Comment: TO: The Tax Reform Panel Date: April 24, 2005 From: Diane Forve email: dn4v@sbcglobal.net phone: 310-842-7883 3655 Cardiff Ave. Apt. 2 Los Angeles, CA 90034-4019 Dear Panel: I don't offer a flat-tax, VAT-type tax suggestion. Almost all economists agree that these are likely to be regressive. Solutions like refunding amounts to low-income tax-payers tend to complicate the tax law and increased complication refutes the purpose of the reform plan. I seek fairness. This would maintain, if not slightly increase, tax progressivity. Overlooked but of MAJOR importance is the payroll tax. Many pay far more in payroll taxes than income tax. Leaving payroll taxes out of any plan contradicts fairness and ignores the importance of overall taxation. Regarding payroll tax, I have suggestions which will become revenue neutral as this plan goes forward. First, give a rebate quite similar to the earned income credit to low-income taxpayers for their payroll taxes. And the Earned Income Credit is not that complicated to compute. As with the EIC, marital status and number of dependents would figure in computing the credit. Also radical is my plan to pretty much socialize Social Security benefits. A fairly simple computation of assets and expected dollar-amount return would determine if wealthy taxpayers would even receive Social Security benefits i.e., how will they fare without the benefits? If they are comfortable, take away their benefit check completely with a cushoin for disasters and catastrophes built into the law. This part of my plan will contribute to covering the payroll tax EIC with leftover funds to help cover Social Security shortfall. Whether the benefit amount should be altered for upper-middle income earners who need SS benfits could be discussed. I also believe the Social Security and Medicare taxes should be imposed on every dollar earned with no ceiling. Just these two changes would sizably boost Social Security collections and address a shortfall. Since most governments use the S.S. surplus anyway, these revenues would also reduce the budget deficit. As far as maintaining revenue neutrality in my plan, any imbalance could be made up by increasing (or decreasing) the straightforward capital gains tax. Popular deductions like those for mortgage interest and charitable giving should not be changed. Real estate prices and mortgage payments are high in some areas of the country at this time. If this should change and prices fall, the mortgage interest deduction will be even more important. Lying to the IRS about charitable giving should have a fair penalty to discourage cheating. Getting at the root of corporate taxation - what corporations pay in taxes and, especially, what they receive in tax breaks and other types of "corporate welfare", is an extremely important consideration in any revenue-balancing tax plan. The percentage of total tax revenues coming from corporations is small - I believe about 10% - and could be increased to about 15% or so by forthrightly increasing the tax on corporate revenues and closing loopholes. An increase of 5% is about $120 billion and would make a sizable difference to Uncle Sam. Here's the new idea regarding Congress and pork: using a simple statistical model, congressional hand-outs to corporations could be cut substantially. First in the model, who is benefitted by the government's gift? Call it "capital" or "labor". There will be disagreement in Congress and even in the CBO over this point. Today, the means of production is both things AND peopl e. In service businesses, people are the means of production: you have bank tellers, insurance agents, travel agents, stock brokers, financial analysts, etc., and salaries have, in a sense become capital investments. In product-oriented corporations, there are machines to purchase and, traditionally, labor to operate the machines. The above-mentioned statistical model will take this modern phenomenon into consideration to determine (1) is capital or labor aided by the pork and (2) what is the geographical distribution? If the CEO or top shareholders of Widgets, Inc.in Fontana get the full benefit of a multi-million dollar pork hand-out, it looks a lot like pork. If the CEO, shareholders, administrative and clerical workers in the failing national auto parts production industry benefit, and the money is for training and research, the gift looks very progressive. Want to employ a few more government workers? Set up a department of Congress to figure this out statistically, present results and approve or disapprove of the "pork" outlays with resorting to decision by elected officials permittted. The pork police would pay for themselves and corporate tax revenues could increase noticeably. If making the tax simpler means making it less fair, only detriment results. Progressivity is crucial. Rep. John Linder's cited plan is wrong: he states that the rich will pay more under a flat tax because they buy more. Relatively speaking, basic expenses for all of us are similar - funiture, automobiles, clothing, services cost relatively the same and wealthy people have a lot more left over after buying even expensive basics. Linder doesn't seem to want to tax investment income. Is this position fair when the wealthy have much more than the rest, particularly in a country with an enormous income disparity between rich and poor? Not taxing investment income is like giving King Midas the keys to Fort Knox. Linder's misleading statement underestimates the civic intelligence. The Social Security tax is regressive. If the President cares about progressivity, he should look here first. A high capital gains tax may be a barrier to work for the wealthy. The Social Security tax is a huge barrier to work to the poor and middle class and cheating by employers who hire workers "under the table" to avoid paying the tax is rampant. Not taxing the employer in the case of low-income employees could allow the employer to hire more at the lowest levels, bolstering the foundation of the economy and aiding economic growth from its roots. There is a reason why most Americans believe progressivity is important: progressive taxation underpins democracy. In a democracy, economic fairness is the basis for political fairness. I think President Bush and the members of the tax reform panel recognize this idea as American and essential. |