http://www.newamerica.net/index.cfm?pg=article&DocID=2656

Ted Halstead proposes a change in the way we create taxes in Amercia, specifically mentioned in this article is Social Securitys funding. I am not a big believer in SS, however I am intrigued by the ideas he proposes to reduce the impact on American families and also to help shift the way we apply taxes not just economically but culturally as well.

He proposes a progressive consumption tax as well as creating a pollution tax to replace the payroll tax.

Would you support the proposed changes in the way we tax?

Would you agree with Halstead's assumption that the ideas are good for families as well as "pro-savings, pro-growth, pro-environment, pro-job creation and pro-small business."

At the end of the article Halstead throws out the idea of the strange coalitions such tax changes would bring around......Would that likely occur?

No, He's right about the SS taxes being regressive. But the way to address that is to eliminate the cap. Social Security is a contract with the previous generation that we are honor bound to keep and is one of the most successful examples of a social safety net that we have ever devised.

His "progressive consumption" tax based on the difference between savings and income in excess of $15,000 does not adequately avoid the regressive features of sales taxes as he says. Consider the following.

Joe, income $15,000 savings $0 --- taxes $0
Bob, income $50,000 savings $5000 --- 15% taxes $4,500 i.e 9% of Bob's income.
Bill, income $15,000,000 savings $14,000,000 --- 30% taxes $295,500 i.e. c. 2% of Bill's income

While it avoids taxing Joe who can't pay any taxes anyway, it forces Bob to pay a considerably higher portion of his actual income at a lesser rate. Bill avoids this by not having to spend his personal income on consumptive goods, even though his rate on taxable dollars is twice as high as Bob's.

My solution. 1. Flat tax on all individual income that is above the poverty level for a family of four. The source of income should be irrelevant, wages, inheritance, dividends, whatever. 2. Retain SS but eliminate the cap and limitations on the type of income. 3. Eliminate corporate income taxes. The tax should be paid by the individual stockholders as they receive dividends. Corporate income tax is a double tax. Its cost are either passed on to consumers or withheld indirectly from employee paychecks. (Incidentally, The Bush proposal to eliminate the tax on dividends, addressed the double tax problem, but did so in a nonprogressive way, benefitting the wealthier stockholder at the expense of poorer stockholders).

I agree with Halstead's market-based environmental levies and auctioned emission permits as the best way of reducing pollution while minimizing the economic effects of doing so.



They may be pro-savings but they do not encourage spending of income which creates a market for growth and job creation. In light of Bill and Bob examples I gave, they place a disproportionate share of the tax burden on the middle class who cannot save as large a share of their income as the wealthy.

Yes, I would support a change to the US tax structure because it is too complicated. One major issue with the complication is that it is virtually impossible to actually know how much tax you are paying. It is also difficult to make rationale decisions based on the tax consequences because most people do not have the time or capability to keep up with tax law.

For example, here is a list of all the taxes I know I pay:

1. Income tax
2. Payroll (SS) tax
3. Medicare tax
4. California state income tax
5. Some other CA state tax not clearly identified on my paystub
6. CA state sales tax
7. County property tax
7a, b, etc. Several bonds, levies, and other taxes rolled into property tax
8-10. Various FCC fees and taxes on my cable bill
11-23. Various taxes fees, and surcharges on my phone bill (Fed. sub line charge, number portability svc charge, 911 emergency system, CA high cost fund surcharge A and B, CA teleconnect fund surcharge, universal lifeline phone service surcharge, rate surcharge, state reg. fee, CA relay service and comm fund, fed. universal service fee, federal and local tax)
24-33. Many of the same from above on my cell phone bill.
33-??. There are more I'm sure on pretty much every bill I pay (beyond simple sales tax).

My point is that I support a change to how tax is collected to eliminate this complexity. Let's get rid of all these rubbish taxes and put everything in a single system. That way people could see how much government actually costs and we'd only have to pay the overhead for a single tax collection system (portioned out to various levels of government based on the individual tax rates they set).

As for the structure of this new tax I see only two options which meet the criteria for fairness and simplicity: the flat tax and the consumption sales tax. Both have been proposed in congress many times and either would be an improvement over the current system.

This would make it easy to collect and track taxes, compare the total tax rates in different communities throughout the country, and compute your tax burden. This would address srobert's proposal about eliminating the cap on SS.

Would you support the proposed changes in the way we tax?

While I agree with the author's intent, tax bad things not good things, I would be interested in the details. This statement
has no backing in the story. Since payroll taxes currently account for 1/3 of the income coming in to the feds, exactly how high is this consumption tax? The pollution levies are a great idea IMO, but they are not major fund raisers.

My only real problem is that you still have an income tax, but now you also have a sales tax. Double taxation would be screamed from the Hill top if this were tried. Another minor issue is determining how much is 'saved'. I save all of the time, but I immediately spend a lot of it too.

Would you agree with Halstead's assumption that the ideas are good for families as well as "pro-savings, pro-growth, pro-environment, pro-job creation and pro-small business."

I completely agree that this idea is pro-growth, pro-environment, and pro-job creation. The Payroll taxes are the number one piece of dead weight hanging on the US economy. Without them, everyone taxes home 7.65% more in their paycheck. Without them, every employee that is hired is 7.65% less expensive to hire since the company has to match these taxes. More take home pay = pro-growth, and cheaper labor = more jobs. My question is how do you get the extremists in Washington to go for it?

You're right that the payroll tax is a bad idea and should be abolished, but the following statement you make is incorrect.


This is a commonly mis-understood economic concept: that the portion of the payroll tax paid by the employee and the employer is a measure of how much better of each would be were it repealed.

A first semester course in college economics will explain how it is the relative elasticity of the supply and demand curves for the labor market in question that determine who pays the tax.

When the demand curve is steep relative to the supply curve, consumers pay most of the tax, when the demand curve is relatively flat, sellers pay most of the tax. In a labor market, labor is the commodity, the sellers are the employees, and the consumers are the employers.

Who actually sends the tax in has no impact at all on who pays the brunt on the tax. If the market conditions result in the employer will pay most of the tax the market puts pressure on wages accordingly to make it so. The employer will send in their half according to law, and then end up having to pay their employees more to compensate the employee's for part of their half as well. The opposite could also occur, where the employees end up getting pay cuts, or slower raises, to pay for part of the employer's half, in addition to what's coming out of their check.

The only sure thing about taxes is they increase the cost of the item taxed and cause less of it to be traded. In terms of labor that means unemployment, more expensive labor for corporations and lower wages for employees.

There is no way to cheat economic reality with laws.