As everyone in the US knows, the Bush tax cuts are set to expire this year. This will effectively raise tax rates for all of us (relative to recent years). With the largest impact being on those savers who depend upon dividends for their retirement. It seems that we have 3 camps based on both amount and type of income: The over $250K workers, under $250K workers, and under $250K retirees.
The sub $250K workers I think will be saved by both of the main political parties. Whoever votes to block that will end up in the unemployment lines come November. The over $250K crowd is facing a majority of unhappy Americans, many who can vote, but are either under performing, or simply not performing in this economy (current U6 unemployment rate is well over 16%!). I do not believe they will be able to keep their tax cuts. Because they are wealthy though, they will (and are of course) lobby to retain it. Already some members of the GOP are calling for all or nothing. In the end they wont cut their own throats with the sub $250K crowd. But I'm betting they will hold the dividend/cap gains hostage (effectively the sub $250k retirees).
What to do eh? Its hard to keep the discussion focused on the taxes, since its all part of the much larger game that is life. But lets try to keep it focused. I think that given the status of our budget and ever increasing deficit, it seems to me that we need to both increase the tax revenue, and really bring down spending. While runs counter to my ideals, the reality is that those with the most income have the most money to tax. Lets tax them. In addition, they seem to have the greatest amount of lobbying power. Thus they will use their vested interests to bring down federal spending to a level that in turn, allows us to decrease the tax rates in future years. Think of it as a temporary austerity measure. This concept should also apply to corporate taxes. Any group with a powerful lobby should be encouraged via taxation, to use that lobbying power towards a reduction in spending.
I think $250K / year is a fairly high number. Yes I know thats what Obama promised, but really he hasn't (or partially) delivered on so many other things, why stop now? I would even go so bold as to suggest letting the tax cuts expire for individuals making over $100K, and over $150K for families. Lets face it, most earners in that crowd would logically have to cut back. However, it should largely end up a lesson in frugality, rather than brutality for them.
With regard to capital gains and dividends, I would likewise have 2 tax rates (for above / below the above limits), or even a progressive tax rate similar to the income side of the house. I believe dividend/cap gains rates should be lower than regular income, mainly to encourage saving/investment and to support the retirees.
These measures should be temporary, but we should look to the future. The big insanity with AMT was that they didn't take inflation into account. These limits should take honest inflation (which includes little things like food and energy) into account. In addition, the tax rates should raise for everyone if deficits increase, OR lower for everyone if deficits decrease. My basic belief is that taxes need to be a reflection of spending, and everyone needs to have skin in the tax game, to reign in the spending. This should encourage the electorate to be more active in the political process, with an eye towards forcing our government to live within our means. If they don't, the tax pressure increases until they do. If they are successful, deficit spending is reigned in and we can move towards a brighter future. We owe it to posterity.
