Friday, October 26, 2007

Rep. Rangel's Tax Proposal

I read an article about Rep. Charles Rangel's recent tax proposal in the Business Section of the L.A. Times for October 26. Some of my Republican friends may brand me a heretic when I say that his proposal is worth serious consideration. The ones who know me really well may understand why, though, and those who don't can read my posting on taxes (9/14/2007) and my posting on income inequality (6/24/2007) to sample some of my ideas on the subject. Like Rep. Rangel I firmly believe that we need to restore fairness to the tax code. I also think the plan needs some refinements.

If I can believe the Congressman and the article, the Rangel plan is revenue neutral, that is, the proposed tax increases in some areas would be offset by decreases in others. The right wing critics complain about the increases but do not mention the offsetting decreases. If you read my posting on income equality, you will see that I do not oppose shifting some of the tax burden to the extremely wealthy people.

When we talk about tax reforms for fairness, however, we need to be very clear on how the income is defined. That is, are we talking about gross income, or adjusted gross income, or taxable income? Both the second category and the last take into account adjustments and deductions that allow wealthy taxpayers to duck their fair share.

Another concern in Rep. Rangel's proposal is whom we define to be weathy. According to the Times article, less than 2 million taxpayers would see a tax increase under the plan, predominantly those who earn more than half a million dollars per year. Half a million is the number I would have picked, if it is considered to be gross income. But the Rangel plan imposes a 4% surcharge on households that earn at least $200,000.00 for couples filing jointly. That seems to dip well below the half million earned dollars per taxpayer mentioned in the article. Whatever number is chosen, it should be indexed in some way to inflation.

The plan increases the standard deduction, increases the Earned Income Tax credit for the working poor, and increases the refundable child tax credit. These changes clearly benefit wage earners who are not considered to be wealthy.

The plan proposes to cut the top tax rate for corporate income from 35% to 30.5%. This feature should diminish the concerns that the plan will cause job losses and other adverse economic impacts. The plan also eliminates current provisions that Rangel considers to be loopholes. I don't know which ones they are, but I am sure that there are some loopholes worth closing. The problem I see is that any increase in the taxes for businesses will be passed on to wage earners in the form of higher prices and/or work force reductions. That does not hold in the case of individual income--an increase in the top tax rate for wealthy individuals is worth considering.

The plan proposes eliminating the Alternative Minimum Tax. The fact that the income level at which the A.M.T. kicks in is too low and is not being adjusted for inflation makes me agree with this aspect of the plan. But the A.M.T. should only be eliminated if we also eliminate the loopholes and adjustments that allow members of the half-a-million-dollar-plus club to claim zero or minimal taxable income.

The plan increases taxes for managers of private-equity funds, who have been claiming their earnings at the 15% capital gains rate. This change is long overdue.

For many of the people in the half-a-million-dollar-plus club, wages did not comprise the majority of their income, and they did not pay at or near the top bracket rate of 35%. That's because of the myriad of provisions that create loopholes by allowing adjustments, deductions, and the re-categorizing of income. Serious consideration should be given to eliminating some of those provisions. I don't expect much help from Congress in this direction, as many of our legislators are members of the half-a-million-dollar-plus club, and they won't vote against their own personal interest.

Some people are terrified at the thought of a flat tax based on total income, above some defined poverty level, from all sources. If we could ensure that ALL income would be reported, the actual rate of that tax would lower than most people fear. But if we are unwilling to take the flat tax leap, then Representative Rangel's plan (with some fine tuning) deserves some serious consideration.

Wednesday, October 10, 2007

Ephemeral Culture

More and more people are downloading music in the form of MP3 files instead of purchasing CDs. All around us we see the demise of local record shops big and small. Some very important things are lost when CDs are replaced by MP3 downloads: sound quality, the artistic expressions of many great historic performers, and a tangible, durable storage medium.

Those who appreciate fine music are not satisfied to download "a song," play it a few times until they are tired of it, then discard it. Rather, they search out the best performance(s) of a symphony or a string quartet. They listen to it over and over to experience the nuances of emotion conveyed by the performer. They may put the recording aside for months, or even years, and then re-visit it for a renewed experience. They share it with friends. They hope that the sublime listening moments will be preserved for the enjoyment of future music lovers. The MP3 downloads are limited to recent performances, have reduced sound quality, and can disappear with the stroke of a key, or a power surge.

But only 3% of the population is sufficiently discriminating to pay the necessary cost of these treasures. Because our public schools are failing miserably to communicate the stronger cultural and aesthetic values, I worry that the size of this elite group will diminish.

To be financially sound, orchestras and recording companies must market to the other 97%--people who value things that are “good enough” for them: low cost, sound quality that is adequate for the low-cost playback machines, performances by people whose names they recognize, and the “instant gratification” that speedy delivery provides.

Fortunately, CDs were the medium of choice for several years before MP3 downloads became available. A greater variety and depth of music has been transferred to CD than was ever available on long playing records or magnetic tape. Some of the non-classical items in my collection demonstrate the scope: Sea shanties, Scottish pipes, Portuguese fados, the jazz recordings of Bix Beiderbecke. The rarities are hard to find, and they may have to be shipped across the country, but to those who appreciate them, they are worth the wait. They will probably never be available for download, because almost nobody is interested in them.

Some few entrepreneurs will pursue the 3% niche market, and continue to make CDs available. They will offer their products on the internet because they reach more potential customers than dozens of record shops, and they require only one inventory site. I really miss the opportunity to browse the bins of my local record store for historic recordings. But the inventory of the local record stores only touched the surface of the tremendous variety available. By searching the on-line sites, I can learn of their existence, locate them, and acquire them. I periodically check about 15 different sites for new releases, many of which are on small independent labels.

Much of the new technology does tend to isolate people. The philatelist who used to meet a few times a year with fellow collectors to buy, sell, and trade both stamps and information about them now seems content to sit in front of a keyboard and a monitor exchanging key strokes with other machines out there. The listener who downloads MP3s misses the opportunity to share opinions with fellow music lovers in the local record shop. We have even devised anwering machine 'trees' so that the telephone becomes an isolation machine instead of a means of talking with people. We are engaged in a struggle to make our machines work for us rather than letting them make us work for them. When we succeed, we are rewarded with great bounty. If we give in to the machines, the trend could make intellectual dummies and social cripples of us all.