Subject: The tax panel's grade Comment: On January 7, 2005, President Bush appointed a panel to study tax reform for our country. He gave them three mandates. 1. Simplify Federal tax laws to reduce the costs and administrative burdens of compliance with such laws. 2. Share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society. 3. Promote long run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace. The preliminary report is out. The tax panel is going to suggest the following: A. Limited changes to the Home Mortgage deduction (lower the allowable deduction). B. A decrease in the Employer Health care deduction. C. Do away with the Alternative Minimum Tax. I homeschool my 8 year old granddaughter. Let’s see how I would grade her if this had been her assignment. We have three problems to solve. 1. How do any of the recommendations reduce the administrative burdens of compliance? They don’t. Item A would add many pages to our already complicated, 20,000+ pages of tax code. Item B would increase the compliance code for businesses (who, in turn would raise the price of their products to cover the costs). 2. Do the recommendations share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society? No! Item A actually does just the opposite. 3. Do any of the Items Promote long run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace? No, again. Item C would help, but the added cost of Items A and B, would negate any benefit. So, here are the grades: Assignment Grade 1. Simplify F 2. Share F 3. Promote F Now, let’s look at another plan that the Tax Panel could recommend. The Fair Tax (HR25/S25, www.fairtax.org) would replace the current tax system with a national consumption tax that will: A. Allow Americans to keep 100% of their paychecks, pensions, and Social Security payments. B. Dramatically reduce the cost of goods and services by 20% to 30% by eliminating embedded taxes. C. Allow families to save more for homeownership, education, and retirement, tax free. D. Raise the same amount of money for the federal government. E. Make American products more competitive overseas by eliminating embedded taxes. F. Tax the underground economy. G. Give every legal household a prebate for taxes on spending up to the poverty level. H. Do away with the IRS. Now let’s check the assignment again. 1. How do any of the recommendations reduce the administrative burdens of compliance? The IRS is gone. No person or business would have to ever fill out an income tax form. All compliance costs are gone. 2. Do the recommendations share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society? Yes! With item A, people would have more money to give to charity. Item C would encourage saving. Item F would ensure that everyone pays their fair share. Item G would completely untax the poor and make the tax progressive. 3. Do any of the Items Promote long run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace? Yes! Item A would encourage a better work effort, because the employee would actually get to keep all money earned. Item E makes our products more competitive in the global market place. Item H would eliminate all compliance cost for businesses, allowing them to have more money to create jobs which, in turn would promote long run economic growth. Let’s look at the grades again. Assignment Grade 1. Simplify A 2. Share A 3. Promote A Clearly, the Fair Tax more than meets our President’s Mandates. If this had been my granddaughter’s assignment, she would get an A+, and I would give her the rest of the week off! |