During a Senate Budget Committee hearing earlier this month, Sen. Ron Johnson (R-WI) questioned witnesses about the tax code.
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00:00Senator Johnson, followed by Senator Merkley.
00:02Mr. Chairman, we're trying to scramble to get the chart, my own version of the chart
00:06that Senator Grassley was talking about.
00:08Hopefully we can get it up here before I'm done.
00:11I'll just ask all the witnesses, anybody want to defend the current tax code?
00:15Anybody think it's a great code?
00:18Okay, silence.
00:20It's way too complex, right?
00:22So when you have something really complex, that's something that can be taken advantage of, correct?
00:28So shouldn't our efforts be, rather than reforming the tax code
00:33and trying to continue to socially and economically engineer through the tax code,
00:41wouldn't it make a lot more sense to simplify and rationalize the tax code?
00:47Mr. Falkender.
00:49It would indeed, and that's one of the things we tried to do in the Tax Cuts and Jobs Act
00:53was by doubling the standard deduction and removing some of the deductions for other items
00:57was to encourage more people, to encourage fewer people to itemize
01:03and more people to take the standard deduction, thereby making it less complex.
01:06But unfortunately, people then still calculated both ways and we didn't succeed in doing that.
01:10Right, it's complex because you have all these special interests from all ends of the spectrum
01:16coming in here and carving out a little special deal for themselves,
01:20so it ends up being incredibly complex.
01:23So let's put this chart up here.
01:25This is what Senator Grassley was talking about.
01:27I mean, this is the futility of trying to punish individuals,
01:31trying to punish their success.
01:34It just doesn't work.
01:35People aren't that stupid.
01:36They're willing to hand over so much to government and no more.
01:40Ms. Anderson, I want to ask you, what percent of an American's income,
01:46of a dollar of income should the federal government be able to extract?
01:50What's the maximum tax rate?
01:52Again, I'm just talking about the federal government now.
01:53What do you think?
01:55I'd be happy to give you my preferred top marginal tax rate.
01:58What is it?
01:59Once you close the loopholes that make a mockery of the top tax rate.
02:02Okay, let's call it the effective tax rate.
02:04What is the maximum amount anybody ought to pay after all the deductions, that type of thing?
02:08Since people are not paying that at the top level,
02:11we have billionaires paying an effective 8.2% rate.
02:14Just give me what you think is the most anybody should pay out of a dollar of income.
02:18That chart is not about futility.
02:21That chart is about loopholes that members of Congress have allowed in the tax code.
02:25Dr. Stiglitz, what do you think the maximum amount anybody ought to pay out of a dollar of income?
02:30I think you begin by asking the question, how do you close the loopholes?
02:36It's a very simple question.
02:40What is the maximum amount any American ought to pay out of a dollar of income?
02:44It's a very simple question.
02:45Again, eliminate all the loopholes, but I mean the effective rate.
02:48What is the maximum amount somebody ought to pay?
02:50Again, one of the things I said is if you derive your money from land speculation,
02:57you should pay a very, very high tax rate.
02:59First of all, let me say, to simplify the tax code, income should be income.
03:05There is a rationale for a lower tax on capital gains because you're taxing inflationary gains.
03:12So you could index the inflationary gain and then tax it at the individual rate.
03:16Here was my proposal in 2017-2018.
03:19I call it a true Warren Buffett tax.
03:21Tax all business income at the ownership level.
03:25Okay?
03:2695% of American businesses are pass-throughs.
03:28It's entirely possible.
03:30I talked to Warren Buffett about this, talked to his shareholder services people.
03:33You can allocate income and you tax income every year, allocate it and tax it at the ownership level.
03:39You could have corporations do a backup withholding.
03:42All kinds of advantages to that plan right now.
03:45Parts of it are being scored by JCT.
03:47JCT, hopefully, the chairman of both this committee and the finance committee.
03:51I know Chairman Wyden is interested in it.
03:53So, again, that would be a simple system.
03:55And, by the way, you wouldn't have that locking up of unrealized profit in C-Corps.
04:02It's just, again, what's going to happen in 2016 is a gross distortion and put small companies,
04:1095% of American businesses, at a huge disadvantage to the big C-Corps.
04:13So we need to address that.
04:15Mr. Faulkner, comment on what I'm talking about there.
04:18And I don't think you've ever seen that plan.
04:20No, I've heard you talk about it, but I haven't yet seen the details.
04:23And I look forward to seeing the score come out.
04:25But, yes, if we could do everything as a pass-through, you'd eliminate some of the distortions that are created
04:30by changing your tax structure all to have a lower rate either as a C-Corp or an S-Corp.
04:35What we ought to do is tax all income uniformly and stop saying if you spend money the way government wants you to,
04:42you have a lower or a no-tax rate than if you spend your money the way you want to.
04:47You'd agree. We do a terrible job socially and economically engineering through tax codes.
04:51So stop doing it.
04:52That's right.
04:53Use the tax code to collect the revenue the government needs as simply and fairly as possible.
04:59That ought to be our effort.
05:00Rather than talk about these complex things about a billionaire tax, let's simplify this thing.
05:05Let's rationalize this.
05:07That's what I'm going to try and push for the next couple of years.
05:10Lower the rates, broaden the base, stop picking and choosing winners and losers through the tax code.
05:14By the way, one principle that we should abide by is wherewithal to pay.
05:18So trying to tax unrealizable capital gains would be disastrous.
05:22But, again, I hope the chairman takes a look at my tax plan because it makes a lot of sense.
05:26I'm sympathetic to the senator's concerns, and I appreciate the enthusiasm with which he pursues them.
05:35I do think that when it comes to the question of what the tax rate should be on a dollar of income,
05:42it matters whether it's the first dollar or the last dollar,
05:48and it matters whether it's the ten-thousandth dollar or the ten-millionth dollar of income for that individual.
05:56But you're complicating the question.
05:58Again, it's just like overall.
06:00Yeah, but it matters.
06:01The effective tax rate.
06:02You want to tell me what you think your maximum should be?
06:04I don't because you've got to know what the dollar is.
06:08Say it's a person who's earned a billion dollars.
06:12Say someone earned a billion dollars.
06:14The last dollar, how much should it be taxed?
06:16How much should it be?
06:17What's the percent?
06:18What percent?
06:19The last dollar of a billion.
06:20So now we're giving you information.
06:21I would say way above 50 percent.
06:23So what?
06:24Because the billionaire doesn't even know that dollar exists.
06:26So what should it be?
06:27But it's very different if somebody's making $30,000.
06:29You asked a question.
06:30Which dollar is it?
06:32It's a billion.
06:33Someone earned a billion dollars one year.
06:34Bill Gates earned a billion dollars.
06:36What should be taxed in the last dollar?
06:37Well over half.
06:38How about a million?
06:3970 percent?
06:4070 percent?
06:42We're into Senator Merkley's time.
06:44Senator Merkley.
06:46Thank you, Mr. Chairman.