Everyone has his own ides of what type of tax reform would be best. Some say "Soak the Rich", others say the FairTax and yet others say 9-9-9. But few have actually set down and done a systematic, point by point analysis of the various tax reform proposals, based on goals. After all, the key to successful problem solving is to begin by identifying problem issues and then set goals to deal with each identified issue. A successful solution is then easily identified by how many of those goals are met.
So that’s what we’re going to do. Over the coming weeks, we'll evaluate the current progressive income tax, a more progressive income tax (i.e. "Soak the Rich"), the flat income tax both with and without a corporate income tax component, the FairTax, and 9-9-9, against a set of goals for tax reform. But what should those goals be?
Based on article feedback that I've received over the years, I've developed a set of goals that I think should cover just about everything that anyone would think to be a reasonable goal for tax reform. But at the same time, I know that there may be other reasonable goals that I have not considered and my readers have not yet suggested. So this article is a request for your ideas on what should be reasonable goals for tax reform. Any reasonable goals will be considered.
If you have any suggestions for additional goals that we might want to evaluate, please leave us a comment, at the bottom of this article. Then in the coming weeks, watch for our examination of each of these issues, as they relate to each of the types of tax reform.
Oh, yes. “Tax everyone else and not me,” isn’t a valid goal.
The following 14 points are what we have come up with, so far:
- Clear and Simple – No single IRS agent understands the current tax code. A tax plan should be easy to understand and easy to comply with. It should not require hiring an “expert” in order to insure compliance.
- Transparent – The current income tax hides much of the taxes that we really pay. (i.e. payroll taxes are hidden in lower gross pay and corporate income taxes are embedded in the cost of products and services.) Every cent of tax that the taxpayer pays should be obvious to him.
- Fair to All – Our current tax system allows Congress to easily play favorites and we see those favorites change as the government changes. Every taxpayer should be treated exactly the same. In fact, a truly fair solution should make it difficult for Congress to play favorites.
- Un-Intrusive – One of the major problems with our current tax system is that it gives the government an unwarranted window into our personal finances. This window into our personal finances needs to be removed.
- Un-Tax the Cost-of-Living – For the poor, the corporate income tax is a tax on the cost of living, since it is embedded in the price of all of their purchases. Earnings or expenses up to the poverty line should not be taxed (if you’re thinking that we should do this only for the poor, see #3).
- Increase Compliance – In 2009, the U.S. Department of the Treasury reported that the Gross Tax Gap was $450 billion. That’s the difference between what they should have collected and what they did collect. While there will always be those who will try to cheat on their taxes, an effective solution will increase compliance. The amount of such increased compliance will help us measure our success.
- Reduce Compliance Costs – Every year, Americans pay between $350 billion and $450 billion to comply with the current tax code. Even the poor are hit with this, since those compliance costs are embedded in the price of all of their purchases. Those compliance costs need to be drastically reduced.
- Reward Savings and Investment – Our current tax code punishes savings and investment by taxing it twice – once when it’s earned and again when it accrues interest. Since savings and investment boost the economy, savings and investment should not be taxed.
- Tax the Underground Economy – Today, drug dealers, auto thieves, burglars, prostitutes, and illegal aliens are just a few of the dregs of society who pay little or no income tax, but cost taxpayers billions of dollars in enforcement costs. Any solution should capture as much tax as possible from the underground economy.
- Repatriate Off-Shored Jobs – Millions of jobs that used to employ American workers have been off-shored to places like Mexico, India and China, in large part, due to our tax regimen. Any solution should create incentives for companies that have moved jobs offshore, as a way of reducing taxes, to bring those jobs back to the USA.
- Repatriate Lost Wealth – According to Zogby International, more than 3 million Americans “relocate” (they move their home) offshore. History tells us that about half of those who relocate offshore will never return. Reason tells us that most of those people are at least somewhat well off. Any solution should create incentives for US expats to return and bring back their tax base, investment capital and the jobs that capital creates.
- Bring in Foreign Investment – Along the same lines as number 11, a viable tax reform plan should create a tax environment that will encourage foreign companies to build plants and factories in the USA.
- Have a Chance of Becoming Law – There are many tax reform plans floating around. Some are so screwy that few people would take them seriously. Others sound quite plausible, but have no backing in Congress. Others have backing in Congress, but aren’t plausible. A viable tax reform plan should be both plausible and have at least some chance of becoming law.
- Revenue Neutral – Since we’re talking about tax reform and not spending reform, which is a separate issue, the revenue from any reform of the tax code should produce the same revenue as the current system.
Can you think of anything that we've missed? If so, please leave a comment. Goals should be general in nature, whenever possible. I look forward to your suggestions, should you have any.
Also, it's not carved in stone that we will only consider the various forms of income tax, the FairTax and 9-9-9. If you think we've missed a viable tax reform plan, let us know.
Be sure to watch for the analysis of the various tax reform plans against each of these issues, in the coming weeks.