Tax Reform Agenda
For The 109th Congress
(Courtesy of the WSJ debate)
This Author has real difficulty with this Report, though it expresses Conventional Economics as it exists today. Economists treat Tax adversity as an external cost--or impediment to economic performance. The Author sees it as an internal resource, driving Production efficiency and Productivity growth. Current Tax rates and Tax credits have assuredly produced a Financial Paper balloon, is believed by the Author to have actually retarded the Economy through shift of economic assets to Tax exemption, and channeled economic growth into quick Turnover Profit Investments. The Author cannot appropriate Studies applicable, but suspicions that actual Production, in terms of on-the-ground physical Product, always declines in the face of Tax breaks of any type.
The Report extols the VAT tax as the perfect method of taxation, throwing the entire burden of Tax upon the Consumer. The fact remains the States fully optimize use of a Consumption tax through State and Local Sales taxation. Actual switch from State Sales taxation to a VAT could possess real gain for both States and Economy, but injury if Federal taxation was added. Economists wonder why Consumption is down in the EU, but it is also down in almost all Countries which use the VAT; the rationale being Consumers are gun-shy of the VAT taxation. They overpay for Goods and Services of insufficient value, while Savings stands oversubsidized.
Younger Readers may not understand: for example, European Consumers know the best Trade-in value for an automobile is Four years; they also know, because of the VAT, that if they wait for Eight years they will accumulate sufficient assets to buy three automobiles. They can pay for the last Purchase, pay for the current Purchase of an automobile, and have enough left to buy the next automobile with the additional accrued Interest. This might be conducive to Individual Savings, but is absolutely disastrous in maintaining a full employment economy. The economic fact becomes loss of total National Savings because of loss of economic performance.
All Proponents of current types of Taxation with some unitary tax must understand the implications. The wide variety of taxation distributes Tax Burden across the entire spectrum of the Economy. Business taxation stands as the method to spread the Profits of economic growth to the Labor which produced such growth through lower Tax burden on Wages and Consumption. This likewise applies to Capital Gains taxation. Effective Estate Tax rates devolve concentration of Economic assets in the hands of Those not as economically efficient as their Forebears, while not restricting Investment in the slightest, due to the existence of the modern Banking system and sophisticated Financial Paper.
Flattening of Tax rates provides real economic incentives as listed in the Above report, and must be an element of any reform. Elimination of Loopholes remains another effective avenue for immense economic gain. The Author stands as quite radical on this Issue. He would call for total elimination of all forms of Tax Preference, including Personal Exemptions, Deductions, Tax Credits, and even payment of previous taxation. He would annul the special privilege of Capital Gains, decreeing it to be simple Income, taxable exactly as other forms of Income--Wages, Rents, and Royalties. He would give a single $1000 Rebate for every Dependent, and alter all Retirment Account formulas (401(k)s, Koughs, IRAs, etc.) to half-taxation now, the other half-taxation to be paid upon Withdrawal at any Age. He would do this to establish a Two-rate Income Tax: 15% below $100,000, 25% over $100,000. Corporate Income Tax would be set at 25%, unless Profits were less than $100,000 where it would be exempt; Partnerships and Sole Proprietorships taxed in same manner. All other forms of Federal taxation will be eliminated, specifically the Sin taxes, but not Pollution emissions standards taxation. lgl