The government's solution to the problem has been to pile one special investment or saving incentive on top of another, creating a complex and unworkable maze of regulations and tax forms. Existing incentives are appallingly uneven.Read more at location 925
Investment incentives severely distort the flow of capital into projects eligible for debt finance. Read more at location 927
Our idea is to start over, throwing away all the present incentives and replacing them with a simple, uniform principle-treating the total amount of investment as an expense in the year it is made.Read more at location 927
Under an income tax, people pay tax once when they earn and save and again when the savings earn a return.Read more at location 936
With expensing, the first tax is abolished. Saving is, in effect, deducted in computing the tax.Read more at location 937
Every owner of rental real estate would be required to fill out the simple business-taxRead more at location 957
consider the common stock of a corporation. The market value of the stock is the capitalization of its future earnings. Because the owners of the stock will receive their earnings after the corporation has paid the business tax, the market capitalizes after-tax earnings. A capital gain occurs when the market perceives that prospective after-tax earnings have risen. When the higher earnings materialize in the future, they will be correspondingly taxed. In a tax system like the current one, with both an income tax and a capital gains tax, there is double taxation. To achieve the goal of taxing all income exactly once, the best answer is to place an airtight tax on the income at the source. With taxation at the source, it is inappropriate and inefficient to tax capital gains that occur at the destination. Read more at location 959
Excluding capital gains on houses makes sense because state and local governments put substantial property taxesRead more at location 967
Banks, insurance companies, and other businesses that bundle services with financial products present a challenge to any tax system.Read more at location 969
The interest the bank pays its depositors would not be taxed under our system.Read more at location 976
But the problem arises in another place-the application of the business tax to the bank itself.Read more at location 976
The solution is to require that banks report the price of the services they provide to depositors.Read more at location 982
difference between the market interest rate and the lower rate that the bank paysRead more at location 982
For example, when the interest rate on Treasury bills is 5 percent and checking accounts are paying 2 percent, the price of the bundled services is the difference, 3 percent of the balance in the account. Line 1 on a bank's Form 2 should include the valuation of all bundled services on this principle. Read more at location 983
Taxation of life insurance companies should follow the same principle-they Read more at location 990
Should the U.S. government try to tax American-owned business operations in other countries?Read more at location 1000
Under the current tax system, foreign operations of U.S. companies are taxed in principle, but the taxpayer receives a credit against U.S. taxes for taxes paid to the country where the business operates.Read more at location 1001
current tax system is based on a confused combination of taxing some income at the origin and some at the destination,Read more at location 1002
Physical presence in the United States is the simple rule that determines whether a purchase or sale is included in taxable revenue or allowable cost.Read more at location 1007
consider a firm that sends parts to Mexico for assembly and brings back the final product for sale in the United States. The value of the parts as they leave here would count as part of the revenue of the firm, and the value of the assembled product when it was returned would be an expense. The firm would not deduct the actual costs of its Mexican assembly plant. Read more at location 1011
Choices about the international location of businesses and employment are influenced by differences in tax rates. The United States, with a low tax rate of 19 percent, would be much the most attractive location among major industrial nations from the point of view of taxation.Read more at location 1018
Improved incentives for work, entrepreneurial activity, and capital formation will substantially raise national output and the standard of living.Read more at location 1074
Is it a giveaway to the rich? Will it destroy the housing market by ending mortgage deductions? Can charitable institutions survive without tax deductions for gifts? Can the flat tax end the federal deficit?Read more at location 1076
The net effect of the flat tax, with marginal rates of 0 and 19 percent, would be to dramatically improve incentives for almost everyone who is economically active. Read more at location 1085
It is true that work incentives for a woman with a well-paid husband are seriously eroded by high tax rates. But so are her husband's incentives. What matters to both of them is how much of any extra dollar of earnings they will keep after taxes.Read more at location 1088
Sheer hours of work make up one of the most important dimensions of productive effort and one that is known to be sensitive to incentives.Read more at location 1090
all groups of workers would respond to the flat tax by raising their work effort.Read more at location 1103
a reasonable projection is an increase of about 4 percent in total hours of workRead more at location 1107
The most important structural bias of the existing system is the double taxation of business income earned in corporations and paid out to shareholders. Double taxation dramatically reduces the incentive to create new businesses in risky lines where debt financing is not available.Read more at location 1115
Public finance economists Alan Auerbach and Laurence Kotlikoff estimate that using a flat-rate consumption tax in place of an income tax would raise the ratio of capital stock to GDP from 5.0 to 6.2. Other economists are less optimistic that correcting the double taxation of saving would provide the resources for this large an increase in investment. But all agree that there would be some favorable effect on capital formation.Read more at location 1120
Tax reform would improve the productivity of capital by directing investment to the most productive uses. Auerbach has demonstrated, in a paper published by the Brookings Institution, that the bias of the current tax system toward equipment and away from structures imposes a small but important burden on the economy. The flat tax would correct this bias. Auerbach estimates that the correction would be equivalent to a 3.2 percent increase in the capital stock. GNP would rise on this account by 0.8 percent. Read more at location 1125
Today's tax system punishes entrepreneurs. Part of the trouble comes from the interest deduction.Read more at location 1130
These people do not like to make loans to new businesses based on great new ideas.Read more at location 1132
Until a response to improved incentives takes place, the lower taxes on some people will have to be made up by higher taxes on others.Read more at location 1153
It will pay for these tax reductions by imposing a sensible tax at a low rate on business income,Read more at location 1157
The current personal and corporate taxes tax wages heavily and business income lightly. The flat tax would reverseRead more at location 1195
flat tax would impose a lower burden on both low earners and high earners. Read more at location 1197
We can't tell if there are any income groups who would pay significantly higher taxes, including the wage taxes they would pay directly and the business taxes they would pay indirectly.Read more at location 1197
Some economists claim that a flat tax inevitably hurts middle-income families,Read more at location 1202
The critics are wrong because they fail to understand how unfair our current tax system is.Read more at location 1204
Their calculations invariably take the adjusted gross incomes reported by taxpayers as if they were their true incomes.Read more at location 1204
They do not consider the option of raising a suitable amount of revenue from business income;Read more at location 1208
instead, they propose to continue the current practice of generating almost all revenue by taxing wages and salaries. By letting business income continue to go virtually untaxed,Read more at location 1208
With the flat tax, borrowers will no longer be so tolerant of interest payments and lenders will no longer be concerned about taxes.Read more at location 1212
One direct piece of evidence is municipal bonds, which yield interest not taxed under the federal income tax.Read more at location 1221
The decline in interest rates brought about by putting interest on an after-tax basis would not by itself change the economy very much.Read more at location 1225
To Ford Motors, contemplating borrowing to finance a modern plant, the attraction of lower rates would be offset by the cost of lost interest deductions.Read more at location 1226
Everyone who hears about the flat tax, with no deductions for interest, worries about its effect on the housing market.Read more at location 1242
As we stressed earlier, our tax reform will immediately lower interest rates.Read more at location 1250
The total effect of reform will depend on the relative strengths of the contending forces-the value of the lost interest deduction against the value of lower interest.Read more at location 1251
So far, we have looked at the way prospective buyers might calculate what value of house they can afford. These calculations are the proximate determinants of house prices. But they have no bearing on the situation of an existing homeowner who has no intention of selling or buying. To the homeowner, loss of the tax deduction would be pure grief. Our transition proposal takes care of the problem of existing mortgages without compromising the principles of the flat tax or diminishing its revenue.Read more at location 1277
Deducting contributions to worthy causes would be a thing of the past under our tax reform.Read more at location 1282
The immediate effect of tax reform may be a small decline in giving. Later, as the economy surges forward under the impetus of improved incentives for productive activity, giving will recover and likely exceed its current levels. Read more at location 1284
No compelling case has ever been made that these worthy undertakings should be financed by anyone but their customers.Read more at location 1292
Tax reform will be a tremendous boon to the economic elite from the start.Read more at location 1293
Major tax cuts in 1981 and 1986 cut the top marginal tax rate from 70 percent to 50 percent and then to 28 percent. As a result, major donors shifted from spending thirty-three-cent dollars to spending fifty-cent and then seventy-two-cent dollars for tax-deductible gifts.Read more at location 1298
the government's outstanding debt would benefit immediately from the lower interest ratesRead more at location 1311
The most important change is that we would spend time thinking about producing goods and services and improving productivity instead of remaining obsessed with exploiting tax-advantaged opportunities.Read more at location 1315
Shouldn't the tax system provide some relief to families with high medical costs? A: Virtually the entire U.S. population is now covered by medical insurance,Read more at location 1345
The medical deduction under the current personal income tax is a source of many abuses, including the deduction of swimming pools and other home improvements that are available only to the wealthy.Read more at location 1346
