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Bruce Bartlett and Jon Stewart Talk Tax Reform

February 23rd, 2012 . by economistmom

From last night’s Daily Show; a great promo for Bruce’s great new book–but also a great promo for tax economists.  Kind of makes us look appealingly dweeby, doesn’t it?!

4 Responses to “Bruce Bartlett and Jon Stewart Talk Tax Reform”

  1. comment number 1 by: AMTbuff

    Bartlett favors equal tax rates on capital gains and wages. That fairness is very pricey.

    Bartlett has referred to the 2009 paper by economists Mathias Trabandt and Harald Uhlig at http://www.ecb.int/pub/pdf/scpwps/ecbwp1174.pdf

    This paper shows that marginal rates can go up to 63% before revenue peaks. Capital income tax rates are a very different story.

    Figure 6 toward the back of that paper shows the Laffer curve for capital income. It shows a revenue peak at a tax rate of 37% (an after-tax ratio of 0.63). Considering that California taxes capital gains at 10% which is not deductible against the AMT, the combined federal and state capital gains tax rate for 2013 will be at 30% not counting the numerous rate bumps due to phase-outs. The revenue at a 30% tax rate is within 2% of its maximum attainable (Laffer peak) value.

    If this analysis is correct further tax increases on capital gains will be fruitless, perhaps even counterproductive. Unlike Bartlett, we need to carefully parse tax proposals so that high-elasticity capital gains are not lumped in with low-elasticity wage income. Unless we are complete ideologues we don’t want to support proposals that cause economic damage and reduce revenue at the same time.

  2. comment number 2 by: Vivian Darkbloom

    Tax dividends and capital gains at ordinary tax rates just like wages?

    The problem with Bruce Bartlett is that he’s a pundit in search of an audience. Having lost one, he’s now in search of another. Until Bartlett lost favor with his conservative friends and got fired from the Hoover Institute, he was all for *eliminating* tax on capital gains and “eliminating* the double taxation of dividends. Hell hath no fury like a woman, or Bruce Bartlett, scorned.

    But, would sticking to those viewpoints get him on the Jon Stewart show? I doubt it, and he knows it, too. And, why didn’t Stewart ask Bartlett about introducing a VAT? I bet that would have gone over big with Stewart’s followers? That would have been quite interesting from the tax policy perspective, but the Stewart show is about politics–not policy.

    Stewart played Bartlett like a fiddle and got the one sound bite from Bartlett that he wanted to pursue Stewart’s political agenda. And, Bartlett willingly played along just so he could bask in the public spotlight for a few minutes: “tax capital gains and dividends just like wages”. This is not appealing dweebiness, it is obsequious opportunism.

    Here’s Bartlett on those subjects, back when he was not an appealing, but at least an honest dweeb:

    http://www.forbes.com/2009/03/12/obama-capital-gains-treasury-opinions-columnists-federal-reserve.html

    http://www.ncpa.org/pdfs/st245.pdf

  3. comment number 3 by: Jim Glass

    Bartlett then, via Vivian:

    … this obscure provision of the tax law … recognizes a principle that ought to apply to all taxpayers. That principle is that reinvested capital gains ought not to be taxed; they should be taxed only when consumed.

    The way we tax capital gains now, it is more of a transactions tax than a tax on income, preventing people from being able to diversify their portfolios and leaving them locked into assets on which they have large gains.

    That Bartlett was correct.

    Replacing the income tax with a consumption tax is politically impossible — but there is an easy fix for “capital gains ought not to be taxed; they should be taxed only when consumed”, and to eliminate the “transaction tax” treatment.

    That is, create a tax-deferred super-IRA-type investment account to hold investment funds in any, unlimited, amount. As long as funds stay invested in it they are tax free, including capital gains and dividends received in and reinvested thru the account. The account cannot be borrowed from, serve as security for borrowing, or be used in any other way. Any funds that are withdrawn from it and which thus become available for consumption are fully taxable at ordinary rates — all special tax rates for capital gains and dividends are repealed.

    This is not a new idea. Many observers have noted that such an account effectively would turn the current income tax into a progressive consumption tax. Warren Buffett’s tax rate shoots up above his secretary’s while he still keeps 99+% of his billions as untaxed as ever, so everybody’s happy. And except for the “unlimited” amount, this is pretty much how IRAs have worked for a long time, so we know it is institutionally do-able.

    And unless our politics have become utterly paralyzed it might even be politically do-able as there is some “give” on each side and there is a clear, fair justification that reasonable people can appreciate. The left gets the elimination of favorable tax rates for the rich, the right gets tax-free treatment for capital investment that builds a stronger nation for the future (which is what it always says it wants) as long as it really *is* capital investment that builds a stronger nation for the future (not a favorable transaction tax rate on liquidating the investments of Barron Hilton to pay for the good times of Paris.)

  4. comment number 4 by: Vivian Darkbloom

    Interesting idea, Jim Glass, and elegantly simple. I would presume the Super IRA would be subject to income tax, as normal IRA’s are, in the hands of estate beneficiaries? The devil is, of course, in the details. I don’t think it would be too long before legislation would be passed to allow borrowing against these assets to, say, purchase a house, pay education expenses, medical expenses, etc., etc. Alas, any good idea is susceptible to corruption by subsequent politics.

    I find it curious how, in the space of three years, Bartlett could go from advocating the elimination tax on capital investments to tripling the current rate of those taxes on dividends and capital gains. I wrote earlier about the “Hoover Institute” but, of course, Bartlett was previously associated with the National Center For Policy Analysis, among other conservative think tanks. For some reason, I must have been reminded of the depression. His “conversion” more or less coincides with his messy split with the NCPA.