Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

TAX UPDATE AS TAX DICTATOR

July 27, 2007

The blogger at Asymmetrical Information who styles himself as "Mindles H. Dreck" has a fine idea:

1) The core of my proposal is to make cash dividends tax-deductible to the paying entity in exchange for eliminating the preferred treatment of dividends and capital gains to individuals. All dividend and capital gains income would be taxed at the current marginal rate. However,

2)In order to continue investment incentives of the current structure, lower the corporate tax rate to 15%, but dramatically simplify the corporate tax code by eliminating special timing differences. Capital expenditures should be 100% deductible.

3) Make all forms of compensation and benefits other than ERISA plans taxable to the recipient.

Mr. Dreck's plan has several elements of the plan I would impose were I Tax Dictator. I too would make dividends deductible, but dividends paid to non-profits would be subject to an excise tax withheld at the source, so that all business income would at least be taxed once. Fair's fair.

I would only lower the top corporate rate to 15% if that's where the top individual rate was - and as your Tax Dictator, I pledge to do so! Kiss all your deductions goodbye, though. No state tax deduction, no mortgage interest deduction, no charitable deduction. No research credits, no rehab credits, no economic development credits. Oh, and no AMT.

15% would also be the bottom rate, by the way, for everyone, once income exceeds my benevolently generous dictated exemption. Having the same rate all around simplifies life by eliminating incentives to shift income around, or to multiply taxable entities to take advantage of lower rates.

I'm not sure what Mr. Dreck means by his third proposal. Is he talking about deferred comp? Or tax-free fringes, like medical plans? My dictatorship wouldn't much worry about deferred comp, because deferred income to an employee is also deferred expense to an employer. But there would be no more tax-free fringes. You can buy health insurance yourself, or your employer can buy it for you, but you will pay the same tax.

And capital expensing? Only if it doesn't get in the way of my low-rate crusade. If I can get rates down to 15%, businesses can live with keeping depreciation schedules.

Less progressive? Steeply progressive taxes don't keep the rich from getting richer; they just create an industry of financial engineers to game the system. If all those smart people were busy doing something useful instead, the world would surely be a better place.

      Bookmark: del.icio.us • Digg • reddit