national retail sales tax. His office said that his 16th Amendment repeal measure also had support from activists who back the flat tax.

The Oklahoma Republican contends that the current tax system is too complex, unfair, and discourages entrepreneurial spirit of Americans and job creation. He also noted that the time needed for taxpayers to comply with the tax code is burdensome.


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