So… What Is the Ideal Tax Structure

 

Hey, Ricochetti.

As a life-long conservative, I have adopted a general disdain for pretty much all taxes. I cringe at the Progressives’ reflexive call for “taxing the rich” and “making the rich pay their fair share.” I experience a reasonable amount of irritation and anger at the seemingly endless list of taxes we encounter throughout modern American society.

But… I’m no dummy. I understand that we need to have taxes… right? We need to have some form of public funding for public activity.

Is there any kind of consensus in the Conservative ranks about an “ideal tax structure?”

It seems the only thing we Conservatives do is shout, “cut taxes”. But, there’s no coherence. No Plan that can be rallied around and put up as a real antidote to the Progressives’ constant-encroachment strategy.

I know a little bit about the Fair Tax — seems reasonable, but it’s so different as to be (IMHO) entirely impractical. The Flat Tax is pretty straightforward. But… what about all the minutiae? Taxing gas, property, inheritance, gifts, lottery windfalls, luxury goods, hotels, telephone service, mobile service, capital gains, child-tax credits, homestead credits, etc, etc, ad nauseam.

Or, can anyone recommend a good book that lays out some logical structure. I don’t really want to say, “tell me what to think”… but, at the same time, I do not know what to think about the utility or wisdom of any of these taxes. And, it would seem, if we (Conservatives) don’t develop some vocabulary… and massage that vocabulary into clear action… we will forever be relegated to the outskirts of the conversation, shouting “cut taxes!”

Any input would be much appreciated.

Published in Finance
This post was promoted to the Main Feed by a Ricochet Editor at the recommendation of Ricochet members. Like this post? Want to comment? Join Ricochet’s community of conservatives and be part of the conversation. Join Ricochet for Free.

There are 68 comments.

Become a member to join the conversation. Or sign in if you're already a member.
  1. Bob Armstrong Thatcher
    Bob Armstrong
    @BobArmstrong

    Miffed White Male (View Comment):

    Flicker (View Comment):

    Miffed White Male (View Comment):

    Doug Kimball (View Comment):
    limit the inherited step-up in basis for assets transferred via trust or in probate but upon disposition, allow the inflation factor from the year the assets were initially acquired by the trust or donor.

    Never!

    A few years ago I spent DAYS going through the records for ONE of my IRAs that dates back to 1986, trying to figure out what my cost basis was. The account had in various iterations gone through at least six different financial institutions, multiple funds, sometimes with dividend reinvestment, sometimes without, uneven annual contributions, and a partial Roth Conversion. Even within a single financial institution, funds were substituted for others, sometimes by choice, sometimes not. Every one of those fund changes further obscured the actual cost basis. I knew where to dig through various file folders to find all the different records, and I’m still not confident I came up with the correct figures.

    Now have a relative of mine try to find and reconcile all that after I die suddenly, who does not have the memory I have of some of the transactions.

    The step-up in basis makes it easy and more importantly, accurate. You’ve got an easily discoverable figure on a distinct date.

    I see your point. But I am all for taxing unrealized gains. Otherwise that money would just be sitting there untaxed. And if your value goes down they’d entirely miss the opportunity to tax it.

    Well we certainly can’t have anything sit around untaxed. The horror!

    Unfortunately, the logical [governmental] conclusion will be that the assumed cost basis is 0 and the entirety of the inheritance is subject to tax. After all, the “cost” to the person inheriting it is zero, right?

    If it was an IRA as stated, the cost basis is irrelevant as distributions are considered ordinary income rather than capital gain, and it won’t receive an inheritance step-up.

    • #61
  2. Audacious Member
    Audacious
    @Audacious

    In order of distructiveness:

    Consumption taxes are least destructive. Since income derives from work or investment, income taxes are destructive of work and saving, the more progressive the income tax, the more destructive.  Since the sole source of rising living standards is higher productivity which comes from adding capital to labor, taxes on capital are most destructive.  Taxes on capital gains are the least destructive of taxes on capital, but have the added disadvantage of inhibiting the flow of capital to new projects.  Taxes on unrealized capital gains, wealth taxes and estate taxes are absolutely destructive.

    A national sales tax with a generous rebate (say, 15,000 for a single person, 25,000 for a committed couple, and 5,000 per child) makes the most sense, but probably too much of a stretch culturally.  I did think that Herman Cain’s 9/9/9 was interesting.

    • #62
  3. GlenEisenhardt Member
    GlenEisenhardt
    @

    I don’t care what the tax rate is or corporate tax rate. Most of the rich and corporations are left wing. Let them pay high taxes and stop talking about wanting to pay high taxes. I don’t want to fight for them anymore. They do nothing good with the money anyways. The one thing I do want is to simplify the tax code. If we need to raise taxes heavily on billionaires to get a very simple tax code I am fine with it. It should be so simple that the IRS does not need to audit anyone anymore. And they should actually be turned into the INTERNAL revenue service and spend all their time auditing the government and government spending. 

    • #63
  4. CJinMadison Member
    CJinMadison
    @CJinMadison

    Jon Gabriel, Ed. (View Comment):

    Pure Flat Tax via constitutional amendment, top limit of 10%. No deductions. You make $20K/year, you pay $2K maximum. $1 million/year, $100,000 max. Revenue trickery obliterated, no tax-based social engineering, no behavioral incentives, no special interest cutouts or sweetheart deals. Many lobbyists, lawyers, and CPAs look for new jobs. (Of course, this will never happen, but everyone would pay “their fair share.”)


    @Jon Gabriel

    Jon freakin’ Gabriel replied to my post! How cool is that! Huge fan, Jon. Thx for all you do for Richochet.

    • #64
  5. Miffed White Male Member
    Miffed White Male
    @MiffedWhiteMale

    Bob Armstrong (View Comment):

    Miffed White Male (View Comment):

    Flicker (View Comment):

    Miffed White Male (View Comment):

    Doug Kimball (View Comment):
    limit the inherited step-up in basis for assets transferred via trust or in probate but upon disposition, allow the inflation factor from the year the assets were initially acquired by the trust or donor.

    Never!

    A few years ago I spent DAYS going through the records for ONE of my IRAs that dates back to 1986, trying to figure out what my cost basis was. The account had in various iterations gone through at least six different financial institutions, multiple funds, sometimes with dividend reinvestment, sometimes without, uneven annual contributions, and a partial Roth Conversion. Even within a single financial institution, funds were substituted for others, sometimes by choice, sometimes not. Every one of those fund changes further obscured the actual cost basis. I knew where to dig through various file folders to find all the different records, and I’m still not confident I came up with the correct figures.

    Now have a relative of mine try to find and reconcile all that after I die suddenly, who does not have the memory I have of some of the transactions.

    The step-up in basis makes it easy and more importantly, accurate. You’ve got an easily discoverable figure on a distinct date.

    I see your point. But I am all for taxing unrealized gains. Otherwise that money would just be sitting there untaxed. And if your value goes down they’d entirely miss the opportunity to tax it.

    Well we certainly can’t have anything sit around untaxed. The horror!

    Unfortunately, the logical [governmental] conclusion will be that the assumed cost basis is 0 and the entirety of the inheritance is subject to tax. After all, the “cost” to the person inheriting it is zero, right?

    If it was an IRA as stated, the cost basis is irrelevant as distributions are considered ordinary income rather than capital gain, and it won’t receive an inheritance step-up.

    Similar things can happen  with taxable accounts.  Let me tell you about the $400 worth of First Wisconsin stock my dad bought in my name in 1972 when I was 10.

    At some point, I have no idea exactly when, sometime in the late 1970s I enrolled in the Dividend Reinvestment plan, but I have no records from that period.  The bank was sold/merged/taken over at least twice that I remember, it’s now US Bank.    Along with multiple stock splits, I have sold off blocks of stock at least twice, and declared some level of cost basis to calculate the taxable gain on my taxes each time.    Today the market value of my remaining stock in US Bank is around $20,000, and my basis is at best a calculated guess.

     

    • #65
  6. Stad Coolidge
    Stad
    @Stad

    Audacious (View Comment):

    In order of distructiveness:

    Consumption taxes are least destructive. Since income derives from work or investment, income taxes are destructive of work and saving, the more progressive the income tax, the more destructive. Since the sole source of rising living standards is higher productivity which comes from adding capital to labor, taxes on capital are most destructive. Taxes on capital gains are the least destructive of taxes on capital, but have the added disadvantage of inhibiting the flow of capital to new projects. Taxes on unrealized capital gains, wealth taxes and estate taxes are absolutely destructive.

    A national sales tax with a generous rebate (say, 15,000 for a single person, 25,000 for a committed couple, and 5,000 per child) makes the most sense, but probably too much of a stretch culturally. I did think that Herman Cain’s 9/9/9 was interesting.

    The thing I like best about the Fair Tax is that it gets the government out of the business of knowing how I make my money.  It also gets me out of having to swear every year that my taxes are correct, and proving that I’m not lying if they question what I provide.  I don’t feel comfortable signing the form even though we have a CPA do our taxes . . .

    • #66
  7. dukenaltum Inactive
    dukenaltum
    @dukenaltum

    I don’t really care how the government gets the revenue if all levels of government spending (Local, State and Federal) are limited to 3% or lower of total GDP and all people contribute to it.  The current corrupt system of borrowing, government bonds and creative funding by asset forfeiture would be illegal in this ideal system.  Privatization of most current government activities would be the standard with the sale of all property owned by all levels of government not specifically used for the operation of government e.g. Town Halls, Court houses and Prisons.

    The sale and development of the unproductive National Park System would produce both immediate revenue and economic growth.

     

    America does not have a tax problem it has a spending problem.   Limiting spending is the one solution that no one wishes to embrace.

    • #67
  8. TBA Coolidge
    TBA
    @RobtGilsdorf

    DonG (CAGW is a hoax) (View Comment):

    The trick is to make a tax system that cannot be corrupted by Congress.

    lol, stahp, you’re killin’ me! 

    • #68
Become a member to join the conversation. Or sign in if you're already a member.