The System
At this time of year to say the Tax System in the U.S. is bewilderment to all who approach it is an understatement. Working people making $50,000 may have around 25% taken for taxes every pay-check. That’s $12,500 paid each year! These legendary tax-payers may even end up owing taxes at the end of the year if they dared to make money through investing in companies who hire people and help make our economy grow.
What the Fed is Saying
So, what is tax reform about? What is on the table? Do we have place-mats or do we have some utensils to work with? Invariably, Alan Greenspan had something to say about the issue. The story broke today, the influential Fed chief said that replacing the tax on income with one on spending could boost growth, but likely opposition means that a hybrid may be the best approach to reforming taxation.
Clearly, Mr. Greenspan is talking about putting a tax on spending, (some form of a Federal sales-tax system), instead of the present IRS 1040. More specifically he’s backing a mixture of the two ideas and believes that a tax on consumption will foster growth. Just as clear, is that we need to reform and simplify the tax code.
The White House Council of Economic Advisers put out a report last month that basically agrees with Mr. Greenspan’s sentiment. They advised, as advisors tend to do, that incremental change would be better than a more sweeping shift to a national sales tax.
A Federal Consumption tax
Some are saying that a Consumption Tax would place an unfair burden on lower-income Americans who would end up paying more for the basic necessities of life. To counter this fear, the proponents are proposing a progressive system that would either exempt some income levels or exclude certain product categories like food.
Besides the April 15th deadline we are all familiar with, Mr. Bush has made a July 31st deadline for the tax panel to make some solid recommendations for tax reform. As far as I can discern, it appears that the proposal of merit will include a progressive consumption tax.
How will it effect your Investments?
We all know that time is money. But, is money time? Will it have a positive effect? Well, yes. An unbalanced amount of time and money is spent on compliance with and on gaming the current tax-code. With a simplified consumption tax system those vital resources would be freed to more productive capacity.
What else? Will it send the markets shooting up? The individual savings-rate has been too low in the U.S. for too long. A larger cumulative savings-rate provides a pool of funds for firms to reinvest toward growth. The tax reforms will increase savings, since savings won’t have such a tax penalty on interest and dividends. Lower rates on income – especially on investment income – will encourage investment and arouse the, presently slow-moving, economy.
At this time of year to say the Tax System in the U.S. is bewilderment to all who approach it is an understatement. Working people making $50,000 may have around 25% taken for taxes every pay-check. That’s $12,500 paid each year! These legendary tax-payers may even end up owing taxes at the end of the year if they dared to make money through investing in companies who hire people and help make our economy grow.
What the Fed is Saying
So, what is tax reform about? What is on the table? Do we have place-mats or do we have some utensils to work with? Invariably, Alan Greenspan had something to say about the issue. The story broke today, the influential Fed chief said that replacing the tax on income with one on spending could boost growth, but likely opposition means that a hybrid may be the best approach to reforming taxation.
Clearly, Mr. Greenspan is talking about putting a tax on spending, (some form of a Federal sales-tax system), instead of the present IRS 1040. More specifically he’s backing a mixture of the two ideas and believes that a tax on consumption will foster growth. Just as clear, is that we need to reform and simplify the tax code.
The White House Council of Economic Advisers put out a report last month that basically agrees with Mr. Greenspan’s sentiment. They advised, as advisors tend to do, that incremental change would be better than a more sweeping shift to a national sales tax.
A Federal Consumption tax
Some are saying that a Consumption Tax would place an unfair burden on lower-income Americans who would end up paying more for the basic necessities of life. To counter this fear, the proponents are proposing a progressive system that would either exempt some income levels or exclude certain product categories like food.
Besides the April 15th deadline we are all familiar with, Mr. Bush has made a July 31st deadline for the tax panel to make some solid recommendations for tax reform. As far as I can discern, it appears that the proposal of merit will include a progressive consumption tax.
How will it effect your Investments?
We all know that time is money. But, is money time? Will it have a positive effect? Well, yes. An unbalanced amount of time and money is spent on compliance with and on gaming the current tax-code. With a simplified consumption tax system those vital resources would be freed to more productive capacity.
What else? Will it send the markets shooting up? The individual savings-rate has been too low in the U.S. for too long. A larger cumulative savings-rate provides a pool of funds for firms to reinvest toward growth. The tax reforms will increase savings, since savings won’t have such a tax penalty on interest and dividends. Lower rates on income – especially on investment income – will encourage investment and arouse the, presently slow-moving, economy.
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