So what prompted this?

In case Wyden forgot, he's up for re-election and giving business anything that could be interpreted as a tax break would seem, ahem, to be a liability in Oregon (probably not in his home district of Manhattan.) Unless you drink the B-O kool-aid where they jcan find some gymnastics to justify it.

Otherwise, it looks like he stirring up the muck which will remain as muck. I kinda wish they would have gotten back to the fad of tax simplification.

Seems like it would make the tax system much more simple, which is a good thing. As a 10% bracket payer, I'm happy to pay more, as I think I should (and because I think lower-income individuals seem to need a kick in the pants to pay attention sometimes). I also think that the larger standard deduction works in exchange for the numerous deductions it does away with. And taxing corporations makes no sense to me at all. Just tax the people who receive the money, either through dividends, salaries, or benefits - done, with no disincentives to doing business. Now, if they'd just get rid of the child care credit, it would be pretty damned responsible.

I'm fine with reducing the corporate income tax and the capital gains tax, as long as Congress also closes ALL the loopholes corporations use to avoid paying their taxes. But of course, they won't.

Wyden's gotta go.

Is there a residency requirement for US Senators? Doesn't Wyden have children that live in N.Y? It's hard to see how he could call Oregon his residence anymore. Congress has too many good ol' boys too. Who's qualified and might work for ALL of us now?

Good for them for putting some ideas out there. Standard operating procedure in D.C. is to ignore huge problems forever, while borrowing huge sums from future generations to treat the symptoms.

Some of the ideas are very interesting. I'm guessing that if the new corporate rates are combined with cutting down on loopholes, then this might actually generate MORE in corporate taxes.

Making people pay taxes on piddly workplace stuff will go nowhere.

Anyway, this will likely get little traction, but it's good of them to try.

Cutting the corporate rate is long overdue. We live in a global economy and the US corp tax rate is the highest in the world. The link below show just how much higher.

Tax Foundation Report

The announcement touts that popular deductions like home mortgage interest and gift to charity will be retained, but it appears that medical, state and local income/sales taxes and property tax will disappear under this bill.

Also there doesn't seem to be any provision for a deduction for casualty and theft losses.

This said, I'm all for tax simplification when and where it makes sense. But there are some parts of this bill that add, if not complexity, an additional burden on businesses.

One additional burden is the provision that would disallow businesses from deducting interest expense resulting from inflation. I'm assuming that means if a company has $100 of interest expense and inflation has made that $100 more like $97 only the $97 could be deducted. Does this mean that the deduction for interest from debt from 10 years ago would have to be computed differently from interest from debt incurred in the current year?

It will be interesting to see if this bill goes anywhere.

This, like most of Wyden's legislative schemes, is probably designed more to give him a way to avoid discussing related legislation that is more viable. I just wasn't aware of another big tax reform bill on the horizon.

As for the bill:
1) I can't see the point of increasing the minimum tax rate at a time when lower-income people are struggling.

2) Eliminating a large chunk of Schedule A would make tax filing simpler, but it ignores the reasons many of those deductions were created in the first place--tax fairness. Employee deductions and exclusions exist partly to put employees on a level playing field with self-employed folks, who can deduct business expenses incurred in the production of income and other business-related items.

3) No deduction for union dues. Hmmm. I wonder how THAT will go over with organized labor.

4) I agree about the AMT, but it's going to look like a giveaway to the rich to those not familiar with the tax code. A serious opponent for his Senate seat could exploit this, along with the corporate tax cut.

5) I'm puzzled about the piddly stuff. This just makes tax returns more complicated without much revenue gain. What prompted this?

Jack, I'd like your opinion about one idea that isn't included here. Should we reinstitute "income averaging?" It provides fairness for people who have irregular income streams (self employed business owners, authors/artists, investors). We already have a procedure and a form (Schedule G) from the years prior to 1986. This, along with doing away with the "double exemption" that kept kids from paying federal tax on meager earnings from part-time work, seemed like bad things to get rid of in that 1986 tax reform law.

I've had my concerns about Wyden's tax proposals since I read about his "Fair Flat Tax Act of 2005". Of course, that one didn't go anywhere (much like Wyden's health care proposal and his "hold" on the nomination of the acting counsel at the CIA), so I wouldn't expect much of this, either.

Jack, I'd like your opinion about one idea that isn't included here. Should we reinstitute "income averaging?"

This might have helped some people who received severance pay from having to pay higher Oregon tax under Measure 66 and now don't even have a job!

Claims of simplification here are overblown.

And even if they were true in this case, the simpler a tax becomes, the less fair it becomes. Sales taxes are extremely simple, but they're regressive.

Rumor has it that Ron exclaimed "Eureka" when he heard of Margaret Carter's new position

Fairtax.org

I read several interesting ideas and comments here, but the fact 'on the ground' today is that the facts on the ground today are ignored and nothing any one says matters one bit, since corporations can now buy every election, including way-past-sale-date Wyden's, criminally, with no recourse for appeal in the Judiciary.

"Sales taxes are extremely simple, but they're regressive."

Problem is, the more complex, the more likely higher incomes can figure ways to pay less taxes. If you wanted to take sales taxes, odds are someone making 5x as much would probably pay 5x the taxes. I could see doing something like an earned income tax credit for the first $20K of income to fix this.

Sorry to jump into a serious thread, but I object to the characterization of the senior senator as not knowing where his home is.

I personally know that Senator Wyden has been here.

I actually saw him at Hollywood Fred Meyer.

During the Clinton Administration.

Weak handshake, I never forget a weak handshake.

Sales taxes are extremely simple...

Talk to those filing sales tax returns and see if they are simple. For larger businesses, returns have to be filed monthly. Sales for resale or further manufacture are generally exempt, but there are so many exceptions it is far from simple to understand what is taxable and what is not. Sales tax is collected in many locations down to a local level. Businesses selling all over the country have to collect sales tax sometimes for state, county and cities and perhaps remit each separately. Sometimes the billing address is not the delivery address, so care has to be taken to charge the tax at the delivery site. It goes on and on. Then there is the Use tax that goes hand in hand with Sales tax. No Jack, sales/use taxes are far from simple.

For the people who actually pay sales taxes, they are extremely simple. As you say, not so for the people forced to collect them.

If you wanted to take sales taxes, odds are someone making 5x as much would probably pay 5x the taxes.

That's not what the State of Washington's Department of Revenue found when they did a study earlier this decade. Households with incomes over $130K paid less as a percentage of their incomes in sales taxes than any other income group. Not only that, the rate of sales taxes they paid was one-third that of households with incomes less than $20K.

A more recent report, by the Institute for Taxation and Economic Policy [PDF] estimated that households in Washington with less than $20K in income pay 4.4% of their income toward general sales taxes while those making more than $537K pay 0.7%, part of the reason Washington state has the most regressive tax system in the country. If you compare the bracket with an average income of $28.2K (3.6% of income in sales tax) to the one with $132.1K (2.0%), you get a differential of 4.6x in the household income, but the former pays $1,015 in general sales taxes and latter pays $2,642, which is only 2.6x the amount of general sales tax. Adding in other sales and excise and property taxes actually makes the disparity worse.

Oregon's system's still not exactly progressive — the upper brackets have been paying a smaller percentage of income than the lower — but it a heck of a lot closer to equity.

Hey Ron , we are still back here with no @#$#%#$%%^$ healthcare.
OUR junior sSenator is paying attention by supporting the PUBLIC OPTION! I know it's hard to know what your voters think living in NY , but you are wealthy now , retire and let Novick do the job you should be doing.

The bill actually retains the mortgage interest deduction.

A good opinion on the mortgage interest deduction:

http://economix.blogs.nytimes.com/2009/02/24/killing-or-maiming-a-sacred-cow-home-mortgage-deductions/

bojack:"Sales taxes are extremely simple, but they're regressive."

Aren't income taxes, by nature, regressive (even despite a tiered/bracket "progressive" approach?)

A rich person paying 11% is not going to be affected as much as a poor person paying 5%. The burden is still on the poor income earner; they are taxed for working and being "productive".

That begs the question, what taxes aren't considered "regressive"?

"one-third that of households with incomes less than $20K."

That was the genesis of the quasi-EITC exemption for the first $20K in income.

[T]he upper brackets have been paying a smaller percentage of income than the lower...

Darrel, can you cite the statistics to back up this claim? Last time I checked Oregon's DOR figures (a few weeks back), the highest income brackets as a group were paying a significantly higher percentage of their income in state taxes than the lower income brackets (oddly, the 2nd-lowest quintile paid a bit less than the very lowest quintile, but otherwise the actual percentage of income paid was quite progressive).

Aren't income taxes, by nature, regressive

No, ws, income taxes are not regressive "by nature" unless income tax rates are regressive (which as far as I know is not the case in any state in this country, doubtless someone will correct me if I'm wrong).

Progressive/regressive/proportional are should correctly refer to the rate of tax as it relates to the basis for the tax, not always to income which is how the terms are commonly mis-applied (understandably so, for those with a particular agenda to advance).

Sales taxes are proportional, because as the basis for the tax (sales price) goes up or down the rate remains the same.

Likewise property taxes, i.e., the rate of tax is the same regardless of the property value (which is the basis for that tax, not income).

Income taxes are generally progressive, because as the basis for that tax (income) goes up, so does the rate.

I can think of no examples off the top of my head of actually regressive taxes. Perhaps someone else can find one? :-)

Aren't income taxes, by nature, regressive (even despite a tiered/bracket "progressive" approach?)

Sales tax is considered regressive based on the percentage of disposable income one pays. A person with a low disposable income will pay a higher percentage of his or her disposable income toward sales tax than a person with a higher disposable income. For an income tax with tiered rates, the person with the higher taxable income pays a larger percentage of his or her taxable income toward tax. - Note: I used the terms "disposable income" and "taxable income" which are not the same, but to illustrate this point, I will consider them to be the same.

For example, if I give my child $50 to buy clothing and the sales tax is 5%, my child will pay $2.50 in tax, which is 5% of his or her income. However, if I have $50,000 of income and spend $5,000 for clothing my sales tax is $250, but it is only .5% of my income.

Using the example above, my child would pay 10% of his or her income on income tax. On the other hand, using current federal income tax rates on $50,000 of taxable income, I would pay 13% of my income in taxes.

I suppose I was looking for less of a textbook economics answer, and more of a philosophical answer.

I do understand what regressive and progressive means in an economic definition.

What I mean by "regressive" in regards to the income tax is that the more someone earns, the less burden in taxes their dollars face. Even with a lower rate, lower earners are still going to be affected greatly when they are taxed via their incomes. Rich people will also have a larger portion of their income coming from investments instead of actual work (corporate gains).

A sales tax, to me, is much more palatable than taxing someone to work.

Darrel, can you cite the statistics to back up this claim?

Sure. The study I linked to in my post that compares income levels and tax rates across the country.

http://www.itepnet.org/whopays3.pdf

I don't know what statistics you're looking at from DoR, but with regard to personal income taxes, it's true that higher-oincome households in Oregon pay at a higher rate than low-income households. That's the result of a progressive income tax system. But ITEP's figures show low-income earners paying higher percentages of their income for property and other state and local taxes, pushing the overall tax burden into the "slightly regressive" zone. Nothing like Washington's, though, which has a highly regressive tax as the basis of its revenue system.

A sales tax, to me, is much more palatable than taxing someone to work.

A sales tax is essentially taxing someone to live. In order for a sales tax to be a significant revenue stream, it has to tax items people buy on a regular basis. Not discretionary items. Not luxuries. Everyday, must-have items. Sure, you can exempt food and medicine, but people need toilet paper and clothing and other accoutrements of life, as well. And it doesn't matter if they're working or on a pension or mentally disabled and living on SSI, they're going to be paying sales taxes. That's the great thing for upper middle-class people in states like Washington who want to live there so they don't have to pay income taxes. They can make cripples pay for their stuff!

As a little girl I watched my aging father break down crying when he lost his nest egg in a stock market crash in the 70's. I became an adult with extreme aversion to money, banks, funds or bonds and doing taxes. Funny that almost my favorite blog is a tax law prof's.

As such, the only thing I care about is if this bill will make doing my taxes easier, and making everyone else's tax-filing easier. Such is my sympathy for all people who have to deal with lists of numbers that represent money.

Please, please give the corporations whatever they want, if I can read and easily understand the tax code that applies to me.

darrelplant:"A sales tax is essentially taxing someone to live. In order for a sales tax to be a significant revenue stream, it has to tax items people buy on a regular basis. Not discretionary items. Not luxuries. Everyday, must-have items."

ws:The state of Washington (and other states) exempt groceries from its sales taxes. That doesn't mean that exempting other essential items could not be part of a sound sales tax plan.

Paying a small tax on clothing items vs. income tax is not a huge deal. Technically, you only need two or three wardrobe to have the essential items to "live", as you state. Any such tax is minimal to the poor...unless you think taxing the poor @ 5% or 7% of their income is helping them (referring to state income tax).

I know this discussion might be more about federal taxation, but our onerous income tax is not putting us in a favorable spot to other states, especially Nevada and Washington.

darrelplant: I haven't really read through your comments about Washington, but for what it's worth, the state and local tax burden per capita to Washington is lower than Oregon's rate:

Wash:
http://www.taxfoundation.org/taxdata/show/486.html

Oregon:
http://www.taxfoundation.org/taxdata/show/476.html

ws, those figures from the Tax Foundation are average tax burden. It doesn't compare the burden of high incomes to low incomes within the state, which is what my figures show. Two wholly different issues. Average tax burden within a state doesn't have any information about which portion of the households are paying higher rates.

As for whether "paying a small tax on clothing items" is not a huge deal, it is a big deal when the poor are paying more of their income in taxes. According to the ITEP figures, overall tax burden in Washington state for the lowest 20% of household incomes is $17.3% of their income. In Oregon it's 8.7%. Under the sales tax-based revenue structure in Washington state, the poorest people are paying twice as much of their income in taxes as they are in Oregon.

As far as not taxing people to work goes, the only people actually paying less of their income in taxes in Washington state are the top 20% of households ($86K+ in Oregon, $99K+ in Washington). The other 80% do better in Oregon.

Thanks for the clarification, Darrel. I hadn't followed your previous link, but I suspected you were using this same data source that I've seen used over on BO.

Unfortunately it's a deeply flawed analysis.

I was indeed referring to income taxes, as I took your original comment (about "Oregon's system") at face value. The analysis you cite combines "state and local" taxes together, and it's the "local" part of that (property taxes) which drives up the percentage for those at the low end of the scale.

Beyond that, the deep flaws in the analysis have in part to do with the allocation of property taxes to renters, who presumably make up a significant proportion of those lower brackets (keeping in mind that the study you cite relates to non-elderly taxpayers, so most retired homeowners on low fixed incomes will be excluded).

It's those property taxes that skew the apparent regressivity of the system to support your thesis. A full debate on the methodology employed in that study would doubtless take us way off track in this thread, but I would just ask that people consider the logic of assigning indirect taxes to renters without also assigning a host of other indirect taxes to other groups.

Well certainly if you compare a state with no income tax to a state with an income tax, anyone's going to pay more income tax in the latter than the former.

David, if you look at just the sales and excise taxes portion of the Washington figures, your assumption that someone that someone making more income pays a proportionally scaled amount of sales tax ("someone making 5x as much would probably pay 5x the taxes") is still incorrect. As a category, the percentage of income paid by upper-earning households is substantially lower than low-income households. Even just the general sales tax portion of that category shows steep regressivity. You could take the property tax component out of the Washington figures for the second quartile households and they'd still be paying 10% in sales and excise, compared to 2.9% combined sales and property taxes for the top 1% households.

The exclusion of elderly households actually makes the figures look better than they would otherwise.

You asked to see my figures. Where are yours?

Sorry, Darrel, I think you've got me confused with another poster up-thread. I'm not the one who claimed that higher-income people pay proportionately more in sales tax, nor did I make any comparisons with Washington.

I simply contest your assertion that "Oregon's system's still not exactly progressive — the upper brackets have been paying a smaller percentage of income than the lower...".

First, because "Oregon's system" (state-level taxes) are almost entirely income taxes, which you have already conceded are indeed progressive (in fact, based on DOR numbers which I've referenced below, Oregon's income tax is pretty significantly progressive despite the relatively flat rate structure).

Second, because the report you cited in support of your claim, which assesses both state and local taxes combined, is deeply flawed and designed in part to shift SOME tax burdens from those directly responsible for those taxes (rental property owners, likely to be in higher income groups) to their customers (tenants, likely to make up a large proportion of those at the low end of the income scale). Yet, curiously, this is the only case where indirect taxes are shifted -- other business taxes are not shifted to customers, nor are employee taxes shifted to employers -- hence by selective application of this principle of cost-shifting, the report is clearly biased to produce a result supportive of a particular point of view.

Those DOR numbers regarding income tax can be found here for the most recent year available (2007); see in particular page 17 of the report (PDF page 20) for the breakdown of aggregate AGI and aggregate tax liability. Those at the top are paying significantly more than those at the bottom.

Oregon DOR Tax Report

This bill should be ignored, if for no other reason than it does nothing to make the tax system any simpler. It merely replaces some existing tax rates and deductions with some that would appeal more to his constituency. Keep moving the shells around, Wyden.

My apologies for mixing you up with dw, David. The similarity of initials led me to believe that you were the same poster under two different names.

I'm not sure I see "significantly" anywhere in those figures, however. The top 1% bracket has a total tax liability that's 7.8% of AGI; the lowest brackets are at 4.1%, 3.2%, and 4.3%. The ITEP numbers are actually a couple of percentage points lower across the board, but they track the same way.

You seem to be using a different terminology than I'm aware of. I don't see how you can have a tax that's "pretty significantly progressive" but also "relatively flat" unless you're redefining progressive as simply "the rich pay more money than the poor."

The ITEP study was intended as a view of both state and local taxes. As such, it took into account both income and property taxes that were paid. The Oregon study you cite doesn't go beyond income taxes, so it's difficult for me to see how you could compare the two. It certainly doesn't disprove anything the ITEP report says about Oregon.

As for the property tax issue, I'm not sure that other types of taxes would make up a significant portion of the tax burden for a household. Did you have something specific in mind? Do you have any reason to suspect that apartment rents aren't adjusted to cover the costs of property taxes on a complex? That would fly in the face of fifteen years of contact with the multi-family property management business.

Sorry, my description of significantly progressive though relatively flat was certainly muddled (at best!) :-)

What I was trying to express by "relatively flat" is that the top rate in Oregon kicks in at a relatively low income level, meaning that many people are subject to the top marginal rate. Though, of course, the rate structure is indeed progressive (5%/7%/9% and now higher after the recent election).

What is "significantly progressive" to me is that, as you point out, the top 1% pay a rate that is 90% greater than the lowest 20% (and 143% higher than the lowest-rate group).

My point related to the property taxes is not that rents do not reflect those taxes (as they almost certainly must, barring unusual market circumstances), but rather that the cost of virtually everything reflects indirect taxes. So why, for the purposes of this study, give "credit" to renters for the indirect property taxes that are paid out of their rent, and not give credit in all other cases of indirect taxation?

Rents are higher because the landlord must pay property taxes, and the study seeks to shift that direct cost (to the landlord) into an indirect cost (to the tenant). The reasoning is solid as far as it goes.

But why stop there?

If the renter didn't have to pay higher rents, then his/her employer wouldn't have to pay as high a salary either. So really, the landlord's property tax is being paid by the tenant's employer.

But of course, if the employer didn't have to pay as high a salary to the tenant, then they wouldn't have to charge as much for their goods/services. So really, the tenant's employer's customers are shouldering the burden of the landlord's property taxes.

And this is where we get stuck, because if the customers of the employer of the tenant of the landlord didn't have to pay such high prices, they wouldn't have to demand such high salaries from their employers. And so on, ad infinitum.

So it's awfully arbitrary (and, as I said, clearly biased) to take the principle of indirect taxation and apply it only to property taxes passed on to renters, AND then to stop at only one level of indirection. I'm sure we could go on endlessly with other examples of indirect taxes (corporate income taxes increasing prices, personal income taxes increasing wages, etc.)

Given the obvious flaws in the ITEP report, it simply can't reasonably be used to demonstrate that the poor pay more in total taxes in Oregon than the rich do. Maybe they do, maybe they don't, but that report is useless. If the report limited itself to direct tax burden, I strongly suspect the picture would be quite different... but then there's no way to tell exactly how skewed the property tax numbers in the report are.