Toward a Strong Death Tax

A friend reminded me yesterday that “[t]he estate tax is seen as the most ‘unfair’ federal tax,” as shown in a 2009 Tax Foundation survey, http://www.taxfoundation.org/files/sr166.pdf.  That happens even though only a tiny fraction of people will ever pay it.

As a vehement supporter of death taxes (even with the right wing’s label), I quickly blamed propaganda and said education is the answer.  Let people know not just “you won’t pay it,” but also that it’s not a meaningful disincentive to economic activity.

But an article makes me wonder.  It says that many people deny scientific consensuses despite exposure to scientists’ views:  people base their views of reality on ideology, not science.  If scientists want to educate the public, they should start by listening, Chris Mooney, Washington Post of June 27, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/06/25/AR2010062502158.html?hpid=opinionsbox1.

That propensity to disregard what so-called experts say makes it hard to think education will do the trick.  And taxes aren’t science.  When I got into the tax policy business, one of the first things I learned was, “It’s all theology.”  You can’t convince people that a particular tax policy is right or wrong:  individual values determine everyone’s views.

The article’s thinking might lead tax policy folks to ask citizens where they think revenues should come from.  (Let folks think about the effects of payroll taxes over against those of death taxes.)   Maybe that would work.

American Public Media has a budget simulation exercise online at http://marketplace.publicradio.org/features/budget_hero/.  Its treatment of taxes is primitive; its come-on ignores taxes altogether:  “If you ever wanted to control where your tax dollars go, here’s your chance to decide.”

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Free choice to use tobacco and alcohol — Tax free!

Some go so far as to call for abolition of “differential excise taxes on tobacco, alcohol and entertainment. These kinds of taxes, often called sin taxes, are disrespectful of people’s freely made choices and represent an unwarranted interference with private decision making.”  Roy Cordato, Sales taxes and free choices, (May 25, 2010), http://www.newsobserver.com/2010/05/25/v-print/498695/sales-taxes-and-free-choices.html.  That’s wild.  The full letter is pasted below.

A more mainstream conservative view that is skeptical of excise taxes on specific goods says a tax should be “[n]eutral in its impact on resource allocation decisions” but allows for non-neutrality where there are negative externalities or “spillover effect.”  Joint Economic Committee Study by Richard K. Vedder and Lowell E. Gallaway, Some Underlying Principles of Tax Policy (September 1998), http://www.house.gov/jec/fiscal/tx-grwth/taxpol/taxpol.htm.

Point of View

Sales taxes and free choices

BY ROY CORDATO

Continue reading “Free choice to use tobacco and alcohol — Tax free!”

Why I'm studying a marijuana tax

1. Simplistically, either we adopt a marijuana tax (low hanging fruit) or we go broke because can’t muster the will to make hard choices.  This is a test.

2. For years, I worked for Congress on trying to tax income from intangibles, which is not only hard to measure, it’s hard even to locate (companies like to say it’s in tax havens).   Locating marijuana will be simple unless the tax is so high as to encourage bootlegging.  But once you find it, you can measure it.  Or tax it based on potency.

Fine-tuning gone wild

Some conservative in the 21st century sense finds an easy target for mockery in the UK VAT on the op-ed page of today’s WSJ:

Food for animals creates other problems. If it is “suitable for all breeds” it is taxed, but if “it is held out for sale exclusively for working dogs” it is not, unless, of course, “it is biscuit or meal,” in which case it is taxed.

So dog food for “sheepdog breeds” is taxed, but dog food for “working sheep dogs of any breed” is not; food for greyhounds is taxed, food for “racing greyhounds” is not. This may be the only tax in Britain that favors work over leisure.

I don’t believe much of what the WSJ puts on its op-ed page, but we have to fight a tendency to complicate things too much.

Related parties and the Xilinx case

The recent Xilinx case says:

“Purpose is paramount. The purpose of the regulations is parity between taxpayers in uncontrolled transactions and taxpayers in controlled transactions. The regulations are not to be construed to stultify that purpose. If the standard of arm’s length is trumped by 7(d)(1), the purpose of the statute is frustrated. If Xilinx cannot deduct all its stock option costs, Xilinx does not have tax parity with an independent taxpayer.”  http://www.ca9.uscourts.gov/datastore/opinions/2010/03/22/06-74246.pdf

On the surface, parity between deals involving related parties and deals involving unrelated parties can be achieved by ignoring the relationship.  That line of thinking would lead to the repeal the related party sales rules, because “If Dad cannot deduct his loss on the sale of closely held stock to Son, Dad does not have parity with an independent taxpayer.” But that repeal would not make sense.  Neither does that Xilinx result.

Whatever the Government’s regulations or litigating position may say, a low-taxed subsidiary is not in the position of a contract manufacturer in a world full of contract manufacturers.

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Lists of ways to fix the Federal income tax

People know already how to fix the income tax.  For instance, an unofficial list of loopholes and fixes appears at http://www.taxshelf.org/wiki/Main_Page.  A broader list, a compilation of tax expenditures (not all of which need fixing) by the Joint Committee on Taxation of the U.S. Congress, appears at http://www.jct.gov/publications.html?func=select&id=5.  There is plenty of tax learning to choose from if citizens want a better income tax.