A Tax System without Loopholes.

Arnold Kling(http://econlog.econlib.org/archives/000662.html) asked if there was a better way to provide subsidies than with tax loopholes. The author provided him with an answer, but thought a more through assessment should be conducted. This is it.

Provision of Business subsidies by tax loopholes (deductions, exemptions, tax credits, investment credits, etc. ad infinitum) remain the most dubious method of providing subsidies. Such subsidies are unbounded, by which it can be said unknown largesse can be deducted from taxation by the inventive Business. The second aspect comes from the fact such tax loopholes cannot be targeted: a probable Six businesses 'piggyback' the loophole for every business for which the loophole was constructed. The third serious problem stands as 'What the Emperor bestows, let no one put aside': the Author has never seen a good tax loophole ever rescinded, except by revolution, example being the mortgage credits. The final pitfall lies in the fact that one tax loophole is a Business windfall, two loopholes make an Accountant's fairy tale.

Alternate methods to provide Business subsidies were briefly mentioned on Arnold Kling's site. Absolutely necessary industry should be protected by enforced Product prices. This is basically the reverse of tariffs. An enforced Product price is where a Product cannot be sold Wholesale below a certain Price. The Price is set yearly or quarterly with the express intent of assuring domestic production can succeed in the provision of the specific Product. Foreigner production can sell in the domestic market, but not below domestic Wholesale price. Congress could charter a Commission to issue a specific Product list along with specific Wholesale prices; Products to be included only if a failure of foreign Product could lead to reduction of domestic GDP production. Such a Commission should also be empowered to purchase essential production resources and stockpile such materials in case of adverse Trade disruption.

A Domestic Finance Fund should also be created. Yearly Applications would have to be made, in order to get a non-repaid Block grant for the sole purpose of expanding production capacity. The Applications would have to be approved, based upon a determined need for such expanded production, and the financial inability of the applying business to fund the expansion. All other subsidy systems maintained for Business should be eliminated, especially tax loopholes. The only other potential subsidy system would a Startup Package Fund to fund good Prospectives without normal immediate channels of Profit.

The real Business subsidy overall, as well as for Personal subsidies, must be low tax rates. These low rates are the only guarrantee of economic performance, as Business, Individual, and Consumer have the capitalization to participate in the economy. Welfare subsidies should be accomplished with direct Welfare transfers which are measured and exact.

The Author feels strongly about total elimination of tax loopholes, to the extent he wishes for cancelation of even individual personal deductions. Tax Rates, whether Flat Rate or Progressive, should be exact Real rates of tax. Social Security empowerment can be altered to pay additional credits to Individuals or overlarge families when there is need--applied for and approved as definitely necessary assitance. He is so radically conservative in Tax Policy, he would eliminate even the Recapitalization and Amortization expense credits for Business, relying on a Flat, Low rate of taxation. lgl