Newsweek ran an article "The Price of Democracy" on taxation which is misleading and frustrating when in the end the writer, Samuelson, concludes that any reasonable compromise is experientially unrealistic and that we are stuck with the rigidity of the present system prone to over extended manipulation.
Jerry Brown, when running as a candidate for President in ‘91 proposed a 13% flat tax with a “post card” tax form that would get rid of the HR Blocks and the likes of Turbo Tax, not to mention an astronomical number of individual and corporate tax lawyers, saving far more than Samuelson research estimates at $100 billion . Such a flat tax — regardless of the percentage — should, I suspect, have to deduct 30% of FICA from gross income. Further my modified plan would allow a reasonable X number of dollars for dependents — but seniors should not be entitled to an exemption, for there would be no tax filer exemption, period. The current discrimination favoring unearned income at the expense of earned income would be eliminated. There need not be any incentive to save or invest; those with excess have no other alternative, but under the mattress, to build wealth. Moreover, there would no longer be tax exempt municipal bonds — these would have to compete with federal government issues.
The current insurance based national health care would have to be eliminated because companies that deduct employer contributions as cost of doing business is a sham inasmuch as this cost reflects equal reduction of wages and salaries — pensions do likewise — and the shift to an individual’s income would be disastrous. The only answer here is to take the Samuelson estimate of these costs of $243 billion--pension and health insurance-- toward a single payer health plan or Medicare for all and triple Medicare withholding; thereby avoiding hot negotiations between labor and management over either a raise or medical benefits after single payer kicks in universal health insurance under the aegis of Medicare guidelines. Existing pension funds would be grandfathered in as tax free till retirement, but new contributions would not unless invested in social security plus. Add the remaining Samuelson estimate of $220 billion recovered by eliminating social security partial exclusions from senior income, charity, home interest and the largest bulk in unearned income, to the national debt to help reduce the unrelenting compounding interest on the debt — a large part shamelessly held by foreign investors. Additional hundreds of billions also could be saved by allowing only half of state income and local real estate tax deductions.
Given that this is a generous and charitable nation, one should not be hesitant about putting a full $5 in Sunday collection without asking for change from the government. Why cheapen your gift? Those on Social Security should be willing to give back by supporting full taxation so that everyone is in this together — including the green card immigrant making $11,000 a year. Besides, under this plan there would be universal health care including prescription drugs for all. Nor is there any rhyme or reason to treat income as “unearned” except for the laissez-faire voice echoing inflated returns in Wall Street. Real estate is location, location; wealth is investment at minimal risk — it’s time for penny stocks and bubble pins to disappear from Devious Street. A return to greater federal revenue sharing would alleviate the hit on state taxes.
Corporate tax, too, would be subject to a flat rate minus costs, including dividends — ending the phony argument of “double taxation.” However, the IRS must audit lavish expenditures such as private jets and unnecessary travel, extravagant entertainment, lush office decoration and furnishings and executive privileges. Depreciation would be history; since the cost of equipment is either up front or subject to installments over use. Though corporate tax is at 35%, few pay it and those that do are paying a percentage on a net value close to felonious deductions.
Small business owners and free-lancers, too, should be subject to close scrutiny of their costs — too many of which are inflated — mileage, personal as opposed to business, lunches, office equipment, repairs, liability insurance, petty cash for personal use, etc.
Obviously Jerry Brown’s 13% is not etched in bronze: my concern is the growing gap in wages between the impoverished and the middle class, let alone the wealthy. Yet I don’t think it is too much to ask for those whose gross income after dependents and FICA to pay 10% on wages from $1,000-$20,000 and should not expect the continuance of earned income tax credit. Nor is it unreasonable for one making $200,000 or more to shell out 15% which is all they actually pay now overall when factoring in numerous write-offs, such as college funds, mortgage interest, real estate tax, 401[k]s, IRAs, tax-sheltered limited partnerships, municipals, ad nauseam. The favorite argument of the better off is that they are now paying over 50% owing to state and local taxes. They do not deserve sympathy because of their expensive homes entailing higher local taxes; everyone — including renters — are subject to the same deluge of state and local punishment in spite of lower costs in filling up a Hyundai as opposed to a guzzler, or shopping at discount stores rather than at malls.
The current system rips-off the US Treasury by permitting untold tax-sheltering — a direct result of what Samuelson calls a “stab at a better tax system” in 1986. This was in fact, a merciless attack to level out the progressive system that had been in existence for almost fifty years wherein the gap between the lowest pay and the highest was separated by a 59% marginal rate — even more had JFK not tampered with the top rate of 90+%. Tax shelters are not a wherewithal to wealth for the poor who are left with little to shelter and even when they do scrounge up a few bucks for their IRAs, they lose the paltry advantage by the inevitable early withdrawal penalty. The tax code — in spite of earned income credit, larger exemptions, and lower income families tend to have more dependents — is undeniably rigged on behalf of the rich .
If you will, call it class warfare; I call it a preemptive strike on a tax code that began with Reagan and abused by Bush. An imperfectly devised flat tax would at least eliminate the unabashed shelters whereby so many are able to avoid paying their fair share.
Copyright © 2004 Richard R. Kennedy All rights reserved. Revised: May 17, 2004.