TWEAKING THE TAX RATES…
(…is neither tax overhaul nor tax reform)

As usual, whenever we hear either a President or any member of the Congress making noises about “reforming” something we don’t just get nervous…but start shopping around for sources of steel-plated underwear…because we know that means sooner or later we’re about to get the shaft.

Tax reform is a perennial item on the agenda. We’ve lost count how many administrations have announced their intention to do so. Yet, always, the only thing we get is more of the same symptomatic medicine approach to the tax issue, rather than seeking a true cure for it…and President Trump’s preliminary outline recently presented to us is just more of the same. That is…tweaking the tax rates…is neither tax overhaul nor tax reform.

To be blunt about it it’s not just a question of tax rates and who benefits or doesn’t benefit from it. It’s a holistic issue touching on the entire structure involved with the allocation and distribution of the tax load to gather the revenues needed for the government to provide the services and programs we all seem to want it to provide.

As things stand right now that tax load is not equitably shared between individual and business taxpayers being mainly borne by individual taxpayers (somewhere close to 60%) rather than by business taxpayers (more or less only 30%). Thus, the existing tax formula is unbalanced and inequitable.

Real and meaningful tax reform should be aimed at accomplishing the following:

  1. Broadening the tax base as widely as possible
  2. Distributing the tax load as equitably as possible
  3. Simplifying the tax collection process as much as possible

To that end the only formula for accomplishing that seems to be the one proposed by Mr. Steve Forbes, and a number of others, some years ago. That is, to switch to a FLAT TAX ON GROSS INCOME for both categories of taxpayers, and indexing that into perhaps five or six brackets for each of these tax categories.

Doing that would broaden the tax base as widely as possible and would also distribute the tax load more equitably across the board. Everyone, from lowest income to highest income, from mom and pop enterprise to mega-corporations…all…would be paying their fare share, with few and very limited exemptions or exclusions. As for simplifying the tax collection process the first step would be to make the TAX YEAR in synch with the FISCAL YEAR, and secondly, to collect taxes on a QUARTERLY basis rather than just annually.

In effect it would be a pay as we go system which, among other things, would eliminate the government’s cash flow problems which forces it to borrow what it needs…to make ends meet…while waiting for those tax revenues to be gathered. In turn, that reduction in the need for the Treasury to borrow to cover those cash flow gaps would have the ripple effect of reducing the growth rate of our national debt.

Lastly, it’s not just a matter of our tax load. The flip side of this business of generating revenues for the government is…how are all those revenues to be spent? Here also there is much needed “reform” to be made.

Whether any of that will ever happen is anyone’s guess. Odds are it will be next to never. The attached are a couple of our old Charlie cartoons on the subject…explaining why.

CENTURION  

 

CARTOON ANNEX 1 – Issue No. 44 – May 2017