Real tax reform means everyone pays something

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Chances are the tax increases, cuts and fiddles President Obama proposed during the State of the Union speech Tuesday night are DOA in the Republican-controlled Congress. And chances are the tax cuts, increases and fiddles the Republicans will propose shortly are also DOA. The ones Democrats in the Senate don’t successfully filibuster, Obama will veto.

Obama’s proposals emphasize income redistribution. He wants to raise taxes on the wealthy and give tax breaks to the middle class and to the working poor, the last through expanding eligibility for the earned income tax credit, among other things.

The Republicans’ proposals will likely emphasize tax cuts and tax breaks for the wealthy and for businesses, the last intended to encourage investment and job creation. 

Both parties will claim that their respective proposals simplify the tax code and make it fairer. 

Yeah. Whatever. We don’t know what, if anything, will come out of this round of “tax reform,” but — just guessing here — if the past is any sort of a guide, it probably will be something like this:

Whatever proposals are finally adopted will make an already grotesquely complicated tax code more complex. 

At the end of the day, the code will contain more loopholes and fiddles, not fewer, if for no other reason than because members of Congress take care of their states and districts and of the special interests that matter to the people they represent. Also the nature of the legislative process will drive members to create compromises in which each party will have to accept some of the other party’s favorite tax breaks in order to get enough votes to pass their own. Compromises based on each party agreeing to eliminate some of their pet loop-holes are much harder to fashion. 

The added complexity will increase people’s distrust in government, cynicism about the political process and alienation from both.

Worse, more people will end up not paying income taxes. These people will be found at the top, where they know how to game the system, and at the bottom — where the earned income tax credit and other deductions and tax breaks aimed at helping the poor will probably end up being broadened, as a trade-off for some new and creative fiddles for those at the top.

The worst failure of our current tax system isn’t that it doesn’t raise enough revenue or that the system isn’t more fair or less fair to this or that group. The worst failure is that fewer and fewer people and businesses end up paying income tax, which is the federal government’s main source of revenue.

As a result, the current system is reducing buy-in to the American social contract — and that, ultimately, is lethal.

Mitt Romney earned himself a full ration of shit, and cost himself a lot of votes, in 2012 when he said that 47 percent of Americans don’t pay taxes, by which he meant federal income taxes. That doesn’t change the fact that they don’t.

A country in which half the people pay federal income taxes and half the people don’t is a country that will not long endure, for reasons that are pretty self-evident — starting with the fact that each group is increasingly coming to view the other as blood-suckers. 

Implicit in the American social contract is the idea that everyone has to have skin in the game — rich and poor, young and old, black and white, male and female. 

We’ve strayed a long way from that concept, and that is not just economically dangerous; it is politically and socially dangerous as well. Real tax reform would begin with a simple, three-word axiom: Everyone pays something. Everyone has some skin in the game. Everyone. From the guy with the wine cellar to the wino.


We will have successfully reformed the tax code when at the end of the day the terms “the tax-payers” and “the people” are interchangeable.

All exemptions, deductions, credits and loop-holes are eliminated. Bang dead. Real tax reform means that if the government wants to redistribute income or favor particular groups, industries, activities or institutions, it will have to find ways of doing so that don’t involve the tax code.

Real tax reform would be based on a second, equally simple axiom as well: nobody gets special treatment.

You want tax simplification? What could be simpler?

The most direct way to create a tax system consistent with these two principles would be to scrap the income tax and replace it with either a national sales tax or a value added tax, or a combination of the two.

That way everybody pays something. And the rich, who spend more, pay more in taxes. This is the point where Democrats start howling about the regressive nature of the sales tax and about how it results in the poor paying out a higher percentage of their income in taxes than the rich do.

If the American people want the government to augment the incomes of low income Americans, that’s well and fine. Do it with a direct stipend from the government, or by subsidizing necessities like food, clothing, housing or energy as we already do in many cases. Just don’t involve the tax system in it, especially in a way that exempts tens of millions of Americans from paying taxes. 

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This opinion column does not necessarily reflect the views of Boulder Weekly.