Why Democrats' tax plans are such a mess | The Economist - 0 views
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0E BIDEN promised to pay for his big social-spending proposals by raising taxes on the rich and nobody else.
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predicting that they would soon reach a compromise on a social-spending bill that would pass in both the House of Representatives and the Senate, where they cannot afford a single dissenting vote in their ranks.
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desire for higher tax revenues without higher tax rates has left Democrats scrambling to make deep changes to how some levies work
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new minimum tax on the biggest corporations’ accounting profits, which can exceed those declared to the tax authorities.
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a reform to the federal capital-gains tax that is designed to ensnare the ultra-rich. It would tax them annually on the paper gains of their investment portfolios, rather than when assets are sold, as under the current system
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A tax on the book profits of companies would outsource tax rules to unaccountable accounting bodies, reduce the efficacy of desirable tax deductions for investment and, by interfering with the ability to carry forward losses, play havoc with firms whose profits are volatile.
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The “mark-to-market” capital gains tax is a messy attempt to rapidly extract enormous amounts from a tiny number of the very rich
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That would ultimately be bad for investment and the incentive to innovate, and would get in the way of the widespread ownership of equities.
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straightforward result of their fragile control of Congress and the idiosyncrasies of two of their senators
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abolishing the egregious exemption that resets accrued capital gains to zero when owners die and pass on their estates.
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Taxing capital gains at death, as Mr Biden first proposed, would raise more than $200bn over a decade—not far off the “several hundred billion” Democrats say the tax on investment portfolios would yield
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also preserved the carried-interest loophole, which lets investment managers class their fees as lightly taxed capital gains, not income.
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lifting the cap on an exemption from federally taxable income of money used to pay state and local taxes. Doing that would benefit the wealthy, narrow the tax base and subsidise high-tax states.
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Mr Biden ignored the example of Europe. Its social spending is funded using broad-based and efficient taxes, most notably value-added tax, a levy on consumption
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unfriendly to economic growth to begin with. Narrowing the target further—the capital-gains reform would apply only to billionaires and those with more than $100m in annual income sustained over three years
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this tax would apply only to securities traded on public markets, with different rules for stakes in privately held firms, it would deter entrepreneurs from floating their companies on the stock exchange.
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Democrats have pretended that raising taxes on businesses would have no negative effect on wages, contrary to the overwhelming consensus among economists.
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The failure to agree on a tax plan carries echoes of doomed Republican attempts, under Donald Trump, to “repeal and replace” the Obamacare health-insurance system.
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Democrats will have to confront the fact that permanently expanding the welfare state without damaging the economy means winning an argument for higher taxes, rather than always telling voters that some rich person will pay.