I keep hearing about income tax “simplification.” It is almost as hot a topic as “social security reform.”
On the topic of income tax, some of the less up-to-date among us still throw out the term “flat tax” as something that our representatives should strive to achieve.
I can’t be certain of this gut feeling I’m having, but based on what little I have seen and read, it occurs to me that “tax simplification” is just another ploy by the rich to get the middle class to demand a change to benefit the rich.
Yes, I know…Middle America “thinks” that tax simplification means that they will pay lower taxes.
But let’s be clear in this debate. There is no design element to tax reform that requires the government to collect less taxes. The federal budget is NOT being reduced. In the aggregate, the government still needs us (all of us) to continue to contribute an ungodly amount of money each and every year.
What we are talking about is which groups (which people) bear what shares of that huge and ever growing bill.
So let’s work with high-school algebra here. The total amount to be collected must remain the same. Middle America thinks that they will pay less. So where will the money that used to be paid by Middle America come from? Remember, Middle America thinks that they will pay less under the new system.
Where will that money come from?
Does everyone think that the rich will pay more under the new system than they already do?
Let me kill that perception right now.
The April, 2004 JEC Report entitled “WHO PAYS THE INCOME TAX?” asserts that: (i) the highest-earning 20% of taxpayers earn less than half of all income but pay more than four-fifths of all federal income taxes; and (ii) the highest-earning one percent bears an even more disproportionate share of the income tax burden, earning 14% of all income but paying 34% of federal income taxes, more than double their income share.
Based on this report (and this report is roughly the same as all of the other JEC reports on this topic), the rich (the top 20% of earners) are already paying a ridiculous percentage of the overall collected tax (more than 80%).
So, when the President mandates that the changes to the tax code should “promote long-run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace” doesn’t this sound like the old Republican mantra “we need to give more money to the rich so that they can invest it in companies that provide more jobs for everyone else”?
I know I am being cynical here, but the President is not looking for a tax reform proposal that requires the rich to pay more.
Now, I am all in favor of a system that simplifies both compliance and enforcement. If we could actually support the folks that are charged with chasing the dead-beats, we would go a long way toward easing the burden of all of the rest of us voluntary compliers. And certainly, that is a key goal of the Tax Reform Panel. But until this last budget bill, the appropriations for Treasury were meager. Heck, a junior partner at a regional accounting firm or law firm can make twice as much as the highest paid IRS cop. Is it any wonder that the brightest tax minds leave government and go over to the “taxpayer” side?
So I propose this. Find a way to increase voluntary compliance with, and enforcement of, the existing laws AND / OR reduce the budget.
If it were up to me, I would leave the top 20% paying 80% of the tax and just reduce the budget.
The funny thing is…if we reduce the budget, then the government will have less of a need to keep dipping into social security.
Maybe we can fix both problems at once.