This entry was posted on 4/4/2005 6:08 PM and is filed under uncategorized.
Background
A century ago there was a situation in the United States very similar to the one that exists today, wealth and power had accumulated in the hands of the Robber Barons and the rest of the population was paying for their excess. In 1913 the 16th Amendment to the Constitution was adopted which authorized congress to collect taxes on income. Income taxes were considered fair because those who profited the most from the advantages of the United States also paid the most. It was, of course, strongly opposed by the Robber Barons.
Republicans are now pushing a National Sales Tax that they term the "Fair Tax". Truth in advertising would require it to be called the "Most Unfair Tax Ever". Their scheme is to eliminate all individual and corporate income taxes and replace them with a single sales tax with a rate of around 25%. The right wing conservatives have always pushed for tax systems that burden the poor and reward the rich. Since 1980 they have been very successful in this effort and if they are able to change the tax system to their "Fair Tax" the victory of the rich over the poor will be complete.
A sales tax collected at point of purchase is not only the most regressive of
taxes; it is also the most inefficient. The retailers that must collect the taxes don't do it for
free; they retain a percentage of the sales tax collected. That percentage will cost a lot more than we pay for the IRS. It is also impossible to enforce on the underground economy despite what the Republicans claim. Another disadvantage of the sales tax is the large fluctuations in revenue due to irregular spending by the public. But it does reward the rich, if you make a lot more than you spend the percentage of income going to taxes decreases. The less affluent usually have to spend their entire income, giving them the highest tax rate based on earnings.
Why do we pay taxes anyway?
The Preamble to the Constitution states
"We the People of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of
America." This single sentence covers all the reasons we pay taxes.
Business could not function without the judiciary to enforce contracts and the treasury to assure a stable monetary system of exchange. Neither business nor individuals would be safe without the "common defense". The "general welfare" includes everything from public health (including safe water to drink and air to
breathe), to national standards for weights, measures, currency, etc.,
to care of the indigent and elderly.
The goals established in the Preamble cannot be achieved without the resources provided by the levying and collection of taxes. Taxes pay for the Federal Judiciary, Congress, and the Executive. Without those we would not have a nation, merely a large anarchy vulnerable to conquest by anyone with substantial resources.
Since the primary purpose of taxes is to achieve the goals of the Preamble, taxes should not be used to reward certain business entities or influence public policy. Once the tax incentive camel gets his nose in the tent the taxpayers are doomed to pay for whatever special interest is popular at the time.
The " Fair Share Tax"
I doubt that anyone would argue that the current federal income tax system is anything but a very complex mess. Over the years it has been used to influence social and business policy and in recent years it has fallen prey to the current crop of robber barons. It is filled with loopholes and deductions designed to concentrate wealth in the hands of a few at the expense of the many. As corporate executives, professional athletes and entertainers, and wealthy individuals have seen their remuneration grow to obscene levels the tax burden has been shifted more and more to the middle and lower classes. As an added problem the tax code has grown so large and complex that hardly anyone fully understands it.
The current system of deductions and tax shelters came about innocently enough. Since business is taxed on profits all sorts of things are deducted as business expenses. Advertising is probably the most annoying of the problems of taxing profits,
that sickening TV commercial that comes on just as you are eating is a tax deduction for the sponsor, and you pay more tax to make up for it. The mortgage interest deduction we all love was initially proposed as an aid to the housing industry, it is now getting out of hand and distorting the housing sector of the economy. Federal income tax codes should not be used as a social policy tool, the potential for abuse is too great.
The following system is proposed to correct the abuses of the current income tax code. It is progressive and simple enough that most middle school students will understand it fully.
The basic proposition
The Fair Share Tax would replace the current system with one that could probably be written on one page. There would be a separate tax rate for business and individuals
and an exemption for each. The current system of deductions would be eliminated. Business would pay a tax on their gross income less the exemption, as would individuals. The tax return for individuals and business would be rather simple, gross income minus exemption multiplied by the tax rate.
Business income taxes
Business, whether corporate, partnership, or individual, would pay a single tax rate on all income in excess of the exemption. Income would include both money and goods in trade from all sources. Farmers would be treated as a business to help the small farmer.
The tax rate for business would have to be determined but 1% of the gross less exemption would be about right. To protect small business, especially the "Mom and Pop" variety, the exemption would be set fairly high. In 2005 dollars a business exemption of around $300,000.00 would seem reasonable.
Individual income taxes
Individuals would also pay a single rate on all income, from any source, in excess of the exemption.
The individual tax rate would need to be around 20%. The exemption should be set fairly high, somewhere between 2 and 3 times the poverty level. This would help the working poor and almost poor. To protect families, each dependent would add substantially to the exemption. Multiple income families could file either individually or jointly.
As an illustration, assume the exemption is set at $20,000.00 and each dependent adds $8,000.00 to the family exemption. A family with three dependents would then have a total exemption of $44,000.00. If you assume this family has a middle class income of $60.000.00 per year,
the tax due would be $3200.00. The same family with an income of $600,000.00 per year would pay $111,200.00.
Why should we propose a new tax system at this time?
Very few individuals like the present income tax system. The IRS is almost universally disliked. The Republicans are claiming that their highly regressive "Fair Tax" is not only fair but also eliminates the hated IRS. The same voters that believed the Bush propaganda that he made them safer from terrorists
would also believe their "Fair Tax" lies. It is not enough to just tell the nation how bad the Republican plan is, Democrats must be pro-active and propose a real tax reform or the R's will have another winning issue.
Contact Arthur
C. Hughes
