A.J. DiCintio
We the people and tax reform
By A.J. DiCintio
In a recent issue of frontlinethoughts.com, John Mauldin's readers distinguished themselves so well with their comments about tax reform that their example joins the many which have bolstered my faith in the vision of government Thomas Jefferson and William F. Buckley had in mind when, respectively, they wrote as follows:
"I know of no safe depository of the ultimate powers of [a] society but the people themselves."
"I would rather be governed by the first two thousand names in the Boston telephone directory than by the two thousand people on the faculty of Harvard University."
But despite my reaction, you'll want to make your own judgment about what the readers had to say, so I'll get right to it, beginning with Roger Buchholtz, who opened his comments by observing that "consumption taxes are less damaging to an economy than income taxes."
To that observation, he added the opinion that a simple, flat income tax is not the answer to reforming our corrupt tax code because it will remain neither simple nor flat "for very long" while contributing little to tax compliance and efficiency.
Having ruled out the flat income tax, Buchholtz turned to the two leading consumption tax alternatives, the Value Added Tax or VAT, a tax added at each stage of production and ultimately passed on to the consumer at final sale, and the Fair Tax, a national sales tax supported in Congress by 70 cosponsors of the Fair Tax Act.
Both proposals, Buchholtz points out, "eliminate nearly all other taxes" including the Social Security tax, and share the following similarities:
. . . They replace the current Internal Revenue Code.
. . . They are revenue neutral.
. . . They tax final consumption only once.
. . . They have the exact same tax base, if they have no exemptions
. . . They do not tax business-to-business purchases.
. . . They improve U.S. international competitiveness.
. . . They levy the full amount of the tax on the consumer.
However, Mr. Buchholtz asserts there are "critical" differences between the VAT and Fair Tax, causing him to favor the latter.
Here are the main points of his argument:
The Fair Tax is collected at the retail level, its transparency and visibility making it a "natural restraint on the size and reach of government intended by our Founding Fathers."
The Fair Tax fits in smoothly with existing sales tax regimes, therefore reducing compliance costs by 90%.
The lion's share of the Fair Tax will be collected by the nation's largest retailers, which can efficiently be monitored by government and whose employees at the checkout are highly unlikely to enter into conspiracies with would-be tax cheats.
In contrast, at each stage of production, the VAT demands "complex" record keeping that not only imposes an "especially difficult" burden on small business but also puts a very wide smile on the face of the IRS bureaucracy and the tax lawyer industry.
The VAT will cause "imbedded taxes" (cost consequences of a tax) to rise higher than they are currently.
Finally, the VAT requires exemptions, which beget more exemptions and ultimately "gaming of the system."
After Buchholtz's argument in favor of the Fair Tax, we are introduced to Bill Daugherty, who wrote to comment that the "seniors lobby" represents an obstacle to implementing a consumption tax because many seniors argue it is unfair for the federal government to tax their spending after it taxed their income during their work years.
To that complaint, David Oldham, a VAT supporter, responded that although the dissenting seniors make a "valid" point, fairness requires the "older generation" to take its share of responsibility for having been "instrumental" in or, at the very least, "oblivious" to the creation of "such a mess for our kids and grandkids."
Next, we meet Robert Dumper, who asked Mauldin, "John, do you really mean 'If you make less than $100,000 you pay nothing?'"
He explained the reason for the question, first by saying he believes "one of the worst things you can do is to allow some people to pay no taxes at all" and second by warning that a tax regimen in which the majority pays no tax and therefore has "no investment in the system" represents "a recipe for financial disaster."
Then, he closed with this:
"I guess the Bad News is that almost half our current electorate pay no income taxes today, and look what that has done for us."
Responding to the first concern, John Mauldin pointed out that the "prebate" that addresses the regressive nature of a consumption tax applies only to income up to the poverty level.
With respect to the second, Mauldin supported Mr. Dumper, posting a Heritage Foundation chart whose 49.5% number confirms the "Bad News."
Here, I'll jump in and agree with both gentlemen, adding these thoughts to theirs:
The nation is desperately in need of good-job creating economic policies that allow existing non-taxpaying workers to become taxpayers.
It just as desperately needs to reform labor, border, and immigration policies that have made the U.S a magnet for millions of non-skilled, non-taxpaying immigrants.
Finally, it needs not just to institute a policy that every worker pay something in taxes, nominal though the sum may be, but to annually teach the reasons for it to students, beginning in the middle school years.
Although I have not reported all the suggestions offered by John Mauldin's readers, for instance those pertaining to how capital gains ought to be taxed, the hope is that what has been presented convinces you of their honesty, intellect, and patriotism and motivates you to decide what kind of tax reform you deem best for the nation and to communicate your decision passionately and persistently to your representatives in Congress.
After all, if tax reform is integral not only to getting our economy back to its former prosperity-begetting vibrancy but also to putting our fiscal affairs in order and thus avoiding the kind of economic and social devastation inevitably suffered by every debt-addicted nation, dedicating ourselves to the battle is, as Jefferson likely would have put it, not just a right but a duty.
© A.J. DiCintio
March 4, 2012
In a recent issue of frontlinethoughts.com, John Mauldin's readers distinguished themselves so well with their comments about tax reform that their example joins the many which have bolstered my faith in the vision of government Thomas Jefferson and William F. Buckley had in mind when, respectively, they wrote as follows:
"I know of no safe depository of the ultimate powers of [a] society but the people themselves."
"I would rather be governed by the first two thousand names in the Boston telephone directory than by the two thousand people on the faculty of Harvard University."
But despite my reaction, you'll want to make your own judgment about what the readers had to say, so I'll get right to it, beginning with Roger Buchholtz, who opened his comments by observing that "consumption taxes are less damaging to an economy than income taxes."
To that observation, he added the opinion that a simple, flat income tax is not the answer to reforming our corrupt tax code because it will remain neither simple nor flat "for very long" while contributing little to tax compliance and efficiency.
Having ruled out the flat income tax, Buchholtz turned to the two leading consumption tax alternatives, the Value Added Tax or VAT, a tax added at each stage of production and ultimately passed on to the consumer at final sale, and the Fair Tax, a national sales tax supported in Congress by 70 cosponsors of the Fair Tax Act.
Both proposals, Buchholtz points out, "eliminate nearly all other taxes" including the Social Security tax, and share the following similarities:
. . . They replace the current Internal Revenue Code.
. . . They are revenue neutral.
. . . They tax final consumption only once.
. . . They have the exact same tax base, if they have no exemptions
. . . They do not tax business-to-business purchases.
. . . They improve U.S. international competitiveness.
. . . They levy the full amount of the tax on the consumer.
However, Mr. Buchholtz asserts there are "critical" differences between the VAT and Fair Tax, causing him to favor the latter.
Here are the main points of his argument:
The Fair Tax is collected at the retail level, its transparency and visibility making it a "natural restraint on the size and reach of government intended by our Founding Fathers."
The Fair Tax fits in smoothly with existing sales tax regimes, therefore reducing compliance costs by 90%.
The lion's share of the Fair Tax will be collected by the nation's largest retailers, which can efficiently be monitored by government and whose employees at the checkout are highly unlikely to enter into conspiracies with would-be tax cheats.
In contrast, at each stage of production, the VAT demands "complex" record keeping that not only imposes an "especially difficult" burden on small business but also puts a very wide smile on the face of the IRS bureaucracy and the tax lawyer industry.
The VAT will cause "imbedded taxes" (cost consequences of a tax) to rise higher than they are currently.
Finally, the VAT requires exemptions, which beget more exemptions and ultimately "gaming of the system."
After Buchholtz's argument in favor of the Fair Tax, we are introduced to Bill Daugherty, who wrote to comment that the "seniors lobby" represents an obstacle to implementing a consumption tax because many seniors argue it is unfair for the federal government to tax their spending after it taxed their income during their work years.
To that complaint, David Oldham, a VAT supporter, responded that although the dissenting seniors make a "valid" point, fairness requires the "older generation" to take its share of responsibility for having been "instrumental" in or, at the very least, "oblivious" to the creation of "such a mess for our kids and grandkids."
Next, we meet Robert Dumper, who asked Mauldin, "John, do you really mean 'If you make less than $100,000 you pay nothing?'"
He explained the reason for the question, first by saying he believes "one of the worst things you can do is to allow some people to pay no taxes at all" and second by warning that a tax regimen in which the majority pays no tax and therefore has "no investment in the system" represents "a recipe for financial disaster."
Then, he closed with this:
"I guess the Bad News is that almost half our current electorate pay no income taxes today, and look what that has done for us."
Responding to the first concern, John Mauldin pointed out that the "prebate" that addresses the regressive nature of a consumption tax applies only to income up to the poverty level.
With respect to the second, Mauldin supported Mr. Dumper, posting a Heritage Foundation chart whose 49.5% number confirms the "Bad News."
Here, I'll jump in and agree with both gentlemen, adding these thoughts to theirs:
The nation is desperately in need of good-job creating economic policies that allow existing non-taxpaying workers to become taxpayers.
It just as desperately needs to reform labor, border, and immigration policies that have made the U.S a magnet for millions of non-skilled, non-taxpaying immigrants.
Finally, it needs not just to institute a policy that every worker pay something in taxes, nominal though the sum may be, but to annually teach the reasons for it to students, beginning in the middle school years.
Although I have not reported all the suggestions offered by John Mauldin's readers, for instance those pertaining to how capital gains ought to be taxed, the hope is that what has been presented convinces you of their honesty, intellect, and patriotism and motivates you to decide what kind of tax reform you deem best for the nation and to communicate your decision passionately and persistently to your representatives in Congress.
After all, if tax reform is integral not only to getting our economy back to its former prosperity-begetting vibrancy but also to putting our fiscal affairs in order and thus avoiding the kind of economic and social devastation inevitably suffered by every debt-addicted nation, dedicating ourselves to the battle is, as Jefferson likely would have put it, not just a right but a duty.
© A.J. DiCintio
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