Drake v Nye: restructure federal tax system?

With the extended deadline for income taxes coming in just two days, it was appropriate – for me, at least – that today’s question posed to the candidates in the 2nd Congressional District by The Virginian Pilot focused on how they would restructure the federal tax system.

(As an aside, locating the article online us a bit like the federal tax code: a maze through which you must navigate lots of places in order to find the answer you are looking for. I expected to find article linked on the special page PilotOnline has set up for news about the House races. Not there. I searched using the candidates’ names. No dice. Finally, I searched using the exact title of the article as it appeared in the newspaper. That was the only way I could locate it.)

As I’ve heard her say on a number of occasions, incumbent Republican Thelma Drake is an advocate for a flat tax system.

Congress should enact a flat tax with a rate around 20 percent of income. There are several plans, but most of them eliminate deductions and put an end to the double taxation of income that is saved and invested. Personal exemption and dependent deductions would be dramatically raised so that low-income Americans would pay little or no income taxes. Americans could complete their 10 -line tax form online or on a postcard and pay their taxes in minutes, not hours or days.

One thing about the flat tax: it sounds good on paper. The devil is in the details. I’m not going to waste what little bit of energy I have today to go into them; suffice it to say, I’m no fan. However, I do believe that the code should be simpler, although given that the very first income tax returns that were filed in 1913 were 4 pages long (including two pages of instructions), I seriously doubt we will get to a postcard-sized tax return.

Allow me, though, to address one thing in Drake’s op ed:

The federal corporate tax rate of 35 percent is the second highest in the industrialized world.

This makes it sound as if the all corporations pay 35% on their profits, which is just not true. The 35% rate only applies to profits in excess of $10 million. Like the personal income tax, the federal corporate income tax is a graduated rate. (Strangely enough, taxable income of $15 mil to $18.3 mil is taxed at 38% and the the rate drops back down to 35% for amounts over that.)

Challenger Glenn Nye also wants a simplified tax system.

For the long term, we should shape our tax code to reflect our American priorities, in particular, strengthening middle-class families and supporting small businesses. I would work for a bipartisan solution to repeal the Alternative Minimum Tax, which threatens millions more families every year. I would push for tax credits for middle class families so they can afford college for their children and the significant increases in the cost of living that they are facing.

AMT is in the code for a reason. What should have happened with AMT was that it be, like other parts of the tax code, indexed for inflation. Why Congress keeps taking an annual band-aid approach to this easily solvable problem is beyond me.  It’s not as if they don’t have other things to do.

Although I’ve heard him say it before, I am disappointed with this Nye position:

In a crisis, we simply cannot afford to take more capital out of our economic system. For that reason, I would vote to extend the Bush tax cuts for all Americans and oppose an increase in the capital gains tax to spur the economic investment we need.

Part of the reason for the mess that we are in, particularly the size of our deficit, is related to the Bush tax cuts. And those cuts do little or nothing for small businesses and middle class families. Finally, there is no way that we keep the Bush tax cuts and provide tax credits for the middle class.

Tomorrow’s final question is on Iraq and American’s obligation to the the Iraqi people.

31 thoughts on “Drake v Nye: restructure federal tax system?

  1. Thank you. I’m surprised you could not just say, “an ESOP is treated as a single-shareholder for the purposes of qualifying as an S Corp.”

    Your source which says,

    the US is actually a corporate tax haven, with the lowest effective corporate tax rates of almost all the countries that participate in the OECD.

    does not provide any references. This says that we are #2 at a 40% effective rate, with Japan #1 at 40.7%.

    This is the 2006 report, also showing the U.S. at a 40% effective corporate tax rate.

    This article shows the US at #2 in both 200 and 2006.

    This GAO report, released this year, also puts the U.S. at #2, according to “Chennells and Griffith, average over 1990-1994” (Appendix IV, Figure 10).

    So, I don’t know where your source was getting it’s information, but I’d sure love to see it.

    (Yeah, I know this has a lot of links and will get stuck in the spam filter for a while, but I like to back up what I write with references. Too long the researcher, I suppose.)

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