Subject: Two Problems / Two Suggestions Comment: I have a few suggestions to add to the huge mountain of suggestions which I'm sure you're already receiving. Before I make these suggestions, however, I first want to touch on what I view as two of the major problems with our current federal tax system. Problem #1: Unfairness I have a good friend who is running his own business. He's a great guy and a hard worker, but he's hired an accountant/attorney who has shown him how to get away with paying virtually no federal income tax. In essence, my friend owns almost nothing and his business owns everything. He makes almost nothing, but his business easily makes six figures. Nearly all his expenses are treated as business expenses, and since his "salary" is so very low, he can essentially make lots of money without ever paying a dime of income tax. Meanwhile, there are plenty of people making far less than what my friend makes, but these people aren't business owners and hence aren't entitled to the tax loopholes from which he benefits. While I can't fault my friend for taking advantage of the current situation (after all, he isn't breaking the law), it seems that the current situation is clearly unfair and is hardly progressive. Problem #2: Excessive Employer Paperwork I run a business as well (it's a family business that my father started), and although I haven't organized it in the same way as my friend has organized his, I'm sorely tempted to do so. Nonetheless, one of my biggest problems is having to deal with all the paperwork generated by our tax system. I have to prepare, for the State of California, a DE88 form every month. Then I have to send them a DE6 form on a quarterly basis, as well as a DE7 annually. On the federal side, I have to send a form 8109 on a quarterly and annual basis for both my 941 and 940 advance payments. This is a bother, as it requires that I accurately estimate the amount of taxes I will owe by the end of every quarter. The problem, of course, is that things can happen during the middle a tax period, unanticipated things such as the hiring of a new employee or an employee injury which takes somebody out of work for a few weeks. Such events throw off the estimates. Hence, it seems to me that the whole process of doing estimates is a waste of time, as at the end of every quarter I have to send a 941 form with my final payment, and then I have to send a 940 annually for my final FUTA payment. Why do you require me to make both advance and final payments for all these different taxes? Are you afraid I'm going to run away in the middle of a tax period and dissolve my business so as to avoid paying taxes? It's just too many forms and too much time wasted. I have to run a business. I know I have to pay my taxes, but why can't I just pay them once a year or even once per quarter, doing the whole thing on a single form or a single set of forms? This whole business of having to estimate taxes prior to the end of a tax period and then having to send the estimates as advance payments and then finally having to reconcile them with reality and make final payments, all of this takes enormous amounts of time, and it makes me less productive. I could be doing something useful with my time, and instead I end up filling out tax forms and double-checking all the numbers, because correcting any mistake is enormously bureaucratic and requires a number of additional forms. I can't help but wonder that if this is difficult for me, the manager of a small business, what must it be like for managers of slightly larger businesses, or, God forbid, large corporations? It may be that we are spending untold millions of man-hours, as a nation, filling out tax forms when we could be working on actually improving our businesses and the products and services that we offer. It's this government-generated inefficiency that astounds me. Government should be trying to make my life easier, not more difficult. Solution #1: National Sales Tax John Linder (R-Ga) proposed this, and I personally think it's a good idea. First of all, you don't have to tax everything at the same rate, so government could be as paternalistic as it likes, or it could be as free-market as it likes. I'd say that luxury items ought to be taxed more than basic necessities. In this way, people may be prodded into avoiding luxuries and saving more for their retirement. Also, if you want to encourage home ownership, simply don't tax homes. If you want to really encourage home ownership, have a negative sales tax where the government helps pay the mortgage. Personally, I think that's a bit over the top, but it all depends on how paternalistic you want government to be. In order to promote charity, you could have certified charities be allowed to buy normally taxable commodities tax-free. There is already some of this in our tax code, but with a national sales tax, it could be greatly expanded. In this way, charities could advertise that they are able to use 100% of the money they receive for various projects and that not a penny would end up being pinched by Uncle Sam (at least, not directly). One of the great things about a sales tax is that it gives government enormous control over public spending habits. If you want to discourage cigarette use or alcohol consumption or the purchase of diamond rings, just tax them at some enormous rate. If you want to encourage the purchase of fuel-economy cars or solar panels or water-efficient washers, simply declare them non-taxable. Likewise, a national sales tax would also solve the problems of tax-loopholes and employer income tax paperwork which I previously mentioned. Furthermore, most states already have a sales tax, so the basic mechanism for collecting these taxes is well-understood. There remains, of course, the procedural problem over how to account for different items being taxed at different rates, and this would be the difficult part that would have to be worked out in some fashion, but with the increasing prevalence of computerized cash registers, I think we're finally at the point where this is doable. In summary, I'd have to conclude that this idea of a national sales tax replacing the federal income tax seems to be the best of all the solutions so far presented, so I hope it will receive the consideration that it justly deserves. Solution #2: Business Owners Pay Once If you are unwilling to scrap the income tax entirely and replace it with a federal sales tax, I would at least encourage you to trust us business owners enough to stop demanding that we make advance payments of our employee withholdings. You should merely require that we send you the withholdings at the end of every quarter or every year, whichever period you think is the most appropriate for tax purposes. In this way, our paperwork could be consolidated to a single tax form (or set of forms) per tax period. This really wouldn't be that hard to accomplish, and it would save business owners, collectively speaking, an astronomical amount of time which they could better use providing products and services to their clients, hence making our nation more economically competitive. Thank you for soliciting public comments. I hope they prove of some value to you in your deliberation process. Good luck. |