Capital Tax Rate--Zero?

Two Studies have come out, both proposing the establisment of a one-rate Income tax:

A Research Program on the Interplay Between Entrepreneurial Activity and Tax Policy
by Norbert J. Michel, Ph.D., and Ralph A. Rector, Ph.D.Center for Data Analysis Report #04-16
November 24, 2004 ,
http://www.heritage.org/Research/Taxes/cda04-16.cfm

and,

Tax Incidence, Tax Burden, and Tax Shifting: Who Really Pays the Tax?
by Stephen J. Entin, Center for Data Analysis Report #04-12
November 5, 2004
http://www.heritage.org/Research/Taxes/cda04-12.cfm

Entin and the previous Paper do not specifically state, but imply a one-rate Income tax should replace the current tax system. The Authors of both Papers, though, obviously desire to maintain one fiction of the current tax system: the concept that the return on Capital is not Income, at least, not labor Income. Income utilized to engage in economic participation is Income, commonly-held fallacies nonwithstanding. This Author sponsors a one-rate Income tax assessed on all economic participants, simply because they have some source of income however derived, and use it to fund their economic participation and lifestyle (the Bush claim of 'double taxtion' stands as equal fallacy, due to the economic participation of all entities).

Entin puts it quite accurately himself, "The true measure of the burden of a tax is the change in people’s economic situations as a result of the tax. The changes should be measured as the effects on everyone’s net-of-tax income after all economic adjustments have run their courses. The burden measure should include not only changes in people’s after-tax incomes in a single year, but the lifetime consequences of the tax change as well. " The lifetime expansion of wealth for the upper Tenth of Income-Earners in this Country cannot be expression of their real contribution to the Economy, not with the incredible speed of expansion. There is a true lack of tax burden, as well as a tax burden, and all Authors should ask where that lack of tax burden falls.

Entin goes on to say, "The differences in the elasticities of supply and demand for labor and capital suggest that a tax imposed evenly on labor and capital income will reduce the stock of capital by more than the quantity of labor supplied. (Compare Charts 3 and 4.) Such a tax is more distorting of economic behavior than a tax imposed chiefly on labor income." True Capitalization finance comes from modern banking systems and organized financial organizations, rather than expanision of Corporate Stock, Bonds, or unsheltered liabilities. These organizations and their Return could and should be considered Labor income, rather than Capital income. The real element of importance here lies in the fact modern banking systems, and most financial institutions, do not rely on the Savings ratios of Individuals, but upon Demand Deposits temporarily held combined with the Money generation of using Reserve ratios. Individual Savings, therefore, are not vital for economic performance capitalization.

Entin's suggestion: "It is well understood in the economics profession that the current tax system imposes heavier taxes on income used for saving and investment, and on the formation of human capital, than on income used for consumption. Today, most economists would agree that these tax disincentives to save and invest, to work and take risk, have consequences. They lead people to undersave and overconsume and to work less and play more. These modern advances in economic understanding strongly urge us to dispose of the current income tax structure and replace it with a flat rate tax that is neutral in its treatment of saving and consumption." The above statement is not claearly understood. Capital aggregation is not affected by the current taxation, due to the financial system, and does not impact actual Capitalization of productive processes. Consumption is already heavily-taxed, what with Sales taxes of real revenues, while tax rates on Capital returns are basically nominal, i.e., non-real tax revenues. There is insufficient evidence to claim people either undersave or overconsume, given the higher Standard of Living and the steady aggregation of Household assets--even if only by the upper Half of Income-Earners.

This Author believe in a Flat-Rate Income tax, but one where all economic participatory Income is taxed in equal amount: the Author suggest a tax rate of 17%. He would like a revenue-neutral form of tax, as the above Papers claim, but a genuine neutrality which does not favor certain Households because of already established Assets. lgl