Every week on Monday, the WoW! writers, community and our invited guests weigh in at the Wow! Forum, short takes on a major issue of the day, the culture, or daily living. This week’s question: What Would Real Tax Reform Look Like?
Don Surber: Real tax reform would be 20% of all income over $120,000 with the end of all tax credits. But good luck getting rid of EITC. Until we stop using the tax code as welfare — corporate and personal — we will never see real tax reform.
But we live in a world where we can simplify income taxes.
Doug Hagin: Well, I would eliminate most deductions, loopholes, etc. The fewer of these we have, the fewer ways to cheat. The less ways to cheat, the less need for enforcement. Thus a smaller IRS. A far better system would be for everyone to pay 10% on income after the first $25,000. You make $35,000 you pay $1,000, you make $350,000, you pay $32,500. For dependents, an exemption of $10,000 each. For corporations, businesses, a flat 10%. In short, it should be fairly easy to file your taxes. CPA’s and tax attorneys would hate my plan but, oh well.
In addition, I would eliminate or shrink most government agencies, and reign in foreign aid to nations that are not our friends. At some point the discussion has to be about spending less. There are things the federal government should fund, our military, veterans needs, protection for our coasts, borders, etc.
This is, of course never going to happen, it makes too much sense. And too many people are invested in the convoluted mess that our tax code has become.
Fausta Rodríguez Wertz: What Doug said!
Rob Miller: Whooo, tax reform! I have something of a contrary view. First off, let’s remember where all these handy dandy deductions originally came from. They were efforts by the Feds to promote different industries and different social behavior at a given time, and while they might have been good ideas then, they’ve largely stayed on the books and been abused. And some of the good ones that still make sense were eliminated. F’rinstance, people in arts and entertainment who had been struggling for years to get a record contract, a book/script deal or a movie contract used to be
able to divide that sudden huge chunk of moola by the years they had been struggling and reporting any arts income they made and pay taxes on just a percentage of the income they made during that first reasonably fat year instead of getting killed. Ronaldus Magnus took that one away. GRRR! OK, forgiven.
So the first thing to think about is what the goals are here, and here’s my two cents (agorat for the initiated ; )
President Trump’s skillful handling of the Chinese is going to eventually lead to the same thing that happened with Japan. To avoid tariffs (the stick hidden behind the carrots) they will build plants here, hire Americans and pay U.S. taxes provided they’re competitive. Ditto with American companies. So the first thing we need to do is start more manufacturing here, which will create a great deal more activity that can be taxed and thus more revenue. So the first goal is to lower the corporate income tax. Ditto with capital gains which means you pay twice for the same damned money.
The second goal is to simplify the IRS tax code. I never used to be a flat taxer, but I’ve gradually come over to that view as I realized the truth of something a very wise fella once said to me once : “If it ain’t yours, you don’t worry about it.”
Too many folks aren’t paying taxes? Well yeah, but a lot of those people actually are because of legitimate itemized deductions deductions, or because of taking less W-2 exemptions which are subtracted from their gross income. That’s not exactly unfair when you think about it. If you’re self employed and have to pay money out to run your business, should you have to pay taxes on that money? So the first part of reforming our byzantine tax code is to go through it and eliminate deductions that once might have made sense but perhaps no longer do, like the oil depletion allowance perhaps. I’m a little wary about starting anew because some deductions actually pay for themselves and then some, like R&D. Goal number three is to parse the tax code and eliminate what no longer makes sense.
However, if we were going to start fresh with personal income tax, the best way is probably four brackets. I’d have to sit down with the numbers crunchers to come up with actual percentages, but say, 10% of income $20,000 and below, 15% on income $20,000 to $200,000, 20% on income from $200,000 on up. I would still allow a certain amount of deductions to the self employed. You want to promote small business..it pays in the end and creates more revenue.
I’d also keep the child credit for now. America’s birth rate needs to pump up a bit so perhaps we’re not so dependent on immigration. Whole countries in Europe aren’t reproducing at replacement rates, and I think you see how well that’s working out with what they’ve imported to make up the numbers.
The bee-eeg enchilada, the home mortgage deduction? I would allow it for one, count ’em one family residence. The original idea behind that one was to promote home ownership, and that has a lot of sociological benefits. If people have a stake in things, they tend to care more about their neighborhoods, et cetera, et cetera et cetera.
And when people pay taxes, they also get concerned about the money the government is wasting. Like my friend said, if it ain’t yours…but OTOH, if it is, you definitely make it your business to get worried about it.I think the American people would go for that. it would suck for me personally, but there’s always my old friend depreciation and some of the stuff’s free and clear anyway, so I’d swallow it. Grr again. Ehh!
Another problem with the tax code nobody wants to mention is the waste and fraud involved dealing with illegal migrants. We spend billions on earned income credits for people working here illegally and for child credits for children not in America whom may not even exist. Read the link to find out how that scam works.
Finally, as much as people dislike the IRS, I think fantasies about eliminating them are just that. Some people simply won’t pay taxes. As ol’ Ben said, if men had their way none of them would be taxed. So there needs to be enforcement, accounting and record keeping. Also, if we’re going to eliminate the IRS, you’re talking about a huge amount of unemployment for a class of people who make enough money to buy houses, cars, refrigerators, tires, clothes, food and other consumer items, all of which create economic activity that can be taxed. So while a hiring freeze and/or transfers into a different civil service branch correct this scenario, I think simply axing them is not too bright, as much as some of them may deserve it.
Off topic, one thing The Donald absolutely ought to get into is civil service reform that would allow these so-called public servants to be transferred to different job categories or face layoffs. It can be done, and Jeb Bush of all people did it in Florida, saving the state millions.
Bookworm Room: Real federal tax reform: A 10% sales tax on everything but food basics (milk, meat, produce, bread, etc.). It sounds regressive, but it’s not because people’s consumption tends to be consistent with their income and lifestyle. Marin’s wealthy shop at Whole Foods, drive expensive electric cars, and buy their clothes at Nordstroms and Neiman Marcus. Marin’s less wealth shop at Safeway, drive cheap cars, and buy their clothes at Goodwill or Costco.
Alternative federal tax reform: A 10% tax on gross income over $20,000. Those earning $20,000 or less would pay a 5% tax. Everyone should pay tax.
David Schuler: I’m not sure I can discuss this question adequately in brief but here goes. It depends on your operative definition of “real”. I would say that real tax reform would have the following characteristics:
- It would not be financed by adding to the debt. That means it should either be revenue neutral or increase revenues.
- It must be politically possible.
- It must be either economically neutral or benign.
I hate to be the bearer of bad news but no tax reform involving a reduction in the marginal personal income tax rates would be real reform under that rubric. Tax cuts only pay for themselves under very specific circumstances. Neither today’s tax rates nor economy are the tax rates or economy of the 1980s. We don’t make enough of what we consume for the Keynesian stimulus of putting more money in people’s pockets to boost incomes to be effective and the prospects for a tax cut resulting in increased domestic investment are bleak. If a tax cut stimulated the economy it would be China’s economy that would be stimulated not ours.
Cutting spending is equally problematic. About 75% of the budget is just four items: defense spending (including military pensions and the VA), Social Security, Medicare and Medicaid, and interest on the debt. With just paying for the federal courts and a minimal regulatory state, that would account for about 85% of the budget with the other 15% already being paid for by borrowing. So, no cuts in marginal rates.
The present deductions are fiercely defended by those who depend on them for their incomes. The biggie, the home mortgage interest deduction, will be defended to the death by the real estate industry. The deductibility of charitable contributions will be defended by not-for-profits. The deductibility of state and local taxes will, unsurprisingly, be defended by state and local governments.
From time to time you hear a national sales tax floated as a replacement for the income tax or a way of reducing marginal tax rates. That’s not real, either. Sales tax is a matter of life and death for state and local governments and retailers.
And so on.
IMO the only prospect for real tax reform is that we might be able to reduce the corporate income tax to fall within OECD norms rather than their present very high level. The corporate income tax accounts for about 11% of present federal revenues. Cutting them in half would require about $180 million in cuts. That can be accomplished in any number of ways including reductions in military spending, trimming the budgets of some federal agencies, or even by a surtax on personal incomes over $1 million. Bringing the corporate income tax down would reduce the incentives for inversions and encourage companies to repatriate some of their overseas earning. That’s something anyway.
I haven’t spent sufficient time on the issue of tax reform to propound at length, and with any special insight, to say nothing of the nuts and bolts of specific proposals, but I can suggest a few general principles that might have a positive effect:
Everyone needs to have skin in the game. At present, only about 47% of the public pays taxes, and a great many of those that don’t get tax refunds. Think about that one: refunds on taxes they don’t pay. Even the poverty stricken can afford a few hundred a year. Until everyone is a taxpayer, we can’t hope to have meaningful tax reform.
There is no reason individuals can’t pay their taxes on a post card. The simpler, the better.
We absolutely must dramatically reduce business taxes. Our current “progressive” tax system is among the most regressive in the world and is badly damaging our economy. It has been for a very long time.
There should be very few, and highly specific deductions, available only to those that actually pay substantial taxes, such as the middle class. A home mortgage deduction, deductions for dependent children, and perhaps for adults caring for elderly parents–an issue that becomes more common and pressing by the year–can be retained, and easily citied when filing one’s form 1040 postcard.
There must be no tax loopholes or exemptions for members of Congress or any other governmental employee. They sink or float in the same boat as the rest of us poor deplorables.
It should go without saying that corporate tax welfare is out. Temporary incentives to stimulate plant building, etc., sure, but we must let free enterprise do what it does best and get government out of the market.
Constitutional Amendment: the Federal Tax code may not exceed 50 pages, double-spaced, Times New Roman, 12 font. Felony penalties for anyone adding a period more.
Of course, none of this will be possible without repealing Obamacare, restoring sane immigration policies designed only to directly benefit America and Americans, and without dramatically reducing the size of government. President Trump is making a good beginning, but this is going to be a multi-generational project. Until Americans give up the idea that government can and should provide for all their needs, taxes will never be under control. And of course, whenever progressives are in power, we’ll be skyrocketing in exactly the wrong direction.
Doing this will have one additional useful effect: the IRS can be reduced to a fraction of its current size and power. Oh yes, felony penalties for any IRS employee that abuses their power, including total loss of employment, benefits and pension.
Right Reason: Tax reform cannot be accomplished overnight but we should set a goal to eliminate personal and corporate income taxes completely and stop the federal government’s theft of the hard earned wages of American workers. We have to starve the beast. Government must be forced to operate within a balanced budget. We can eliminate several cabinet departments such as the EPA, DOE, Dept of Ed, FHA… which have no legitimacy from a constitutional perspective. The federal government should operate the way any business is required to operate, spending no more than it takes in.
The federal income tax system is confiscatory theft. The American taxpayers are debt slaves to an out of control and too powerful federal government. As we saw under the Obama Administration the Internal Revenue Service became a political weapon of the left, targeting conservative organizations in an effort to keep them from being able to obtain 501c3 status. This seriously hindered their ability to operate and advance the conservative message going into the 2010 and 2012 election cycles and one might argue a major contributing factor to President Obama’s re-election in 2012. The Internal Revenue Service needs to be stripped of its power and reduced to a simple accounting division of the federal government if left to exist at all.
Real tax reform would be the implementation of a flat tax (a set rate based on income) or a fair tax, which is a consumption tax. I would prefer to see a fair tax replace the current system. Under a fair tax everyone would pay for the products and services they purchase. This fair tax would exempt food, medical care, medicines, and certain other products or services of necessity that could be negotiated and agreed upon by our legislators. We do not want the fair tax to be a regressive tax that would harm low income, elderly, and disabled citizens, but the less people consume the less they would pay. With a consumption tax everyone would contribute towards the operation of the government. Having skin in the game is the only way to make people aware of and care how their money is being spent. Today nearly half of Americans pay no income tax and many actually receive money and benefits without paying anything into the system. As long as they continue to receive government handouts they have no incentive to fix this broken system. A fair tax would also eliminate the need to file federal income tax returns.
Progressives love to tell us the rich don’t pay enough taxes while the fact is they pay the majority of taxes received by the federal government. The current system is pure wealth redistribution, which has been the goal of socialists since the implementation of the federal income tax nearly one hundred years ago.
The more money we pay in taxes the more the government spends. It is never enough. The Supreme Court ruled Obamacare was a tax and therefore constitutionally legal. Americans are seeing higher taxes and health care premiums and costs while experiencing less health care and less discretionary income. It appears the federal government’s goal is to take every last penny we earn to redistribute as it chooses. The national debt is nearing $20 Trillion Dollars. The government has borrowed on our future earnings and the labor and earnings of our children and grandchildren. It is theft and if not criminal it is most certainly immoral.
Well, there it is!
Make sure to drop by every Monday for the WoW! Magazine Forum. And enjoy WoW! Magazine 24-7 with some of the best stuff written in the blogosphere. Take from me, you won’t want to miss it.