|A student eyes the Emancipation Proclamation as the President gave students from William R. Harper High School in Chicago a tour of the Oval Office, June 5, 2013. |
Dr Peter Morici:
desperately want a fairer tax system and relief from arbitrary treatment by the
IRS. True reform requires simply junking the personal and corporate incomes in
favor of a consumption tax.
House Ways and
Means Committee Chairman Dave Camp estimates tax filing, recordkeeping and the
like amounts to $168 billion a year—a terrible waste exceeding 10% of the
taxes collected. Much of the personal information revealed is a terrible
invasion of privacy, and the constant fear the IRS will audit taxpayers for
their political activities is outright tyranny.
The tax code is
riddled with special interest provisions that favor rich donors to political
campaigns, distort business decisions and consumer choices, and handicaps
economic growth and jobs creation.
Camp proposes to
eliminate or modify many exemptions, deductions and other special provisions,
but just the summary of those reforms takes 194 pages to explain in language
only a tax expert could fully comprehend. Despite noble intentions, much of the
morass would remain, and the biggest beneficiaries would be lawyers and
accountants tasked by the rich and big corporations to game the new system.
The tax code
would continue to heavily tax America’s biggest jobs creators—small businesses
who cannot afford those professionals to effectively compete with big
corporations—and to disadvantage American businesses in foreign markets where
governments rely more on consumption taxes than levies on income.
In 2013, the
Treasury collected $1.6 trillion from corporate and personal income taxes. This
could be replaced by a 12% sales tax on all private purchases and other
payments—be they computer equipment, college tuition or lunch at the corner
institutions would then pay to Treasury the taxes they collected less sales
taxes paid on purchases of materials and equipment, rent and the like. This
subtraction would avoid the double taxation of materials and equipment
businesses purchase and create a value added tax often proposed by advocates of
It would end
forever all the headaches associated with valuing inventories, calculating
depreciation on capital equipment and other work that cost billions in
accounting and legal fees.
A VAT would favor
no activity over another, and by taxing goods and services at the point of sale,
it would end the problem of U.S. firms parking profits abroad to avoid taxes.
institutions would file a three line return, how much tax they collected, how
much they paid and the difference. Individuals would file no tax return at all!
abound to exclude or exempt all kinds of activities but that is the kind of
thinking that gave us the current mess—and inequities, slow growth and exceeding
complex tax returns.
remain. A VAT is not progressive—it taxes rich and poor consumers at the same
rate. The elderly, who more or less live on savings, have already paid income
taxes on those savings and would be taxed again.
A simple solution
would be to raise the rate to 15%, and award each parent $4,000 for each
child and pay similar amounts to each American over 65.
If Congress wants
to spend more, it could raise the rate further. That would make transparent to
all the cost of spending more on government activities. If conservatives on
Capitol Hill want to cut programs, they could explain to voters how much those
savings would lower the rate.
egalitarian and efficient, such a value-added tax without exemptions would give
Americans the tax reforms they want but privileged rich folks and big businesses
spend a fortune avoiding.
The economy would
grow faster, create more jobs and Americans would live better and in less fear.
And that is what America is supposed to be about.
Professor, Robert H. Smith School of Business, University of Maryland,
College Park, MD 20742-1815,
703 549 4338 Phone
703 618 4338 Cell Phone
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