วันพุธที่ 28 กันยายน พ.ศ. 2554

Warren Buffet, tax super rich and Stimulus Package by Wannaphong

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Warren Buffet, the third wealthiest person in the world and son of a former Republican congressman, message to congress about taxing super rich American. He makes a big fracture with his father’s party by pressing for tax increase on the wealthy and makes the relationship with president Obama, Democrats. He called on congress to stop coddling the rich and proposed raising $500 billion tax revenue.
He said “The wealthy should pay more. The poor and middle-class fight for us in Afghanistan and are often required to contribute a greater portion of their income to the government. ” So, Republican congressman such as Michele Bachman quite resists his proposal because Republican’s base is middle income. If there is raising tax, they might be disappointed. The advocate of Buffet’s proposal is Alan Ace Greenberg, former CEO of Bear Stearns he supports the higher tax on the wealthy.
Well, Obama’s plan focuses on applying income tax rates to some earnings.
Two weeks later, 12 September 2011. Obama pronounce the stimulus package or an urgent issue. To summarize, it mainly composes of
-          Raise tax revenue almost $500 billion by taxing the rich through expand the two top brackets of marginal tax rate from 33% to 36% and 35% to 39.6%
-          Repeal oil subsidies that will raise revenue almost $40 billion
-          Reduce the deduction or exemption from tax bill to 28%.
-          Reduce the payroll tax

In my opinion, income tax is the most important source of federal revenue but only tax is not raise nearly enough to finance all government expenditure. However, designing tax system should minimize an inefficiency or deadweight loss. But
First time, I read about the progressive tax, it refers to take a larger percentage of income for higher income than lower income in term of applying the different tax rate to different level of income corresponding to vertical equity. It can reduce inequity among citizens followed the ability to pay measured from each income. But there are two problems I found.
1. It levied a higher tax rate only on an excess over each bracket with a flat rate tax. It’s fair for the poor the pay in low marginal tax rate but Is it better if individuals are levied in the percentage of all taxable income in which there income is. At least, it maintains the role of vertical equity and ability to pay. Also, the poor still pay in the lower marginal tax rate and surely the tax revenue increase.
2. Progressive tax is not good at all. The more progressive tax is the higher marginal rate. The higher marginal rate provides a larger magnitude of substitution effect. In group of individual that is very elastic such as labor market that as tax rate increase, the greatly reduce their labor supply because they prefer leisure to work if they have to forgo the additional income to pay tax at higher rate. So an increase in the income tax rate make the labor supply more elastic that mean it’s easy to substitute their work with other activities such as leisure. Then it reduces the overall labor supply that create a deadweight loss as the marginal tax rate.

So, it’s trade off in progressive tax that is basic trade off in tax system design. More progressive tax system have greater a deadweight loss but in provide more equity among citizens. In this progressive tax, equalitarian social welfare functions will choose more progressive tax because their social welfare places more weight on equity.
However, according to stimulus package
-                          I agree with tax the rich heavily because it causes tax revenue increase from the people that low marginal utility of income.
-                          I also agree with reduce the possibility of deduction or exemption because it also raise the tax revenue when deduction is less.
-                          But I don’t agree with cutting payroll tax because it seems coddle some individuals and contrast with the tax super rich idea. If the proposals try to raise revenue but why there is cutting payroll tax proposed.

                   By the way, designing tax system to satisfy everyone equally is such difficult because members in society have different preference so they value different. As a result, when you express your preference by voting the candidate, make sure he or she is able to utilize and provide you the need unless you want to do something undesirable such as paying a higher tax rate.

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