Tuesday, March 3, 2009

How Do I Tax Thee? Let Me Count the Ways

In his FY 2010 budget President Obama set forth an agenda of higher taxes on the top 2% of income-earning households to fund tax and spending benefits for low- and middle-income households. Among others, it includes restoring the higher 36% and 39.6% rates of the Clinton years, increasing capital gains tax rates, and limiting the tax benefits of itemized deductions to 28%. Future increases include imposing social security taxes on annual wages and salaries exceeding $250,000.

These increases are likely to fall short of the funds needed to pay for Obama’s health reform, provide refundable tax credits for low-and middle-income households, and reduce estimated annual trillion dollar deficits to around $500 billion in 2012.

If Obama needs still more money, what is left to tax?

(1) H.R. 1068 introduced by Representative DeFazio and seven others on February 13, 2009, referred to the Committee on Ways and Means, would impose a tax on certain securities transactions. Cited as the “Let Wall Street Pay for Wall Street’s Bailout Act of 2009,” a quarter percent (0.25%) tax on the sale and purchase of financial instruments such as stock, options, and futures, could raise $150 billion a year.

(2) “Stop Tax Haven Abuse Act,” introduced on March 2, 2009, by Senator Carl Levin and three others, with a counterpart bill introduced in the House, targets the use of tax havens by American residents to avoid federal income taxes. Levin estimates that offshore tax abuses cost the Treasury an estimated $100 billion a year in lost revenue, of which $40-70 billion is from individuals and $30-60 billion from corporations.

(3) A modest wealth tax on households with substantial assets—the top 1% of the population controls in the neighborhood of 40% of the nation’s wealth—could collect several hundred billion dollars.

(4) A stamp tax, a commonly-applied levy in current and former British-dependent territories, could be applied to a wide variety of public documents, from property deeds to newspapers to checks to playing cards. The Stamp Act of 1765 imposed by the British Parliament on its 13 American colonies levied stamp tax on 55 separate kinds of documents with applicable rates.

(5) A small value-added tax (VAT) on consumption (the tax equivalent of a national retail sales tax but with better enforcement provisions) could raise hundreds of billions of dollars.

“Thoughtful Ideas” does not advocate any of these measures. Nonetheless, taxpayers should not regard them as hair-brained schemes with no to little likelihood of enactment. The power to tax is limited only by the imagination of the taxing authorities.

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