THE US BUDGET DEFICIT:Reducing the Deficit:

The Revenue Arguments

6 Possible Revenue Strategies

Budget Debate : Homework 1Revenue Strategies.

Each person in your political party, will selectone of the following revenue strategies for further investigation:1. Increase Capital Gains Tax2. Close / Restrict the use of Tax Havens for US

Companies & Individuals 3. Introduce a VAT/GST4. Introduce New Wealth Taxes/Property Taxes5. Implement the Buffet Rule6. Introduce New Sin Taxes

Requirements for Budget Debate Homework

Date Set: Monday 17th September 2012Date Due: Friday 28th September 2012Criteria: Mastery of Key Facts & Concept, Reasoning / Critical Thinking/ Length: 1000 words (minimum)

1500 words (maximum)** Intext citation and a bibliography are required.** Minimum of five different resources must be cited in the body of your response.

Requirements for Budget Debate Homework

• In order for your political party to formulate policy its needs to understand the key revenue strategies to help reduce the budget deficit.

• Your task is write a paper on one of these issues for your party’s consideration.

• You will need to present arguments for & against increasing revenue from the specified source. After considering the arguments on both sides, you will need to make a recommendation to your party based on your research findings.

• Avoid the use of “I” anywhere in your response.

1. Increase Capital Gain Taxes

What is capital gain? What is a Capital Gain Tax?• Almost everything you own and use for personal purposes, pleasure

or investment is a capital asset.• When you sell a capital asset, the difference between the amount

you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.

• Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

• The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income

• The tax rate on long term capital gain is 15%.

Source: http://seekingalpha.com/article/129598-obama-should-leave-the-capital-gains-tax-rate-at-15

Capital Gains Tax in the United States: An International Comparison

Source: http://www.cbpp.org/cms/index.cfm?fa=view&id=3798

Source: http://visualizingeconomics.com/2012/01/24/comparing-tax-rates/

Capital Gains tax in comparison to other taxes:1916-2011.

Source: http://www.cartoonstock.com/directory/c/capital_gains_tax.asp

Excellent Resources for Capital Gains Tax

The Centre on Budget & Policy Priorities

Website:http://www.cbpp.org/cms/index.cfm?fa=view&id=3798

2. Close or Restrict use of Tax HavensIncrease Corporate Taxation

What is a tax haven?A tax haven is a country or territory which has low tax rates or no taxes at all. The tax havens of the world normally provide services to foreigners or non-residents.Who uses tax havens?• US companies and US individuals. • Many large US companies like Google have paid very

little tax in the US, robbing the government of vital tax revenue.

Domestic Tax Havens in the US

• While many US corporations use overseas tax havens, there are some US states and districts that offer very favorable tax treatment.

• The most famous is the state of Delaware.• Many famous US companies actually have a

corporate address in Delaware.

How Delaware Thrives as a Corporate Tax Haven (New York Times)

June 30th 2012• By LESLIE WAYNE• WILMINGTON, Del. • NOTHING about 1209 North Orange Street hints at the secrets inside. It’s a humdrum office

building, a low-slung affair with a faded awning and a view of a parking garage. Hardly worth a second glance. If a first one.

• But behind its doors is one of the most remarkable corporate collections in the world: 1209 North Orange, you see, is the legal address of no fewer than 285,000 separate businesses.

• Its occupants, on paper, include giants like American Airlines, Apple, Bank of America, Berkshire Hathaway, Cargill, Coca-Cola, Ford, General Electric, Google, JPMorgan Chase, and Wal-Mart. These companies do business across the nation and around the world. Here at 1209 North Orange, they simply have a dropbox.

• Big corporations, small-time businesses, rogues, scoundrels and worse — all have turned up at Delaware addresses in hopes of minimizing taxes, skirting regulations, plying friendly courts or, when needed, covering their tracks.

Source: http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?pagewanted=all&_moc.semityn.www&pagewanted=print

Source: http://thinking.grant-thornton.co.uk/bespoke/index.php/bespoke_templates/article/locations_of_offshore_tax_jurisdictions_infographic/

Source: http://www.gfintegrity.org/index.php?option=com_content&task=view&id=195&Itemid=110

This data is from 2004 to 2008. Do you think the Cayman Islands is still the most popular tax haven for the US??

Source: http://www.fsteurope.com/media/media-news/infographics/090917-FSTEU-taxhavens.png

According this data from 2009, tax havens cost the US $100 billion in lost taxes.

Source: http://www.thenation.com/blog/168810/romneys-donors-share-his-love-offshore-tax-havens#

Source: http://www.corpwatch.org/article.php?id=15386

Excellent Resources for Tax Havens

Citizens for Tax Justice: http://ctj.org/

Specific Link to Tax Havens

http://ctj.org/ctjreports/2012/08/dont_renew_the_offshore_tax_loopholes.php

3. Introduce a VAT or GST Tax

What is VAT or GST?• Valued Add Tax or a Goods & Service Tax.• It is a tax levied on consumption by the Federal Government. • Currently there is no US federal tax on the purchase of good &

services, but there are US state sales taxes which very greatly. • A federal administered Sales Tax could be levied at 10 or 15%

on all good & services, including internet transactions. • The introduction of a VAT or GST is often accompanied by a

reduction in some income taxes, but overall revenue would still increase.

What countries have a GST/VAT?• Australia, New Zealand, UK, Canada are just some examples.

Source: http://danieljmitchell.wordpress.com/2010/12/12/another-great-vat-cartoon/

Source: http://www.practicalecommerce.com/blogs/post/985-What-You-Need-to-Know-About-Online-Sales-Tax

As this table shows, some US states have no sales tax and many states have no online sales tax.

US SALES TAXES IN COMPARISON TO OTHER OECD COUNTRIES

Source: http://comparativetaxation.treasury.gov.au/content/report/html/10_Chapter_8-02.asp

As this chart highlights US sales taxes on average are significantly lower than most other countries. Note again that the US does not have a national VAT and the sales tax component is an average rate across all US states.

SALES TAXVAT/GSTInternational Comparisons

Source: http://www.ebay.com/itm/Victorinox-Swiss-Army-Mechanical-Chronograph-Alpnach-Chrono-Mens-Watch-241195-/160781549490

4. Introduce New Wealth Taxes or New Property Taxes

What is a wealth tax?• It is a tax based on the market value of assets that are owned.

These assets include, but are not limited to, cash, bank deposits, shares, fixed assets, private cars, assessed value of real property, pension plans, money funds, owner occupied housing and trusts

• The tax is on a person's net worth which is assets minus liabilities

What countries have a wealth tax?• France is an example of a country with wealth taxes.• These taxes will increase with the US French president, as one

strategy to reduce debt in that country.

Source: http://economix.blogs.nytimes.com/2012/08/27/wealth-taxes-and-public-opinion/

5. Income Tax Reform: Implement the “Buffet Rule”

What is the Buffet Rule?• A proposal that all individuals earning more than $1

million would a pay a minimum of 30%.• The Buffett Rule is named after American investor

Warren Buffett, who publicly stated in early 2011 that he disagreed with rich people, like himself, paying less in federal taxes, as a portion of income, than the middle class, and voiced support for increased income taxes on the wealthy.[4] The rule would implement a higher minimum tax rate for taxpayers in the highest income bracket, to ensure that they do not pay a lower percentage of income in taxes than less-affluent Americans

Source: http://www.obamaftw.com/blog/wp-content/uploads/2011/09/taxes.gif

According to this graphhigher taxes on the rich are not counter-productive to job growth.

Source: http://www.npr.org/templates/story/story.php?storyId=129838013

6. Introduce New Sin Taxes

What are sin taxes?• A tax that is added to products or services that are seen as

vices, such as alcohol, tobacco and gambling. These type of taxes are levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal. These taxes also provide a source of government revenue.

• US states have traditionally implemented these taxes at varying rates. Eg: Cigarettes are expensive in NY, but very cheap in other US states.

• Sin taxes could also be extended to legalized prostitution. (this does not currently exist in the US)