Wednesday, September 28, 2011

2012 -- Flat Tax Proposals

The GOP presidential hopefuls are in the thick of taking up conservative causes like taxes, social security reform, abolition of the USDOE, and many others. In the realm of taxes I am having a change of heart.

Most GOP candidates are decrying the current tax system and its loopholes for poor working families and the percentage of Americans who actually have to pay any income taxes (non-Social Security/Medicare taxes). The solution, for most candidates, is a flat tax, a tiered flat tax, a consumption tax, or a hybrid of one or more options.

In the past I have expressed opposition to flat tax proposals in that they generally create a tax cut for wealthy taxpayers at the expense of poorer taxpayers. This is still the case, wealth taxpayers are in fact (when you take income phaseouts of certain deductions and credits) paying a flatish tax of 35% or more. Therefore (taking Herman Cain's catchy 9-9-9 proposal) the rich would enjoy a large tax break and Joe the Plumber would go from large tax-credit induced refunds to paying 900 dollars a year income taxes (est 40k income). This is still a factual issue with flat taxes.

However, I'm not sure that "staying the (current tax policy) course" is the right approach anymore. Just this last year, we had a Congress that raised our nation's borrowing level to an extremely high level. (I'm not sure. Was it 14 trillion dollars? That is somewhere around 14 to 7 million times more than most Americans make in a lifetime) President Obama's solution for the current unemployment problem was to request another 300 billion dollars in government spending. The final straw on tax policy (for me) was the president's comments before the debt ceiling was raised that, "he couldn't guarantee Social Security checks" without the extra debt. Now I'm no government budget expert, but when a business needs to keep borrowing just to stay afloat it doesn't take a Harvard education to realize financial catastrophe is nigh at hand.

Now, I disagree with the "lucky duck" theory that taxing the poor is the only way to get the poor off their collectively apathetic arses to demand that the Federal government change. The desire to induce anger is not the best guide for wise fiscal policy. I believe adopting a simplified tax system will do three things: 1.) provide stability for businesses to grow and individuals to invest, 2.) Provide capital to invest in American businesses, and 3.) decrease the "Tax Gap"and end some large drains on the Federal Treasury.

One of the biggest problems in the US economy is the lack of stability in the US tax code. Businesses are ever on edge about what tax laws will end or what new tax laws will be enacted. By enacting a flat or simplified tax system, businesses and individuals can make financial, and more importantly investment decisions, without taxes being such an uncertain variable in the decision making equation.

As mentioned earlier, the flat tax's tax savings for higher income taxpayers would leave tax dollars in taxpayer's pockets. The saved tax funds would in turn (theoretically) likely be used to invest in entrepreneurism, stocks and bonds, or just spent in the open market.

For years National Taxpayer Advocates have stated that the biggest problem in the tax code is the law's complexity. Most Americans want to keep square with the government and pay their fair share. However, the tax code's complexity not only makes it impossible for the average lay taxpayer to be confident that they are preparing their return properly, but it also leaves a perception that other taxpayers are getting away with not paying their share. Such a perception can lead some taxpayers to cheat on their taxes since it appears that many others are doing like wise. The flat tax would provide wage earner taxpayers with easy to understand tax system and change the perception of inequality to one of equity.

The flat tax would also be a means of ending the welfare provisions of the tax code -- the Earned Income Credit, and the Additional Child Tax Credits. These provisions of the code provide lower income taxpayers with children (income between 15 and 50K) with thousands of dollars in tax refund dollars above and beyond what these taxpayers actually paid in. It is estimated that the Earned income tax credit alone cost the Treasury more than 40 billion dollars a year before taking into account the IRS budgetary costs of pursuing fraudulent EIC claims. The refundable portion of these provisions should be done away with.

Whether or not a flat tax would pass is another story. Democrats will fight against such proposals simply for the fact that the flat tax will raise taxes on the poor. However a reasoned approach to this issue might make a flat tax viable by using new credits that encourage retirement savings might keep poorer taxpayers from feeling a pinch.

Friday, August 26, 2011

Huntsman: Even the Rich Should Sacrifice.

The ever scrappy son of Utah's richest man Jon M Huntsman Jr. says if he is elected even the rich will have a share in sacrificing in order to get our country back on track. As mentioned in my last post that doesn't include tax hikes -- he's saving that for the "working poor families and seniors". Why do I bother talking about him, he is going to be out soon?

Speaking in an interview with the PBS NewsHour, Huntsman said that potentially means-testing Medicare could be one example of a sacrifice the wealthy could make.

"As president, I wouldn't hesitate to call on a sacrifice from all of our people, even those at the very highest end of the income spectrum," said Huntsman, himself a multi-millionaire. "I'm not saying higher taxes, but there are contributions they can make too."

I wonder why he is doing so poorly in the polls? He wants to tax poor working families, and he is even willing to make the ever deprived rich sacrifice in ways other than tax hikes. What more do Republican's want?

The one thing Huntsman has right is Medicare and Social Security means testing. Social Security is a wreck, maybe one of the best solutions (or beginning to a solution) is to stop paying benefits to retirees who are wealthy enough without Social Security and Medicare. Just as it is wasteful paying the poor for being poor, it is foolish to pay welfare to those who don't need welfare (and lets get real, social security isn't a pension or retirement savings plan)

More on Social Security later.

Thursday, August 25, 2011

Of Lucky Ducks

Many of the GOP presidential wannabes are going at a new approach to raising income taxes -- tax everyone. Michelle Bachmann contends that, " we need to broaden the tax base so that everybody pays something, even if it is a dollar. Everyone should pay something, because we all benefit." Son of a billionaire, Jon M Huntsman Jr. went straight to the point, "the half of Americans no longer paying income taxes, mainly working poor families and seniors, should be brought onto the income tax rolls." The Slate article linked above contends that this is part of theory that originated in WSJ editorials that called the working poor and those that don't pay income taxes "lucky duckies" and that real change to the tax code will only come when the lucky duckies share the tax burden and are enraged enough to demand change.

The tax code has become a system of bribery towards the working poor. Certain tax provisions end up providing poor people thousands of taxpayer dollars that they didn't contribute. In 2004 it is estimated that the Federal Government paid out more than 36 billion dollars in Earned Income Tax Credit to over 21 million US households. The EIC coupled with the additional child tax credit, provides working poor families with a great deal of Treasury dollars just for being poor. This needs to change. While it is important to provide help to the needy, we don't need the government to be handing out cash to every single household that makes less than six figures whether the asked for it or not.

Having railed against the negative tax provisions of the tax code, it would be folly to require the working poor to shoulder a proportionate load of the income tax burden. First, most lower middle class families struggle to make ends meet without requiring them to set an additional 10-20% aside for income taxes. Adding these people to the tax roles may produce an enraged working poor, but it would also burden the IRS in pursuing tax bills that are more than likely noncollectable. Second, taxing the poor will create more poverty. I went through this ad nauseum when former Utah governor Huntsman started pushing a fair or flat tax. Ten to twenty percent of 100k is a lot less painful than ten to twenty percent of 40k.

The best move our nation can make in regards to taxes and the working poor is the repeal of income based refundable tax credits. This will end the multi-billion dollar drain on the Treasury without increasing the cost of living on lower middle-class families. Beyond that I foresee flat taxes as producing tax cuts that benefit the rich at the expense of the poor. The GOP candidates may argue that forcing the rich to pay all the taxes is class warfare, but taxing people who in some cases make 1/100th of the wealthy peers at the same rate is just plain tyrannical.

It's been a while......

I have been wanting to come and write for some time, but caring for two autistic kids can keep you busy from sun up to sun down. I've missed you blogosphere.

Wednesday, January 26, 2011

Rep. Menlove's Proposal -- Message Bill?

Rep Menlove of Garland wants Medicaid recipients to perform community service as a form of payment for the benefit of having Medicaid.

So, what's the message ???????????????????????????????