August 1, 2014

Flatter is Better

As I noted the other day, I'm a proponent of a flat tax, because it's the only sure-fire way to treat all of us equally when it comes to income taxes. I also believe that the flat tax should apply to the breathless people too -- corporations -- that are the darling of politicians across the land

Assuming we can figure out the percentage that we would need to collect from people and corporations (and there's likely an app for that), it seems there would be some obvious benefits, including:
  • Increased "certainty," something we've been told countless times over the past few years we're lacking. Without it, businesses and people can't invest, can't save, and can't spend money on goods and services. Businesses can't grow. The flat tax is nothing if not certain.
  • No more scrambling in the spring to see if you can get a deduction or credit. No more trying to determine if you should file singly, jointly, or some combination of that. No more marriage penalty. No more having to pay a tax service. Just a tax on the income you earn.
  • If your bracket says your tax rate is 25%, but you pay 15% because of all the gimmicks, are you paying your fair share? Most companies (and people) pay a rate less than what their bracket says they should pay. If we had a legitimate flat tax rate, one that was fair across the board, we wouldn't need all this other tinkering around. And we wouldn't have it. And we'd all be paying our fair share.
  • Having our money in our hands all year long gives us freedom to do what we want with it. More money for more purchasing means more goods and services to purchase, which means more jobs, which means more income, which means more taxes. Not higher taxes, but more people contributing to the tax base, because they would have jobs. In theory, that could allow the tax rate to actually go down.
Perhaps equally important, though are the other benefits we could gain by completely reforming the tax code (closing tax loopholes, eliminating the social engineering components, etc.) and implementing a flat tax

What drives our political system? Money. Where does that money come from? Lobbyists, PACs, 501(c) organizations, unions, political parties, trade associations, corporations, and even some people. Why do those organizations donate money? Because they want something - they want lower taxes, or they want special tax credits, or they want fewer regulations (many of which call for fees, which are just like taxes, or the call for changes, which cost money), or they want special treatment (which usually means they want to pay less money one way or another).

So, if you're a politician from either party and you are getting boatloads of financial help from the organizations above, or you want to get boatloads of financial help, what do you do? You work with them or on their behalf to craft regulations or legislation that work to their advantage. You dream up bills that help reduce the tax burden on businesses, by setting up tax free zones, for example, or create other 'zones' which benefit specific sets of accountants and lawyers who get their clients into the programs, often leaving other businesses (and their employees) behind. You sign tax pledges or otherwise sell your soul for the money.

The problem with all of this, which is a purposefully cynical outlook on politic, is that because of money and its influence, people who think they are paying their fair share actually end up paying more than that. Why? Because the taxes that don't get paid by the people with influence end up getting paid by everyone else.  And not only that, all of these special programs, special rules, special tax deductions and credits and gimmicks serve to create separation and division between us.

We all know someone who complains about welfare programs, lobster-buying SNAP users and all of those baby-popping-out women that are embedded in the safety net. Well, those same complaints can also be made against companies and people who benefit from the special stuff, whether it's flexible spending plans covering day care, parking and public transportation, or tax credits for charter schools or higher education, or deductions for charitable contributions, or chosen types of interest, or even deductions for additional children that people choose to have, which we find so distasteful under other circumstances.

The list could go on and on, but at the end of it, like a rainbow, there's always the promise of a pot of gold - in this case, filled with our tax dollars. Crony capitalism, special tax breaks, are just as 'bad' as any other type of handout.

And if the money was not in the picture, would the ethical landscape improve? Would it be less appetizing to a politician to consider a bribe, to do a favor, to craft and pass a bill, if they knew that there was no wiggle room in the income tax laws? I would have to think yes.

Two years ago when he was Mitt Romney's running mate, Paul Ryan repeatedly said we needed to close tax loopholes, put an end to corporate welfare, and stop treating wealthy people differently. Here's one version of that sentiment:
And what we're saying about taxes is take the tax shelters and the loopholes away from, from the well connected and the well off so we can lower tax rates for everybody.
I'm not a huge Ryan fan, but on this, he was right. Close the corporate and personal loopholes, even the ones near and dear to us; stop the social engineering; stop the cronyism; reform entitlements for the 'haves' with equal gusto as for the 'have nots' and in the process, let's get some of the money out of politics.