While the new law eliminated some tax breaks and loopholes, it introduced many new ones. The United States had already tried to tax capital gains as ordinary income, from 1918 to 1921. What happened was that investments with profits were not sold, but only those with losses, so the Treasury had a net loss of income. This would happen again if normal tax rates were applied to long-term capital gains. Investment would effectively be frozen, which may well be the most effective way to ensure the stagnation of the economy. For this reason, most developed countries do not tax capital gains at all or tax them at a rate below normal income, usually lower than that of the United States. Claims that taxing long-term capital gains at normal interest rates would increase federal revenues by $7 billion to $10 billion a year are pure demagoguery. There is a good chance that there will be a net loss. Biden`s strengthened popular proposal also frees all but the wealthiest Americans by allowing a blanket exemption of up to $1 million in profit per person, or $2 million per couple. The general exemption would be in addition to the housing exemption. As Robert McClelland of the Tax Policy Center notes, the Federal Reserve Board`s survey on consumer funding (SCF) shows that only 3% of households have more than $1 million in unrealized gains, but an even smaller proportion would be affected by Biden`s proposal, as in the normal course many households will sell assets to retire. That is how they make their profits. The exception in Biden`s plan is 10 times larger than that included in President Barack Obama`s 2015 proposal to close the widening base gap.
The Saver Tax Credit: Working class Americans who manage to gather savings can claim the Saver Tax Credit when they file their tax returns. It is a tax break designed to encourage people to save money. This is especially important because many people don`t have emergency funds and don`t have enough or not enough retirement savings. The tax credit for investors is non-refundable. This may reduce your tax bill to zero, but if your credit amount is greater than what you owe to the IRS, you won`t be refunded the difference. With so many ways to cut taxes, wealthiest Americans often manage low-income tax rates. We analyzed the incomes and taxes of the 400 highest-paid people in the country, who earn an average of more than $110 million a year. Overall, the group paid relatively low interest rates, but some segments (tech billionaires, heirs, private equity managers) stood out even within this elite by having been able to resort to the techniques described above. (These techniques have also been used by wealthy politicians, such as the governors of Colorado and West Virginia.) So what are the big loopholes, the provisions that make up most of the $563 billion in untaxed income in 1972? By far the biggest loophole is personal releases – at $750 per capita – which amount to $155 billion. Many believe that $750 is not enough, that it costs more to provide for a child. That may be true. But then why would the U.S.
government pay a tax premium for every child at a time when we are trying to reduce population growth and reach ZPG? Should there not be a penalty rather than a bonus? The huge untaxed income was first brought to the attention of the general public in 1955. The topic quickly gained attention and has been on the public agenda ever since. When Stanley Surrey, the most vocal spokesman for closing loopholes, became Assistant Secretary of the Treasury for Tax Policy in 1961 – and thus the nation`s top tax policy official – one might have expected vigorous action on tax reform. But neither President Kennedy nor President Johnson sent Mr. Surrey`s most important recommendation to Congress. Overall, they recommended widening tax loopholes. Before leaving office after eight years, Surrey presented a comprehensive report on tax reform, particularly loopholes he called tax expenditures. He quickly began to gather dust because President Johnson was no more eager to open Pandora`s box than his successor.
Much of the controversy over loopholes focuses on individual deductions, which totaled $96.7 billion in 1972: However, the tax law conspiracy theory — that loopholes are the result of sinister machinations by lobbyists for financial interests who bribed legislators or threw sand in the eyes of distraught members of Congress and the public — will not hold. No public bill is subject to more scrutiny and detailed congressional scrutiny, more open hearings, and more in-depth debate year after year than tax laws. Big Tech alone, led by Apple and Microsoft, has announced a total of more than $100 billion in recent fiscal years that have been manufactured and held overseas and therefore not subject to U.S. tax. Bloomberg News notes that software code is much easier to move than factory equipment. A tax holiday was attempted in 2004 when $300 billion was repatriated at a tax rate of 5.25%, but it was a major failure. It neither increased domestic investment nor created jobs, and the money was mainly used for share buybacks, dividends and executive bonuses. What`s more, a tax holiday costs more than it brings in – it will lose $100 billion over 10 years. Even worse, it rewards companies that exploit offshore tax loopholes, encouraging even more tax evasion in the future.
Nevertheless, it limited the income tax base to less than half of personal income. If all exclusions, exemptions, deductions and credits were waived and all personal income were subject to tax, tax rates could be cut in half, from 14% to 70% to 7% to 35%.