It’s the Economy, Stupid! NO It’s the Stupid Economy!

McCain and Obama may both be on the wrong page!

 Everyone knows that sin taxes on alcohol and tobacco are intended to discourage their use. Exactly the same rationale should cause one to question our present income and social security taxes. Working and investing are both desirable. Yet our nation collects over ninety percent of its income from taxes on American labor and investment. Does this make sense?

Certainly workers and investors should both pay taxes, but should we tax them more when they do these desirable things more often and better? Republicans see this problem when they advocate cutting taxes on corporations and investment. Neither party seems to recognize what our present taxes do to American labor.

When a business hires a worker, it has to come up with enough money pay the worker and also for the worker to pay taxes on his wages. Every incentive exists to cut jobs, automate, use imports, and outsource labor.

Unfortunately there are other problems. We are now living in a highly automated and global economy. We are not getting adequate revenue from businesses that hire few workers, like software, CD’s, movies, rock concerts, sports events etc. Neither are we getting funds to support our infrastructure from imports and outsourced jobs. Business deductions are out of control. Creature comforts, like athletic skyboxes, gourmet meals, conventions in Las Vegas are all being paid for with untaxed dollars. Add to this 66,000 pages of IRS loopholes enabling the privileged to hire an army of CPA’s, tax lawyers, and financial planners to avoid taxes and you have a nation that may not long exist in a competitive global economy.

There is a bill in Congress, co-sponsored by over sixty representatives, that addresses many of these issues. It is called the Fair Tax. It is described as a progressive sales tax, because it does not tax essentials. There may be other ways to deal with these problems, but the Fair Tax deserves consideration. Ralph R. Layman Sr.

Meta: 

Comments

ok, I confess

I'm assuredly over in the Progressive tax/left/democratic socialist camp. But that said, I have watched the tax movement and also get why people want to plain shut down the IRS. My concern on a consumption/flat tax is it appears to be highly regressive. I think that's really bad in so many words. At the same time, I am completely aware and just how much of the tax burden are dumped upon w2 workers (employees) and that too seems somewhat regressive. So, ok, you wrote a blog post, let's see some real analysis on what is going to do what. I have on the middle column a nonpartisan organization, Citizens for tax justice which does quite a good bit of objective analysis on the tax code. Then, that blog, tradereform, a group affiliated with it, presents a VAT policy for tax imbalances, which I think after a lot of study, they are dead on correct, it's a good idea.

But the flat tax so far I see it being really unjust to the middle class and the poor and giving the super rich even more of a free pass than is another going on here. That's mean, I believe taxes are a good way as a redistribution of wealth or a final leveler, not too much mind you, for I also believe in incentives for someone to get rich and they deserve to get rich when they work hard and so on, but assuredly some aspect needs to give back to equalize society. We all know things like the hedge fund, LLC loopholes enabling them to pay themselves a 15% tax rate is an obvious abuse. Keeping capital offshore as corporations do in order to not pay any taxes is another....

Yet, the idea of taxing consumption instead of production sure seems like something to explore in terms of incentives versus disincentives.

I also know that one of the advantages of using illegal labor, underground economy is to avoid paying workman's comp, unemployment insurance, FICA and so on.

So, let's look at a specific proposal you want to analyze and let's pick it apart.

You must have Javascript enabled to use this form.

The Fair Tax

The FairTax http://www.fairtax.org
is good place to start!

The fair taxers are basically pro-business and anti IRS, but changing to a consumption tax might help Labor even more than business. They say that it is revenue neutral and they would exempt business to business transactions.
I see it as a gold mine to support our government and would not exempt most business purchases

We neeed more tax income to fund our entitlements and even health insurance. Business should not be expected to pay an employees health insurance. Better that it be paid for by taxes on all products including imports and items produced by machines.

Bill Gates has his software written in India, a machine puts it on disks and so far little has gone into Social Security or income taxesd. The machine can be depreciated.
How about the sky boxes and conventions in Las Vegas.They should be taxed.

Look at the high profits in CD's Movies Athletic events. They are all not labor intensive and contribute little to our infrastructure. Imagine getting $100 out of a $400 Bowl Ticket.

I think there is a wealth of non-essentialand imported items that should be taxed at at least 25% to support our nation.

You must have Javascript enabled to use this form.

it's regressive

the super rich rarely spend those massive sums of money and also avoid taxes most cleverly. They have the money, they are not spending the money. That's the issue here. Also, I think what is going on in the United States is actually not new, it's quite old. We had the English empire, feudal states, slavery....even in the United States we had massive Robber Barron, the super rich and the very poor, not a large middle class. Guess what we had at that time in the US? No income tax. So, you need to look at the details.

So, it's more of a "bubble" tax where most of the burden goes on working people in terms of consumption.

That said, if one could work something more Progressive, truly progressive out, taxing the underground economy is a very good idea, getting rid of the IRS, hmmmm, seems like a worthy goal to me.

but the massive amounts of loopholes in the corporate tax code is astounding and written for and by corporate lobbyists.

And no, I think our current tax code is absurd, unfair and also burdens the middle class as I mentioned.

You must have Javascript enabled to use this form.

Rather than tax

We really should consider VATS and tariffs on imported goods. this is largely where the US got most of its revenue pre IRS

we should also tax mineral extraction such as oil- this is an asset that is owned by the US citizen

We should also return to a higher tax bracket for the highest incomes and wealth

As Theodore Roosevelt once said (and I paraphrase since I don't have my Bartletts handy) The wealthy benefit more from the privileges of a free society and therefore have an obligation and responsibility to contribute back to it.

You must have Javascript enabled to use this form.

Wealth Tax

I think we need a wealth tax to fund any security-related government functions such as defense or financial regulations (and likely national disaster-related expenses) rather than funding them from income taxes.

A wealth tax would be exactly equivalent to an insurance policy to protect people from the loss of their wealth. Currently the annual cost of an insurance policy on a typical house is 3% per year, and that might be a good starting place.

Since those with no wealth have little or nothing to insure from destruction or theft from invasion or similar destructive forces, those at poverty level should be exempted, and those a multiple or three above the poverty level should pay a relatively nominal amount while those at the top of the wealth scale need no exemptions.

You must have Javascript enabled to use this form.

Taxes and savings

Right now the system is rigged to discourage savings. Saving faces the double whammy of inflation and dollar devaluation insidiously sapping peoples "wealth", and low interest and the fact that interest from savings is tacked on as income and taxed robbing what little gains may be made - gains that do not keep pace with inflation.

Savings interest should absolutely not be taxed for middle incomes and lower. Upper brackets absolutely must be taxed. Getting Americans saving again will help get consumer debt under control at the micro level, and also help get the liquid money supply down incrementally helping inflation and devaluation at the macro level.

On the issue of consumption tax - I agree it is largely regressive. Food and other staples should never be subject to these taxes. Rather than a consumption tax -what about a return to the "luxury tax" slapping hogher sales taxes on luxury items - yachts, exotic cars, expensive jewelry - so forth

You must have Javascript enabled to use this form.

luxury tax

There is something which the flat tax will capture and that is the underground economy, currently estimated at 8.4% of US GDP. A luxury tax won't get that one at all.

I like the idea of disincentives for the underground economy, which we know illegal labor is a huge part of.

On luxury taxes, I'm betting the super rich will use some sort of offshore something to get around it. Finland has luxury taxes and they have them on automobiles. Hence you should see the games the Finns play to get around it all and get a vehicle. Finland is an icecube, not exactly the place where standing around in the arctic air waiting for a bus in a sparely populated area is a lot of fun. So, it can also be attached to things that aren't so much luxuries and instead hits once again the middle class in their pockets.

Then, the flat taxers argument of getting rid of the IRS I mean that has a lot of merit too. Massive, expensive department plus a lot of horror stories on abuse of power.

I don't have any answers on this except to say a regressive tax is unacceptable and then to point out some of their reasoning and why they are where they are. I think over in the left camp, people have a tendency to blow off everything they have to say due to Bush and his corruption, the multinational corporate agenda behind privatization plus the social agenda and some of them have some very valid points I think we should look at.

You must have Javascript enabled to use this form.

thats kind of it really

Avoiding luxury taxes is a prime example that the wealthy have the means to hire lawyers and accountants to find creative ways to avoid paying their fair share, an advantage most of us do not have.

On corporate taxes, there should not be tax breaks without strings attached. In order to qualify for a corp tax break, companies must be able to show how many domestic jobs they created, how much energy they conserved, what new domestic R&D did they invest, how much did they invest in domestic capital equipment and so forth. And by all means there should never be any loopholes or tax breaks for job offshoring and foreign profits. The US taxpayer should not be funding the decimation of our jobs, expatriating our capital and the resulting destruction of our economic health

You must have Javascript enabled to use this form.