4. Sensible Tax Reform– A Simple Tax
Long ago, President George W. Bush’s own Treasury Secretary, Paul H. O’Neill, made the realistic and honest observation that: “Everyone who has anything to do with the tax code agrees that it is an unbelievable mess!” Our tax code is indeed an “unbelievable mess.” It needs to be radically changed.
Any truly significant federal tax reform must include three basic and critical aspects:
- Simplicity,
- Justice and
- Economical effectiveness.
Sensible Tax Reform—Simple, Just and Effective will offer all of those. This blog will examine simplicity. The next two blogs will examine justice and economic effectiveness.
A Broken Tax System
As was described in earlier blogs, and as almost all taxpayers know from their own personal experiences, the American federal tax system is broken. The Internal Revenue Code totals more than 75,000 pages (longer than 55 Bibles!). On average, there are more than two changes per day in the Code—more than 700 per year.
Every year, the Internal Revenue Code becomes:
- Much more complicated,
- Much more unintelligible,
- Much more confusing,
- Much more contradictory,
- Much more opaque and subject to behind-the-scenes manipulation,
- And much, much longer.
A fundamental goal of any major federal tax reform must be to truthfully create a simple tax system. Our political leaders have shown repeatedly that this cannot be done by simply reforming the existing Internal Revenue Code.
The Tax Reform Act of 1986, the last truly sweeping reform of the Internal Revenue Code was informally known as the “Tax Simplification Act of 1986.” In reality, it as well as all other “tax simplification” bills and laws, including President Trump’s 2017 tax bill, invariably complicate rather than simplify the tax code.
Yet lawmakers cannot resist the temptation to market tax bills as “tax simplification.” Some appealing but unsuccessful proposals::
- “The Seniors Tax Simplification Act,”
- “The Student & Family Tax Simplification Act,”
- “The Mobile Workforce State Income Tax Simplification Act” and
- “The Business Activities Tax Simplification Act.”
Every Congress elicits more calls for simplification—which seldom is true. Even if the original sponsors’ intent was legitimate simplification, once the bill gets into the legislative grinder, it morphs into something that should be called the “Tax Complication Act of 202X.”
Actually Simplifying Our Federal Tax Code
Real simplification of the existing Internal Revenue Code is effectively impossible. Too many congressmen and senators have too much invested in protecting favored supporters (both individuals and businesses). Simplification of our current form of federal taxes will not happen.
A truly new tax system that replaces our current system is needed. Sensible Tax Reform—Simple, Just and Effective will be very simple. In order to accomplish this, the long, complicated existing tax code will be largely removed and replaced by a very simple alternative.
Sensible Tax Reform will eliminate most of our existing tax code. Gone will be:
- Social Security and Medicare taxes,
- Estate taxes,
- Corporate income taxes as well as
- Most personal income taxes.
An income tax on very high incomes will be retained. However, the primary source of tax revenue will be a federal consumption tax. It will be a very simple, very broad-based tax with very few exclusions or exemptions:
- There will be very few tax rules.
- They will be very simple, easy to understand and very transparent.
- Everyone will be treated exactly the same.
- As a result, it will be very difficult for tax lobbyists to wrangle special tax favors for their deep-pocketed patrons.
- It will also be much more difficult for dishonest taxpayers to evade taxes than is true under our current Internal Revenue Code.
The next post will detail the justice of the new tax system. Much more information about STR can be found at the website: www.SensibleTaxReform.com.
5 Comments to 4. Sensible Tax Reform– A Simple Tax
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www.SensibleTaxReform.org
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Very interesting comments, Prof. Korth. I would only add two points of emphasis:
1. Yes, all residents will be treated equally, but very low income folks, in particular those under the poverty line, will be effectively untaxed since they will no longer pay FICA (payroll taxes) and will receive a rebate (monthly in advance) to cover the FCT which they would pay throughout the month on their purchases up to the poverty line.
2. Privacy! No more submission of detailed personal information to the federal government (where we save and invest our money, the church and charities we support, our medical expenses, where our child goes to college, etc.
Your STR plan is a winner! Thank you for designing it promoting it.
Now if only Congress wakes up, smells the spring flowers, and passes it into law.
David
Western NY
Again, very apropos comments, David.
(1) The protection of the poor is a very important priority of Sensible Tax Reform. Everyone, even the very wealthy, will receive the same absolute benefits–for example, the elimination of Social Security and Medicare taxes as well as the receipt of the monthly rebate of the federal consumption tax on that month’s income. However, on a relative basis, the impact will clearly be greater for the poor, since their expenditures consume all of their income. They will indeed be completely untaxed.
(2) Everyone will clearly benefit from the privacy provided by Sensible Tax Reform. Anyone who now itemizes deductions on their tax returns are the ones who must reveal extensive information about their charitable donations, medical expenses, etc. They will therefore be the ones who will gain the most from not releasing that info to the government.
I like your analogy: It is time to “smell the flowers” of real tax reform. Thank you.
Chris
Hi! Would you mind if I share your blog with my zynga group? There’s a lot of people that I think would really enjoy your content. Please let me know. Thank you
Please feel free to share my blog. I’m curious re. why you think the Zynga gamesite would be an interested venue, but please do spread the good news.
Also, I’d like to ask a question: I just activated my blog on Saturday (& am still looking for any possible kinks in the system). How did you find out about it? I’m pleased that you did. I have not yet begun to publicize it.
Chris
Thank you! I only released the blog late last week. How did you happen to find it?
I’ll be publishing new posts every Monday & Thursday.