American Samizdat

Saturday, March 05, 2005. *
Simplicity, Fairness, Growth
Image Hosted by ImageShack.usI know you can get behind the words in the title of this post. And if I'm right, then you are already halfway to swallowing George W. Bush's next big idea, Tax Simplification. It's not called tax reform by the conservatives - reform is out, out, out. Simplification is in, in, in. It's simple - the rich keep more of their money and you lose more of yours. Really freaking simple.

Where could Bush have drawn such an idea from? The Reagan administration? "Tax Reform for Fairness, Simplicity, and Economic Growth: The Treasury Department Report to the President, November 1984". If simplicity, fairness, and growth were good enough for the gipper (who still isn't on Mt. Rushmore thanks to all of you obstructionists), the they're good enough for us. Who could possibly have a problem with these ideas? You may as well say that you hate freedom, liberty, and democracy. What, you want things to be complicated, unfair, and shrinking? That's just weird.

The Heritage Foundation is behind Bush in a big way. If they could get any further into Bush's behind, they would, "The current tax code is needlessly complex, and this hurts economic growth. As the President noted, Americans spend over six billion hours filing their tax returns every year. No doubt most Americans would prefer to spend these hours more profitably, at work or at play"

Jerry Falwell et al. are saying that I will have six billion hours to myself if the president stops hurting economic growth with all that complex junk? Right on!

The American Enterprise Institute is competing with the Heritage people for 'nearest-to-the-first-sphincter' status, "President Bush's bold convention promise to propose fundamental tax reform in his second term creates a real opportunity to modernize a tax code that is a half-century old."

Stupid Old tax system. Who wants a stupid, old, complex, unfair, economy shrinking tax code? Maybe some stinky hippie homo who hates the ground he walks on and wants to ban Jesus and kill the President with his hate.

I'm still doing my homework on the Bush Tax Reform Plan (a.k.a. "War on the Poor"), but I've learned a few things that might help you understand where we are, and where we might be going.

First, here's a look at how much money tax money the federal government has been collecting as percentage of our Gross Domestic Product.
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Our GDP has risen exponentially since the war, of course, but so has the price of everything in sight, especially housing and real estate. The point is that the Feds are collecting a relatively small amount of money from the Big Picture Economy.

Out of these taxes come our defense, our bureacracies, our social programs, etc. As you've seen in the proposed FY2006 budget coming out of the White House, Bush plans to continue to cut tax revenue, slash social program spending, and raise military spending. This passes for fiscal discipline in an executive branch that has publicly stated the irrelevance of budget deficits despite the falling dollar.

Anyhoo - we're collecting less than ever. So is George W. happy? Nope. He wants the poor to pay their fair share. How? Through a Value-added tax/Sales Tax/Consumption tax - whatever you choose to call it. The current White House nomiker for it is consumption tax. Or though a flat tax. Everybody pays the same percentage! Fair! Simple! Pro-growth! And the poor will have less money than ever. Lucky Duckies!

Here is a site that lays out some pros and cons of (A) Consumption Tax; (B) Flat Tax; (C) Progressive Taxation like what we have now. The authors, from the Century Foundation ( I know nothing about the ideology of this group ), break their assessments down into three areas - Simplicity, Fairness, and Economic Incentive: "Congress is considering a number of proposals for overhauling the current federal income tax system. Proponents of each plan argue that theirs would be simpler, fairer, and better for the economy than today’s code."
[...]
"Consumption taxes, which are primarily intended to simplify the tax system and encourage saving by discouraging spending, fall into two main categories: (1) taxes levied at the point of a transaction, like a sales or value-added tax (VAT), and (2) taxes on earnings but not income from savings and investment, which encompasses many so-called flat tax proposals."
[...]
"The flat tax would replace current personal and corporate income taxes, as well as federal estate and gift taxes. For individuals, wages, salaries, and pension distributions would be subject to tax at a single rate regardless of how much a family earns. But income from savings and investments—interest, dividends, capital gains, rents—would not. Because flat taxes reward savings by exempting earnings on investments from taxes, they are considered to be consumption taxes. A number of politicians have developed their own variations on the original flat tax concept, but its main features generally include:

1. A family allowance that would shield income up to a specified level, taking into account the number of dependents, from tax. Above that threshold, the flat tax rate would apply.

2. No other deductions or credits would be allowed, including those for home mortgage interest, charitable contributions, child care, and so forth. The Earned Income Tax Credit would also disappear.

3. All businesses would pay tax on their total sales, minus purchases of material inputs from other companies, investment goods, wages and salaries, and pension contributions. Companies would no longer be able to deduct the cost of nonpension benefits such as health insurance for employees or their Social Security payroll taxes. Corporate interest payments and taxes to state and local governments also would no longer be deductible.
[...]
"Some advocates who agree that the current system is overly complicated and unfairly skewed in favor of particular groups and industries think that the real way to promote economic prosperity is not through the increases that the proponents of the various forms of consumption tax seek. Rather, they argue that a system that significantly reduces taxes for low- and middle-income households would broadly raise living standards and improve the economy as a whole."

Go read it all and get your wheels turning. Bush is going to try to ram some bad juju down the national throat just after the Social Security Bamboozle goes down in flames and just as the next war gears up. What? Are you Anti-Commander-in-Chief, Anti-Simplicity, Anti-Fairness, AND Anti-Growth? Get with the program and get cozied up to the Executive Posterior already.

Soon the economic-minded bloggerati will take up post on this issue and help the rest of us pajamahadeen get our heads around it.

{cross posted at Scrutiny Hooligans}
posted by Gordon Smith at 8:22 AM
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