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Episode Description
In this episode Arpit Chaturvedi explains the process behind drafting, researching, and passing a piece of tax legislation. We discuss the research that goes into deciding the proper rates at which to tax individuals and corporations. Additionally, we learn a few ways to ensure informational and economic equity in tax legislation. Arpit describes some alternative tax solutions in the United States, such as a value-added tax. Finally, he discusses the Cornell PolicyReview’s plans for 2018.
Brief Show Notes
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The Origins of a Tax Bill
Basic tax theory is that the government must be able to raise enough money to fund social welfare programs. After a tax bill originates, the bill goes to the Treasury Department, where a report is filed on its effects. This version of the bill goes to the House of Representatives where it is evaluated by the Ways and Means Committee.
After these hearings the bill is sent to the Senate Committee on Finance. If the Senate passes the bill, it goes back to the Conference Committee where both houses will vote on the final version.
Finding the Best Tax Rates
Tax rates are funded by both ideology and research. However, tax in theory is not always the same as tax in practice. When Margaret Thatcher instituted a flat, lump-sum, tax in 1989, it eventually backfired and was repealed. The point being that while it may have looked good on paper, the tax worked differently in practice.
A raise in taxes on lower-income earners has a different effect on consumption patterns than the same increase does on higher-income earners.
The Laffer Curve
The Laffer Curve is driven by the belief that as you reduce tax rates more people will pay taxes.
“The reducing rates would, in my opinion, not have that much of a benefit for the government.” ~Arpit Chaturvedi
The Elimination of Itemized Deductions in the New Tax Bill
It is frequently argued that getting rid of itemized deductions will make paying taxes simpler, however they are not replaced by equivalent deductions.
“While only 1/3 of the people are taking these itemized deductions, these will be the people who will be at a loss because of the removal of this deduction.” ~Arpit Chaturvedi
The repeal of the personal exemption would help the government raise $1.22 trillion over the next few years, but it will take away one of the deductions individuals will be able to take.
State and Local Tax Deduction Cap
The new tax bill in the United States places a $10,000 cap on State and Local tax deductions.
“This $10,000 limit puts a burden on the people eventually to evade, or be motivated to not pay at least one of the taxes. Either the state of federal taxes.” ~ Arpit Chaturvedi
The root of this issue is that of intergovernmental relations and how much leverage a state has in raising revenues in regard to the Federal Tax Code.
Ensuring Fair Taxation and Equity
There are two types of equity that must be ensure in a tax bill: informational equity and economic equity. Progressive taxes allow us to encourage economic equity. In regards to informational equity, Arpit has a unique model: CESS (Clarity, Efficiency, Seamlessness, Simplicity). While the government must do a lot to educate the people, CESS should also be implemented when making such legislation.
Corporate Tax Changes
There will be informational advantages for larger corporations under the new corporate tax changes. Another theory is that putting a tax on capital will increase the costs of the final product. However, theory and practice often turn out differently from one another. There can be an over accumulation of capital which slows the market from growing. One solution to this might be by ensuring correct tax ratios in regards to who pays the most and who receives the benefit of the taxes.
Value-Added Tax (VAT)
The USA is the only OECD country without a VAT. Any VAT tax must run on two principles: neutrality and destination. Listen to find out how exactly a value-added tax works!
A VAT ought to have a uniform rate throughout the supply-chain. This can be prevented when a product is produced in one state and consumed in another state. The consuming state receives most of the tax revenue at the cost of the producing state.
Cornell Policy Review’s 2018 Plans
The CPR started the year by publishing The 17 Best of 2017, as well as an article on Affirmative Action in the United States. They will be publishing an article on artificial intelligence in the policy making process. In keeping with the vision of, “Insightful content for an informed world,” the CPR will be partnering with other reviews producing insightful content in 2018. This will allow them to share articles from a litany of new sources.
Bills with Luke Scorziell does not provide investment, tax, or legal advice or recommendations. This material is solely intended for educational purposes based on publicly available information and may change at any time. Additionally, this article’s content is a summary of the Interviewee’s comments and, while rephrased by the Author, are not from the Author himself.
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Previous Episodes
Ep. 23: New Laws in California and Britain’s Holiday Health Crisis
Ep. 22: An In-Depth History of Net Neutrality
Ep. 21: How the New Tax Bill Will Change Business Taxes
Ep. 20: How the New Tax Bill Will Affect You
Ep. 19: Timothy Keller, Managing Attorney of the Institute for Justice’s Arizona Office
Ep. 17 & 18: Ep. 17: Daniel LaCalle, Author of Escape from the Central Bank Trap
Ep. 16: Countable CEO and Founder, Bart Myers
Bills Ep. 14: Arpit Chaturvedi (Pt. 2)
Bills Ep. 13: Arpit Chaturvedi, Editor-in-Chief of the Cornell Policy Review (Pt. 1)
Bills Ep. 12: Timothy Buck, Co-Founder of Read A Bill
Bills Ep. 11: Privacy and Police Body Cameras Part Two
Bills Ep. 10: Privacy and Police Body Cameras Part One
Bill Ep 9: The Campus Free Speech Act Part 2
Bills Ep. 8: A doctor’s perspective on school start times
Bills Ep. 7: Giving Kids the Chance to Dream with Irena Keller
About Luke Scorziell
Mr. Scorziell created The Edge of Ideas when he was 15 years old. After a few years of blogging he found a passion for podcasting and now regularly has guests on his show, Bills with Luke Scorziell. Find out more about Luke and his unique journey. Feel free to send Luke a message below.
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