April14
This started out as reply to some really good, discussion provoking comments to my earlier article about taxes. Once my response grew past 3 paragraphs, it was time to move out of the comment box.
Like many issues in politics, the Catch-22 involved in reforming the tax code is apparent to everyone. A huge overhaul of the system as-is would require so much effort and money to enact that it seems insurmountable. On the other hand, things can’t go on like this much longer. Tax revenue is becoming more precious than ever, and it is being lost in the morass of complexity of the current tax code. My belief is that the Catch-22 doesn’t exist, really, beyond a marketing ploy to reinforce the status quo. The lobbying industry is very good at spinning information the way it needs to go, and they would be largely extinct without the current tax code. Our legislators have a vested interest in keeping things as muddy as possible too. Transparency is one of those key terms that is talked up a lot, but really, lawmakers have absolutely no interest in pursuing it.
An astronomical amount of money funds the IRS and millions of dollars go to simply deciphering and complying with the existing code. That energy could be converted to transferring the system to either of these programs or even another grand idea that hasn’t been thought of yet. Of course, then, eventually, we’d be seeing government bailouts for ex IRS employees. Both the Fair Tax and the Flat Tax plans are far better than what we’ve got out there, largely because they are simpler. The plans would also do a lot of loophole closing and general tax evasion. Each plan would do that in very different ways, but either would get rid of a lot of corruption as well. This would lead to more tax revenue by itself.
As I stated yesterday, the Flat Tax plan generally is proposed as a 17% flat rate for everyone, business and individuals alike, with nothing but a personal exemption. Dick Armey has been pushing for a flat tax plan since the early 90s, and Steve Forbes developed his own plan recently thereafter. Both plans are very similar and use that same 17% rate. The way the plan is laid out, it would be mildly progressive because of the personal exemption. Those below the poverty line would not be taxed. Globally, other nations have been adopting a flat rate, as do some of our states. It’s a far simpler, easier system than what we have, but the current hatred of the rich makes it a hard sell.
From my personal experience, the Fair Tax seems to be an even harder sell, and that may be its downfall. There are no deductions or exemptions for the Fair Tax. Yes, there would be some ability to exert control over how much taxes you pay in a year, because everything sold at retail level is subject to it. (Everyone would get a monthly “prebate” to offset the cost of basic expenses at the poverty level.) So, yes, if a family didn’t want to give a single penny to the government, they could find ways to buy second hand or be self-sustaining. The flip side of that is that sales tax is much easier to enforce than income tax. Never buying retail is a very rigid stance to take, and far more people currently evade income taxes than would bother to go to that extreme. It also completely does away with the income tax altogether, and is simply a sales tax, just like is already collected almost everywhere. Since those mechanisms are in place, it shouldn’t take much after the upfront changeover to add in another tax at the register. The back end of collection would mean a different way of collecting federal taxes, but there is existing infrastructure that could be converted to easily tracking the numbers. If the 16th Amendment is repealed, then there will be plenty of IRS officers looking for a new job.
The reason that the Fair Tax wins out over the Flat Tax for me, is that the Fair Tax is not an income tax. Income taxes are problematic for a number of reasons. Some people have equated them to slavery. While I wouldn’t go quite that far, stating that the return on my labor is owned in part by the government does chafe a bit. Philosophically, I’d much rather the tax be collected on purchased goods. The real issue is defining “income,” however. Income taxes can double tax some, and allow others to simply pass with no enforcement at all. That’s one of the reasons that what started as a fairly simple, temporary measure grew to be the monstrosity of tax code we see today. A flat tax today could be tweaked and coddled into growing back into a mess. While a national sales tax could be susceptible to over-legislation and corruption as well, it would not be as easy.
This crisis is the time to make some bold moves, no matter how scary it might be. Doing away with income taxes altogether might just be a bit too much change, and so the Fair Tax might not have the realistic shot that a Flat Tax would at being passed. I’m sure that many will argue that, at best, I’m idealistic and naive to believe that any bumps in transition from our existing income tax scheme to one of these simpler, superior ones would be shortly righted. I still want to talk about it, though. The types of change I’m ready for, the country isn’t, and I know that won’t change unless all those people getting mad and “teabagging” tomorrow start endorsing solutions that pull even more people in, so we can reject more of the same.