Tuesday, November 27, 2012

A new tax bubble?

One idea reportedly being floated in DC is to hold the top rate at 35%, but tax the "rich" at a flat rate of 35%, so they don't get the benefit of the lower tax brackets.  Sound like a win for both sides?

Personally, I hate the idea.  It makes the tax code less transparent, or as I would put it, more dishonest. To implement this idea you have to add hidden, temporary tax brackets above the 35% tax rate.  These are known as "tax bubbles."

Nate Silver does a good job of explaining the mechanics, and if you read it, I think you'll agree with me. 

The more I think about it, the more I like the new Buffett proposal.  It actually applies to those who are making the most money, unlike the tax bubbles.  I don't think it would raise much money, or close the deficit, but it could allow the political focus to shift to getting spending under control.

Here's another great idea: a lifetime cap on the charitable deduction of $1 million.  I resent how Buffett has all these recommendation for everyone else's taxes, while he's sheltered his huge fortune from participation.  His philanthropy ought to be as nondeductible as my purchases of food and fuel.

Even better, eliminate the charitable deduction entirely, and end the nonprofit status of rich foundations and endowments.  I'll know that the politicians are serious about taxing the truly rich when they move in this direction.

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