Monday, November 26, 2007

Taxes, and tax code changes

With Mike Huckabee forcing the GOP contenders to no longer be considered "top tier", rather "top-five" contenders, it is also bring more discussion about the Fair Tax. Now, I must admit that I am a bit of a fan of the Fair Tax, which is why it upsets me when I hear folks like Romney insist time and again that the Fair Tax would mean a 33% national sales tax, and how it would hurt the retired folks who no longer pay income taxes... Let's stop the political dribble, and discuss real tax reform.

For starters, the Fair Tax will require no more than a 22% National Sales tax. This will be stand alone, no income tax at a national level. The lower rates will still fund the federal government for a few simple reasons:

  1. Elimination of defunct government programs/departments/programs

  2. The hidden taxes currently built into the current price system will go away - the prices will have to drop as consumers will be outraged to see a corporate profit increase of unreasonable amounts

  3. We no longer will have to subsidise those failing to pay income tax. This is a system where more people will be paying into it, so the rates are lower with the same results

The tax code is currently so complicated, with loopholes, tax breaks, multiple taxes... for instance, if you overpay your taxes and your tax write-offs exceed $10,000, the money that was taxed once and then returned to you is taxed a second time the following year as income. There is a tax on savings, tax on dying, even a tax on selling your home too soon... Every aspect of our current tax code suggests that the government wants to penalize growth and innovation.

Imagine a tax system that would either eliminate the entire tax system, levying a one-time tax of 20-30% on income, or a tax system that has a 0% income tax and 22% sales tax. No loopholes, no tricks, no special deductions. Everyone pays tax one time on the same dollar.

The CATO institute suggest a flat income tax, eliminating all other tax loopholes. They suggest a maximum tax rate of 20% for maximum economic advantage. In time, this tax rate will provide economic growth rates upwards of 7-10%. Similar results would be seen with a Fair Tax, but the Fair tax has one HUGE obstacle: the Constitution.

During the era of the new deal, there was a tricky little amendment to the constitution that allowed the federal government to collect an income tax. The Fair Tax will never succeed unless we have a constitutional amendment to repeal the federal income tax, and replace it with a sales tax... furthermore, it would be almost necessary to constitutionally ban a federal income tax to ensure that the government does not hit us with BOTH! This is the reason that the CATO institute has chosen not to endorse the Fair Tax... the means to achieve the intended purpose are too great.

So as we move forward with the Presidential nomination process, we need to listen very closely to those with the biggest ideas on taxes. Senators Obama and Clinton have promised to increase tax rates to those of the 1990's... That is upwards of 40% plus multiple taxes. The only effect of taxes this high are stifled economic growth, higher unemployment rates, and lower disposable income in the hands of the citizens (and thus a lower quality of life).

Who is your candidate of choice when it comes to taxes? How will they best spend my money? And how will they ensure that my money stays in my pockets, not their coffers?

1 comment:

  1. Increasingly, Mike Huckabee has the look of leadership. Huckabee's ardent support for the FairTax sets him apart from all other viable presidential candidates.

    The FairTax Act of 2007 (HR 25/ S 1025) represents a prospective power shift of massive proportions in America. It lays out a practical ideal of voluntary payment of taxes, based on a substantial level of taxpayer choice that the plan affords. Since FairTax untaxes basic necessities (up to socially-accepted poverty-level spending), what is taxed is marginal, and/or desired or preferred, on a broader base of retail products and services. This is to say that the taxpayer may, under the FairTax, choose to purchase used products and avoid paying the tax. And, to the extent desired, the taxpayer may choose to self-perform certain services rather than pay for them. This will stimulate do-it-yourself education, improve citizens' self-reliance; indeed the FairTax represents the possibility of ushering in a new can-do, citizen psychology that would accrue to greater demands for government accountability - truly, a socio-cultural sea change, or - better - a restoration of a freeholder mindset on account that politicians could no longer directly grab dollars from paychecks, nor could they grap operating capital from businesses.

    Government is the "necessary glue" that enables the social fabric to cohere. It does this by effecting "rules" that ostensibly provide members with equitable access to wealth and resources. It also must provide ostensibly equitable enforcement of those rules in order to mitigate threats to the social fabric. It is unrealistic to believe that the structures of a national government can be supported on donations, thus the need for taxes. Naysayers love to characterize anything purporting to be a "fair tax" as an oxymoron - but it is not true. The idea of fairness has to do with equitable sharing in the cost by all members who depend upon the social fabric for food, shelter, clothing and post-necessity economic enterprise. And, because of the shift of power from politicians and special interests under an enacted FairTax, the elected will find it more difficult to both enlarge government, and implement any dual system of taxation. FairTax strategist, Dennis Calabrese, discusses how the FairTax repeals the income tax, how it does away with the IRS, and how it addresses other aspects of frequent concern to skeptics.

    The FairTax has a much greater opportunity for success to operate as a "self-regulating" mechanism because of increased visibility. One finds that the current system, ostensibly regulated by the Internal Revenue Code, is in fact poorly regulated because of continually increasing complexity (the effect of tax favors from politicians, through lobbyists, to favored corporations and other special interests) stemming from the desire by those holding government position to steer public behavior using tax code "carrots." We have seen how 100 years of this type of behavior has eroded the Nation's currency and the purchasing power of working family incomes. "Visionist," Tom Frey believes the current tax system will simply collapse; and economist Laurence Kotlikoff heralds - short of enactment of FairTax (or an otherwise unlikely change in spending habits) - the U.S. will shortly face an irrevocable economic breakdown. (Kotlikoff believes that passage of the FairTax can stave off the economic ruin we're facing, but would be surprised to see it happen.)

    Frey and Kotlikoff may be right on both counts, and we may not be able to successfully evoke change; but shall we not try?

    Mike Huckabee believes we should.

    (Permission granted to republish, in whole or part. -Ian)