Archive for May, 2011

The Rich Get Richer…and So Do the Poor!

From Matt Ridley:

Today, of Americans officially designated as ‘poor’, 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 per cent air conditioning. Cornelius Vanderbilt had none of these.

Categories: Uncategorized

What Makes Taxation Progressive?

That question, and who corporate taxes hurt the most, are interesting topics of this article by Laurence Kotilkoff:

Progessivity depends on average, not marginal taxes. Take TwoGuys, a country comprising Joe Rich and Harry Poor. Joe makes $5 million a year and pays $2 million in taxes. Harry makes $50,000 and pays $5,000 in taxes. Joe’s average tax rate is 40 percent; Harry’s is 10 percent. This outcome is progressive — average tax rates rise with income. But, I forgot to mention, in TwoGuys, people earning more than $3.5 million face no extra tax; that is, the top rate is zero.

Conclusion: you can simultaneously lower the top rate and make the system more progressive.

Categories: Tax Policy

Taxing The Way You Like It (Or Hate It Least)

Economists Laurence Kotlikoff and Andrew Weiss come up with a plan to let people chose the way the government taxes them: on income or consumption.

We propose a tax reform — and Lord knows we need one — that recognizes this equivalence. Our plan taxes all retail sales at a 17.5 percent rate. But if you don’t want to pay the retail sales tax, you can pay, up front, a 15 percent tax on your wages and wealth. Every dollar of tax you pay up front gives you an electronic sales-tax credit, for use when shopping, which exempts $1 of consumption from the 17.5 percent retail sales tax. Unused credits grow with interest, so you aren’t penalized by waiting to spend.

As with all tax reform ideas that seem to have any promise of actually altering incentives in a positive way (a flat tax, for example), I fear the greatest resistance won’t come from people with a better idea, but from those with so much invested in keeping things the way they are.

Categories: Tax Policy