The Ryan Budget Plan Tax Edition
Without making a long and boring post about the whole plan, there are some tax positives and negatives about the plan that I just want to hit on.
My biggest problem with the plan is that it doesn’t do anything to fix the expensive and over bearing tax system we have. Believe it or not, when a business (individuals too, just a much smaller portion) is looking for someplace to relocate or to expand, the complexity of the tax system does play a major part in that decision. Keeping our current ‘progressive’ system but lowering rates doesn’t address the problem, a flat tax would be much better, but oh well.
The top bracket would decrease from 35% to 25%. That’s a good thing as many small businesses take advantage of filing as individuals and when money isn’t paid in taxes by individuals it either spent, saved or invested and all of those are good things (being stuffed in a mattress is a good thing too, but don’t worry about that). This is good in another way that you might not consider. Too much dependence on the top earners is dangerous. These people saw their incomes decline by about four times the amount seen in the middle class during the economic downturn, and so a huge bite was taken out of tax revenues. Decreasing the rate reduces that dependence and so increases fiscal security.
A little background: California collects about 50% of all its taxes from the top 1%. That might sound great to the “social justice” minded individuals out there, but led to a massive shortfall in tax receipts. The top 1% took a hit of 16% as opposed to 4% for the general population, during the economic “slump”. A drop of 15% in state spending resulted, how did overtaxing the successful work out for those dependent on the state during hard times? Not well.
The corporate tax rate also decreases from 35% to 25%. One of the biggest effects of doing that is it is leads to higher wages, dividends and lower prices. Remember that corporations don’t have any money of their own, and any tax decreases will go into one or all of those three areas. A corporate tax is just a tax on the employees, shareholders and consumers of the corporation in question. A better thing would be to increase income and capital gains taxes at the expense of a corporate tax.
There are other things too, but that’s the meat and potatoes. An increase in the top bracket is unlikely to bring in any more money to the treasury anyway, so that’s not really an option. Likewise, cuts to the middle and lower tax brackets would only increase dependence on the more volatile incomes of the upper brackets, setting us up for another crash in tax receipts. In other words it’s more likely to result in cuts to social programs, something liberals surely don’t want.
Maybe I’ll make another post if I find something else interesting or depressing about the GOP plan (although it isn’t likely to go anyplace, unfortunately), certainly some of these ideas will find their way into the final product.
ADDITION: I should have said more about why a reduction in the corporate rate is a good thing. Does it occur to people that the price they are paying for good includes, sales tax, corporate tax and their own income tax? The sooner people realize that the corporate income tax is just a way of taxing them without them seeing the money go, the sooner people will stop whining about businesses not paying their fair share. Which is of course zero, you just have a bigger share yourself for buying their products.