Unicorns. Big Foot. The Loch Ness Monster. Tax Reform.
All four are pure fantasies yet we are obsessed about finding all four.
I do not claim to know much of anything, but I do know this — since I first opened my first paycheck as a 13-year-old some 48 years ago politicians have been jabbering about tax reform.
I’m not talking tax cuts that are always fleeting or the “free money” that the chosen few got for being in the right place at the right time to get $7,500 from Uncle Sam to buy a home or get between $2,500 and $4,500 for their clunkers.
I’m talking real tax reform.
I get that one of American’s great national pastimes is bellyaching about taxes. I also understand we wouldn’t have a lot of things if it weren’t for taxes — roads, water systems, police and fire protection, national parks, the military, food for the needy and secretaries for members of Congress so they don’t forget an appointment with their taxpayer subsidized Lamborghini class healthcare provider. I also believe there is waste and inefficiency as well as growing dependence on wealth transfers via government handouts. Thanks to Congress, no artist no matter how marginal or repulsive their work is won’t have to starve if they can land a grant from the National Endowment for the Arts.
Real reform would assure the neediest working fulltime would be free of income tax burdens as part of a concerted effort to dial back wealth transfer programs such as food stamps and other government assistance programs. Why take money in the form of taxes from people who the federal government then has to give money back to in the form of assistance after siphoning off their cut for overseeing the transfer?
Real reform would use income indexed to basic cost of living based on regions to determine income tax liability. Based on Rent Jungle statistics, the average two bedroom apartment is now renting in Manteca for $1,377 a month as opposed to $787 in St. Joseph, Missouri, that happens to be about the same size of Manteca in terms of population. That means a person making $15 an hour working full-time would pay less than a third of their yearly salary for housing in St. Joseph as opposed to more than half of the same salary for housing in Manteca.
The excuse not to index income by region, of course, is that it would be too difficult. Not only are there these things called computers but if Congress can harness the massive federal bureaucracy to come up with humdingers such as the oil depletion tax in terms of complexity to save special interests money, they can do the same to bring fairness to wage earners.
Real reform would gradually phase out all deductions and tax credits reverting back to the first 1040 form in 1913 that required you to fill out information on just three pages and nothing else. Deductions included all interest on debts, all state and local taxes paid, and worthless debt, losses from fires et al. Businesses were allowed those plus only two other deductions — necessary expenses to carry on business and depreciation. Net income was taxed at 1 percent from $20,000 to $50,000, 2 percent from $50,000 to $75,000, 3 percent from $75,000 to $100,000, 4 percent from $100,000 to $250,000, 5 percent from $250,000 to $500,000 and 6 percent over $500,000. So if a person made $80,000 they weren’t taxed on the first $19,999, paid a 1 percent tax on the next $30,000, 2 percent on the next $25,000 and 3 percent on the last $5,000.
The only thing you’d need to monkey with besides indexing for cost of living is allowing deductions for dependents to reduce the reliance on government aid for basic living expenses via welfare, housing assistance, and food stamps. That doesn’t mean all assistance would be eliminated. What it means is the start of the payment of income taxes would be set high enough to try and avoid any dependency on wealth transfer programs. The income tax would apply to all wealth generated on American soil by all firms and individuals regardless of their primary nation of residence or company headquarters.
Tax rates would be significantly higher than in 1913 while tax shelters for avoiding or deferring taxes would be eliminated. That means business strategies to increase profit which results in more economic stimulation would not be sidetracked by strategies to maximize profits by reducing tax liability.
The rates could be derived by running a computer model that reduces the overall annual net from federal income taxes by 10 percent on the assumption the reduction and more will be made up by money being freed to re-invest and reducing the skimming off tax dollars to a manage wealth transfer programs.
The same tax rates would apply on income American citizens earned in other nations but not the profit of American companies that sell products overseas. Instead such business profits would be taxed at a reduced rate — perhaps 50 percent — to discourage firms such as Apple from hoarding $216 billion to avoid USA taxes and to acknowledge that the best way for American workers to compete with those overseas or south of the border is to lower corporate tax rates on profits earned with overseas sales of American produced goods and services and not by slashing the salaries of American workers.
Nearly doubling the standard deduction and reducing corporate and unincorporated business tax rates, bumping up the child care credit and reducing the tax rate overseas profits of multi-national firms as is being proposed may help but it is akin to treating cancer with an aspirin regimen.