It’s Time for Genuine Tax Reform
America’s tax system is a mess. It’s a hodgepodge of thousands of rules, regulations, and laws that are constantly changing according to the whims of whichever group of politicians is in charge in Washington, D.C. on any given day. Taxes are cut, taxes are raised, new taxes are introduced, old ones are repealed, but the middle class continues to get squeezed while many giant corporations able to navigate the loopholes and special interest tax breaks wind up paying no tax at all.
Thousands of lobbyists swarm over Capitol Hill day and night fighting for their favorite tax break, while millions of hard-working Americans struggle to make ends meet and waste countless hours filling out alphabet-soup schedules and forms, attempting to make sense of the annual IRS handbook that the government won’t even mail to you anymore.
In recent decades, we have seen major income tax reductions initiated by Presidents Kennedy and Reagan that led to major economic expansion. We also saw surtaxes imposed by the Johnson Administration to fund the War in Vietnam and a series of capital gains tax cuts under several Administrations. Both George H.W. Bush and Bill Clinton hiked tax rates to balance the budget, only to see the resulting surpluses washed away as George W. Bush cut rates again, waged a trillion-dollar war in Iraq and endorsed a massive increase in spending on Medicare. President Trump signed on to a large cut in corporate taxes which was long overdue, but many taxpayers felt the bite of losing their personal exemptions or state and local tax deductions.
If the purpose of taxes is to raise revenue to finance the Constitutionally- authorized and legitimate functions of government, we should ask why this confusing and contradictory patchwork of deductions, exemptions, write-offs, depreciations, allowances, and constantly shifting rates on income and capital gains? Is the purpose of the tax code to raise revenue or to micromanage the economy and dole out favors for whichever special interest group has the most clout in Congress? Should the federal government be using tax law to favor one group over another in our society or to stimulate one type of economic activity over another?
Unfortunately, when government becomes as large, bloated, and overbearing as ours is, it all but invites tax code tinkering. When government starts handing out subsidies to everyone from farmers to oil companies or insists on regulating almost every aspect of economic activity, those that are taxed and regulated will hire lobbyists to fight back and demand relief or their share of the pie.
This is not the system the Framers of our Constitution intended. They never envisioned a federal government so enormous in its scope and power that a cottage industry would develop among those needing to influence public policy through the manipulation of tax law.
The Constitution itself states “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.” That obviously ruled out an income tax which was declared unConstitutional itself by the United States Supreme Court in 1895. Only through the passage of the 16th Amendment in 1913 did the federal government gain the power to legally pick your pocket. However, the top rate at that time was only 7% and only applied to incomes above $500,000 ( $11 million in today’s dollars ).
Wars are, of course, giant moneymakers for government and corporate elites. By 1918, the impact of World War I had caused income tax rates to reach an astounding 77%, before dropping back down to 25% under Republican President Calvin Coolidge in 1925. World War II sent rates skyward again two decades later with the top rate hitting 94% on incomes over $200,000 ( $2.5 million in today’s dollars ) in 1944. The top rate remained at 91% until the Kennedy tax cuts of the mid-1960s slashed it to 70%. President Reagan took it down further in 1981 to 50% and then to 28% in the 1986 tax reform. The top rate today is 37%. So much for the permanency of the much-heralded 1986 two bracket legislation.
Of course, prior to 1913, the federal government exercised its legitimate functions perfectly well, relying mostly on import duties and excise taxes. We had far fewer foreign wars and Washington left matters like health, education, and welfare to the states and local communities, or the private sector.
Isn’t it time for a fair, just, and consistent tax system that simply raises revenues instead of providing incomes for high-priced CPAs and accountants? Isn’t it time for a tax system stripped of special interest goodies? Isn’t it time for a tax system that would forcibly corral the federal government within the confines of the Constitution?
The best option would be a flat tax of some kind, without any deductions or exemptions. And, hopefully without any paperwork either. A tax system that no longer taxes work or investment would be ideal. Taxing consumption rather than production would be logical and would spur rapid economic growth. We would end the practice of using taxes to redistribute wealth and instead use taxes to create wealth. The best approach I’ve seen is the FAIR Tax which would do away with the federal income tax, corporate tax, capital gains tax, payroll tax, and estate and gift tax and replace them with a flat 23% tax on retail sales. Everyone would wind up paying, including the super-rich.
The loopholes that let Warren Buffett pay less than his secretary would be gone. The underground economy and the drug dealers would be taxed as well. Anyone who buys anything would have to pay. Some might argue that such a tax would be regressive, hitting the poor who have less discretionary income to spend and who spend a larger portion of their income on basic necessities. That argument emanates from a stubborn redistributionist mindset, but can be solved easily through some kind of a rebate paid to the neediest Americans, if necessary.
As many Americans now approach July 15th with dread and without jobs ( thanks to an unnecessary economic lockdown over COVID-19 ), we should be asking the Trump Administration to drain the tax swamp of its lobbyists, lawyers, and CPAs and push for genuine tax reform that works for working people.
Dr. James Veltmeyer is a prominent La Jolla physician voted “Top Doctor” in San Diego County in 2012, 2014, 2016, 2017, and 2019. Dr. Veltmeyer can be reached at firstname.lastname@example.org
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