Trump to date has largely attacked likely GOP 2024 POTUS rival FL Gov, Ron DeSantis on 2 policy grounds: entitlement reform and tax reform, which the latter supported as a congressman last decade. Notice that neither reform actually passed and were more symbolic in nature {"This being Congress, votes often take place for messaging bills that stand little chance of becoming law"); even more telling was WaPo Kessler headline: "Pro-Trump ads attack DeSantis for policies Trump once also embraced".("All the votes [Trumps ads have focused on] were on nonbinding budget resolutions that never become law but are used to shape fiscal policy. Even if those resolutions are adopted, as some were, they cannot alter Social Security or Medicare on their own.") Never mind the hypocrisy of Trump taking credit for a tax bill that DeSantis himself voted for.
I've written numerous tweets and/or posts on unsustainable senior entitlement reforms. We have a consolidating group of workers supporting a growing number of current beneficiaries through payroll taxes, people sometimes living decades in retirement. Both reserve funds supplementing payroll taxes are within a decade of exhaustion. Most politicians are reluctant to discuss the 15.3% (split) payroll tax. So politicians have talked about some ways to manage costs in terms of things like deferments, means-testing, COLA adjustments, etc. Nobody is really talking about cuts in benefits to existing retirees. So, Trump is hoping to scare off older voters through misleading references.
One thing is for sure: Trump never proposed a long overdue reform; no one has tried it since George W. Bush crash and burned In fact, Trump wanted a payroll tax holiday during the pandemic (and failed), which would have hastened the day of reckoning. I still think at minimum for Medicare needs to be addressed because it faces a funding problem in 2028 according to the entitlement actuaries.
In terms of income, let's start with a classic definition: the so–called Haig–Simons or comprehensive definition of income.
HS A person’s annual income is the value of what she could consume in that year, while keeping her wealth constant.
A simple example: suppose my assets/wealth at the beginning of the year are a paid off $300K house. I earn $70K. I spend $50K, save the rest, and my house is now worth $330K My HS consumption/income =$70K+30K house appreciation=$100K, not the actual consumption. I could have cleared $30K to spend by selling my house, while maintaining my initial net worth.
The are all sorts of complications relevant to our tax system. Employer benefits are fungible and really part of our income; the tax-free nature of employer healthcare id also part of our income.
Now the HS income concept explains why Cherokee Lizzie and others propose a wealth tax and you hear bogus numbers like an 8% tax rate on the wealthy. In our tax system we do treat capital gains as income but only when the asset is sold. The leftists want an interim tax revenue flow. There are all sorts of problems with mark-to-market systems, including but not restricted to the difficulty of determining the market value of an illiquid asset and problems in funding tax payments without liquidating assets. The Tax Foundation points out less than a handful of OECD countries have implemented mark-to-market or wealth tax systems. In fact, the existing US income tax system is far more "progressive" and investment taxes higher than many of our European economic rivals. ("Data from the Internal Revenue Service indicates that the top 1 percent of taxpayers paid an average federal income tax rate of 25.4 percent in 2018—seven times higher than the 3.4 percent average rate paid by the bottom half of taxpayers.")
In the above chart, we see consumption taxes play more of a role among our OECD rivals, it's mostly sales taxes in states/localities with some exceptions like excise taxes and tariffs
Economists generally see consumption taxes as more efficient than income tax systems, which have double taxation problems (companies and individuals) and unfair taxation of nominal vs real gains or interest on savings.
Interestingly, it's a Dem Senator Cardin who has promoted a progressive consumption tax, a variation on the FAIR flat tax that Trump is targeting with his "Old McDonald" ads on DeSantis. So how do you make a consumption tax "progressive"? Probably the biggest argument against a flat tais is its regressive, disparate effect on lower-income households which spend most of their income on consumption. There are policy tweaks like category (e.g., food) exclusions and/or prebates.
A couple of points here: one could also have a flat income tax rate (e.g., Russia and a few othera), and the Fair Tax would repeal other taxes (e.g., income, payroll, estate, etc.)
I'm not going to resolve this issue, but Trump, by engaging in Dem-like attacks (never mind I run inro probably at least one leftist Twitter troll daily whining about Trump's "unpaid-for" tax cut), lacks serious leadership on a key issue. Our convoluted tax laws are so complex many people end up hiring tax accountants and/or lawyers, and there are lobbyists who help write ever more incomprehensible,laws defying generality of law. The federal tax system has become an unsustainable Ptolemaic system, crying for a paradigm shift (making a personal favorite Kuhn reference). A large proportion of voters/households pay little if anything into our income tax system.
A consumption tax is far easier to implement, more economically efficient and (with some minor exceptions), largely untapped as a source of federal revenue. The VAT is a popular version of a consumption tax, already adopted in some form in nearly 140 countries. As for regressivity:
Exempting, zero rating, or excluding certain essential consumption goods from the tax base (e.g., foodstuffs, medicine, health care) can reduce the regressivity of a VAT. Giving preferential treatment to particular goods, however, is an inefficient way to make the tax less regressive because high-income households consume more of the goods in question (though less as a share of income) than low-income households do. A better approach is to provide a limited cash payment—that is, a demogrant or a refundable tax credit. That way, everyone receives the same benefit, in dollars, which translates into a larger share of low-income households’ income.
We could vastly simplify our income tax system with a large exemption and make it proportional, i.e., low and flat, exempt interest income, eliminate double taxation, and adjust capital gains for inflation.
