From: david.lloyd-jones@rose.uucp (david lloyd-jones)
Subject: Jerry's Tax (was Tax
Organization: Rose Media Inc, Toronto, Ontario.
Date: Mon, 6 Apr 1992 10:57:32 GMT
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Date Entered: 04-05-92 10:14
REplying to: nelson_p@apollo.hp.com
NE>Subject: Re: Jerry's Tax (was Tax simplification)



NE>  The correct solution is to phase out the mortgage interest
NE>  deduction.   This is the nation's biggest example of a tax
NE>  break for the well-off.  In my tax bracket my mortgage is
NE>  worth about $650 cash-in-my-pocket every month, courtesy
NE>  of the US government, while a close relative of mine
NE>  raising 4 young children in North Carolina with a husband
NE>  in jail, gets $328 / month from AFDC.

           paragraph skipped

NE>  Of course, while middle-class people may object to welfare
NE>  for the poor, they know a good deal for themselves when
NE>  they see one.   We'll see a cut in that deduction about
NE>  the same year the Devil dons ice skates to make the rounds
NE>  of his domain.


Peter,

You make a good and important point here.

There are two generic categories of taxes in the Canadian system which
promote genuine progressiveness in taxation: clawbacks, and refundable
tax credits.  (Because hockey is Canada's national sport, perhaps the
Devil does skate up here...)

A clawback is a tax which taxes away a benefit, say the baby bonus, from
people with above-average incomes.  As a class, clawbacks are the answer
to the question "Why should we pay such-and-such to everybody when only
the poor really need it?"

A refundable tax credit is a tax "reduction" which you get paid in cash
if the reduction is larger than your taxes paid.  These are the answer
to the criticism that tax loopholes are worth more to the rich than to
the poor because the rich deduct from a higher marginal rate.

Conceptually a refundable tax credit is not terribly different in
principle from a negative income tax, except that it is usually tied to
a particular program, e.g. refunding the tax portion of housing rent
paid by the poor, rather than to overall income.

The general background here is that income taxes are inherently
regressive (they tax paycheques, and paycheque income drops in salience
as income rises) -- and "progressive" tax rates empirically get flat
results: tax rates are very slightly higher for top and bottom deciles,
and tend to be a good chunk lower for the ninth or uppper professional
decile.  Individual mileage varies of course, but across the whole of
any income-taxed society these are the group results.

Thus a tax system which encourages social equality will probably be one
which taxes consumption, and rebates tax paid by the poor.  Consumption,
unlike income, is easily defined and hard to hide.  Rich people consume
more than do the poor, though it is important to remember that the
consumption of the rich is much more in the form of services than is
that of the poor: lawyers, accountants, catering services, etc. etc.
Thus a consumption tax has to be a goods and services or "value added"
tax, not an excise tax on physical things.

                               Cheers,

                                        -dlj.
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