Tax reform talk is in the air, so it time to hold onto your wallet. But whenever the discussion turns to taxes, it’s always tax someone else — they have more.
The American tax code is a mess — something both parties actually agree on. The question is, what to do about it? So the talk is tax reform.
Every change in tax rates brings about new ways to avoid those taxes through political connections. Less-connected groups subsidize the better-connected.
Renters subsidize homeowners; young earners subsidize retirees; taxpayers in low-tax states subsidize those in high-tax states. Fair? Who says taxes are supposed to be fair?
The modern income tax was passed 100 years ago on a simple premise: It would only apply to the top one-half of 1 percent of the population and it would be easy to fill out — only one page.
The income tax would raise revenue necessary to provide for the essentials — to provide for a strong defense against America’s enemies and pay for the basic operations of the federal government.
Most Americans would vote for that proposal now. But the code today is a monster of 73,608 pages, and grows every year. And the IRS now also is in charge of collecting your medical insurance taxes.
To reform the tax system, Congress should look to the original tax code, which was simple with few deductions and a flat but progressive tax rate — as high as 6 percent! All income was equal and there was no distinction on how the money was earned — whether by wages, rent, dividend or capital gains.
That change by itself would create a more uniform and less politically volatile discussion of taxation. Warren Buffett would pay the same tax rate on wages, dividends or capital gains based upon his tax bracket — the highest.
Corporate tax reform also needs to be addressed. With the highest corporate tax rate in the world at 35 percent, the United States is at risk of becoming uncompetitive in the international marketplace.
And with complicated small-business tax rates on such categories as Sub S, Limited Liability Corporations and others reaching nearly 50 percent in some states like California, it is small wonder why the country continues to struggle to create jobs and prosperity.
Cleaning up all special deductions would eliminate the political influence in the annual tax discussion and remove a major corrupting force of lobbying in the country.
For example, do such entities as NASCAR racetracks, wind farmers and Hollywood producers really need special tax breaks at the expense of the rest of the population?
Making the tax code harder to change would be a great step in the direction of reducing the influence of special interests in Washington.
What we need from Washington is a bold approach to tax reform — one that will offend every special interest. The louder the outcry over the proposal, the better it will be for the American people.
Make all income equal; reduce the number of special interest deductions; broaden the overall tax brackets and lower the effective tax rates for everyone.
For business, reduce the corporate tax rate and eliminate the double taxation of dividends so that small businesses can benefit from more rational tax policy.
Tax policy should be all about the running the government while encouraging prosperity — not rewarding the politically connected.
All those in Washington responsible for tax policy should be required to read again the children’s fairy tale about the Goose that Laid the Golden Egg — killing the goose won’t produce many more eggs.
Peter Rush is the CEO of The Kellen Company, an association management company and professional services firm, and the author of “Class Tax, Mass Tax.” Readers may write him at Kellen, 355 Lexington Ave, New York, NY 10017.