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Pawlenty Suggests New Tax Structure & The Google Test

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Taxes, especially within the context of our deficit, have become a popular subject these days. The latest person to weigh in was Former Minnesota Governor Tim Pawlenty when he proposed a new tax structure along with his announcement that he’d be seeking the Republican presidential nomination. The plan is simple:

  • Reduce corporate taxes from 35% to 15%;
  • Tax the first $50,000 of personal income at 10% ($100,000 for married couples), and 25% for the rest;
  • No taxes on capital gains, dividends, interest income, and inheritance.

Assuming all other tax deductions and credits were held the same, this would reduce tax revenue generated from individuals and families. The existing tax brackets tax at higher rates for personal income and there really are no “losers” if the tax structure were to go in this direction. Where I believe the proposal is the trickiest has to do with the corporate tax rate – where companies now have a greater incentive, because of lower tax rates, to recognize income they would otherwise keep abroad. We could generate more revenue because the tax rate is lower. Whatever actually happen is irrelevant, the interesting part of the discussion is what he said in conjunction with this proposal – The Google Test:

“If you can find a good or service on the Internet, then the federal government probably doesn’t need to be doing it,” Mr. Pawlenty says. “The post office, the government printing office, Amtrak, Fannie [Mae] and Freddie [Mac], were all built in a time in our country when the private sector did not adequately provide those products. That’s no longer the case.”

I think the test may be too simplistic but the idea merits discussion. The USPS’s insolvency was a topic of discussion here just recently (and I agree with the commenters that said a comparison to UPS/Fedex is unfair because they can cherry pick where they compete – i.e. not on first class letter delivery) but I think we need the same for every service. Do we need Freddie Mac and Fannie Mae to gobble up home loans? Perhaps, but it should be up for debate.

Thoughts?

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29 Responses to “Pawlenty Suggests New Tax Structure & The Google Test”

  1. Arvin says:

    I can see your point about corporations declaring more income in the US because of the lower tax rates, but can you explain why you think they would declare so much more as to pay more taxes than they currently do? Seems like the most they’d do is declare only as much more as needed to pay the same amount as before, though more likely they’ll continue to keep all their money out of the country and just pay less taxes in general.

    That they feel entitled to keep their income out of the US at all makes me feel like no amount of incentives (other than it being made illegal) is going to force them to act otherwise.

  2. No Debt MBA says:

    I would be interested to see what he would cut to actually deliver a balanced budget after also cutting taxes on both individuals and corporations. USPS may be a money pit but it’s nowhere near the top of our national expenses.

    I’m not sure if his proposal to cut corporate tax rates would bring enough business/revenue back into the US to offset (much less exceed) the initial loss of tax revenue from the cut.

  3. LL says:

    The idea is an interesting one. I would certainly like to see a simpler tax structure. The Amtrak comment really bugs me though. Exactly what private sector business offers a service like Amtrak?

    • Texas Wahoo says:

      Bolt Bus (and similar services)? American Airlines? Greyhound?

      The bus takes a bit longer, but costs a lot less. Flying is generally faster and about the same price, but does not allow the same conveniences.

      • NateUVM says:

        So…in other words, no, no private sector business offers a service like Amtrak.

        Bus takes longer. Flying doesn’t offer same conveniences. Got it.

        • Texas Wahoo says:

          The private sector does not offer exactly the same service that Amtrak does. But the question is whether we need that exact service, or if it is enough to have services which are slightly different (better and worse).

          Is it important to have a way to get from DC to NY in 3.5 hours without having to take your shoes off? I can’t answer that question – but I do not think it’s a bad thing that the question is being asked. I think that is exactly the kind of question that needs to be asked in order to address the budget deficit.

          • freeby50 says:

            I wouldn’t mind if they got rid of Amtrak or privatized it. But then I have never taken an Amtrak train so I wouldn’t miss something I never use.

          • Courtney says:

            I love Amtrak. Faster and more comfortable than a bus, safer than driving, cheaper (and less frustrating) than flying. We need more rail travel, not less.

          • Texas Wahoo says:

            “cheaper (and less frustrating) than flying”

            But it’s only cheaper than flying because the government subsidizes it so much. Without the government backing, flying would be cheaper.

          • Chris says:

            All forms of transportation whether public or private receive government subsidies. Highways received 40 billion in one year, Amtark has not received that much in its 40 year history.

          • Courtney says:

            All forms of travel would be more expensive without subsidies. Airlines have received an estimated $200B in government benefits, either directly through cash stimulus or through interest free loans. Even if you take the cost out, trains are STILL a safer, more comfortable, and less frustrating way to travel. Plus, trains (and planes) have lower emissions per passenger mile than cars and buses, but we still have government subsidies for roads AND oil.

          • Texas Wahoo says:

            “trains are STILL a safer, more comfortable, and less frustrating way to travel.”

            Trains are generally moer comfortable – although we could argue all day about whether they are safer than flying (it depends on how you look at it). As for frustrating, I actually find the train to be more frustrating if you’re going anywhere besides DC to NY. Taking the train anywhere else and it is almost always late – sometimes by as much as a day.

          • Courtney says:

            No need to argue all day, train travel safety is practically equal, per passenger mile, to air travel safety (.88 deaths per billion passenger miles versus .87, respectively). Both are far more safe than road travel (11.7 deaths per billion passenger miles). I’ve taken the train plenty of places and never had issues with delays. I have, however, had a number of flights canceled or delayed. And I’ve lost track of how many hours I’ve sat in traffic. Trains produce 1/3 to 1/6 of the emissions pollution per passenger mile than either cars or trains. And yet they’ve gotten less than a tenth of the government subsidies that air and road travel receive. More money for rail!

          • Jim says:

            I agree with you timeliness of trains. There might be delays but they’re usually not multi-hour delays (and if they are, you know about it FAR in advance).

          • Texas Wahoo says:

            “I agree with you timeliness of trains. There might be delays but they’re usually not multi-hour delays (and if they are, you know about it FAR in advance).”

            Maybe I’ve just had bad luck. When I lived in Charlottesville, I used to drop people off at the train station in the mornings before class – at least half of the time they would go into the train station and say their 9 am train was not going to be there until the afternoon – a couple of times it wasn’t until the evening.

            I’ve never had that problem in DC – so maybe it was just that station?

        • Bmac says:

          It is the same service, it’s called transportation. If there’s a demand for a train type service, the private sector will fill it. Oh ye of little faith in the free market.

      • sophomore says:

        The beauty of political pork is that the recipients enjoy the meal while someone else gets to pick up the tab. The latest census shows 300 million US citizens (aka taxpayers) providing Amtrak services so less than 30 million can ride annually (Wikipedia). It’s a great deal if you are part of the favored 10%.

  4. Anything that would give a government agency some competition would be a good thing. The problem with government agencies is not hard to deduce: they have no incentive to cut costs, provide excellent customer service, and beat out private market competitors, since they have no shareholders to answer to and they receive funding no matter what via taxpayers. Yes, I realize it’s not quite that black-and-white, but this is the general “lay of the land” if you will.

  5. Mike Arrrrgh says:

    Does this mean that corporate execs can take a $1 salary and pay $.10 in taxes, then get millions in stock options and pay no taxes on either the dividends if the stock is kept or capital gains if it is sold? To top it off, they pay nothing on interest accrued on the cash and leaves it all to their heirs who still pay no taxes on it…ever.

  6. freeby50 says:

    If I can hire a mercenary off the Internet then does that mean we could do without the Dept. of Defense?

    • Texas Wahoo says:

      I think the question is whether you could hire an entire army off of the internet. It would certainly be worth looking into…

      • freeby50 says:

        You could privatize any government function but that doesn’t always make it a good idea.

        • Texas Wahoo says:

          Certainly not. The important thing is that the questions get asked. Unfortunately, I worry that merely asking the question often results in bitter fighting.

  7. cubiclegeoff says:

    The Google test is a bit ridiculous, since you can find anything on Google, relevant or not with the same keywords.

    Simple start, you can Google prisons. A recent report showed there was little benefit to private prisons financially, and in some cases, government run prisons would be a better option.

  8. Bear says:

    We cannot cut corporate rates without closing corporate tax loopholes. Very few corps pay at current rates. Compare official rates to actual rates.

  9. zapeta says:

    The tax plan sounds ridiculous. It’s hard to imagine how you can cut taxes and raise more money. The fact is that taxes are at historical lows and need to be increased. As for corporations that hide income overseas, I’m sure there must be more effective ways of capturing their income by closing some tax loopholes.

  10. Donald says:

    I don’t understand the logic behind not taxing dividends and capital gains. Do I have less incentive to work because my wages are taxed? Obviously not. Nor do I have less incentive to save and invest because of taxes. It just seems like a giveaway to the wealthy disguised as an economic philosophy.

  11. It’s an interesting concept, not sure what the right answer is. However, it sure seems as if something needs to be evaluated.

    Personally, I would like to see more of a consumption tax, then you can control how much tax you do or do not pay based on your spending habits.

    Because we have the biggest economy in the world, there is not an easy fix, that is for sure.

  12. David Boone says:

    Typical too little too late solution. Why do politicians do that. The answer he’s groping for is the FairTax. We tried to educate him about it when he was governor, but he would never engage with the concept. We need a President with more intellectual curiosity.


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