Tax simplification is like Roe v. Wade

[jmowreader]

It's a way to pump up the Republican base--nothing more.

I present this proposal for your consideration.

One of the Republicans' favorite drumbeats is "the tax code is too complicated. Simplify!"

Please note that this drumset is only played by dedicated antitax crusaders like Grover Norquist, head of the National Taxpayers Union, and Republicans who are trying to win elections. It is never played by business leaders like the Waltons and Bob Nardelli.

Business leaders don't want tax simplification. Business leaders have spent too much money buying congressmen to want tax simplification to go through--because tax simplification will cost them more money.

Look at the two main tax-simplification proposals: Flat Tax (also called "Fair Tax") and National Sales Tax. Both of them eliminate deductions. Modern American business can't operate without being able to deduct things like cost of materials and cost of labor. They could reinvent themselves to be able to operate without deducting any of their expenses, but at the cost of massive job loss, massive reductions in reinvestment, massive changes in the American way of life.

Charities--especially churches--fear an America without deductions. One of my favorite stories is about some hospital who every year has a banquet for its biggest donors. At it, the very top donors are invited to make a few remarks. They let the top 20 up there, and most of them get up and thank God, thank their families, thank whoever. The most generous benefactor got up and thanked the Internal Revenue Service because "if charitable contributions weren't deductible none of us would be here tonight." The "regular people" like you and I are the backbone of any charity. A university might be grateful for the rich man who gives a one-time contribution of a million dollars, but they're dependent on the twenty thousand ordinary men who give twenty dollars a month. If your taxes go up quite a bit, as they will in any tax simplification scheme, many of those twenty-dollar checks will stop coming. I'm certain that Jerry Falwell prays every night that God protects the Internal Revenue Code in all its complex glory.

It's a great campaign platform plank: we're going to Simplify the Internal Revenue Code. Every year on April 15, the Republicans get a copy of Title 26 of the US Code, which is huge, and wheel it out in front of the press to show them how overlarge it is. They brought it in on a forklift once--and that makes some sense; if you bind Title 26 in nice leather covers and palletize it, it makes a three-foot-high pile of books. They put it on a flat cart and had a jockey push it in once. It's a fun stunt. But how much of Title 26 is applicable to normal non-rich, non-railroad-owning Americans? Oh, 'bout half an inch of it--the thickness of IRS Publication 17, "Your Federal Income Tax." This is, after "Fear and Loathing in Las Vegas," "Barbarians at the Gate" and "Jane's Military Communications," my favorite book. Get a copy of it--you can download a PDF from the IRS--and you've got everything you'll ever need to do your own taxes. (Over in the Lounge there are frequent "your favorite book" threads. One of these days I'm going to put "IRS Publication 17" down. It is a great book and--the best part--it's free!)

Tax simplification, if it ever came into fruition, would kill the Republican Party once and for all. If in Year One you passed tax simplification, and the freepers saw their taxes go up by half in Year Two and saw their jobs disappear in Year Three, there'd be no way they could blame this on Clinton.

[kentuck]

1. Very true...It's part of the '06 campaign to re-elect Repubs...

That is their primary motivation at this time - not the Iraqi war.

[dcfirefighter]

2. I think you miss the points

made by the proposed plans. (neither of which I support, and neither of which I fear).

Business leaders of established businesses don't want tax simplification, for exactly the reasons you mentioned. Business leaders of small businesses do.

The flat tax is merely our existing tax - less deductions, and with only one bracket. Usually there is a personal exemption, such that the first X dollars anyone makes is tax free (usually around $10,000 or so) and the rest is taxed at a middle rate, around 25%. This would raise the tax on capital gains and dividends, so it's not gonna fly.

The 'FairTax' is actually the national retail sales tax. It DOES have SOME things going for it, but 1) overall it's a loser and 2) it's never gonna happen.

But, as I was once a fan of it, I must disagree with the assessment that it would kill charitable donations.

Most people under the current system must earn $1085 in order to make a $1000 donation, as $85 will go to the payroll tax. The income tax agains paid on the income donated will be refunded, but not the payroll tax. This is mathematically equivalent top paing a 8.5% tax on donations.

Under FairTax there are no taxes on earnings not spent, which includes earnings donated to charity.

Under the income tax, the government doesn't give you money for making donations, it merely takes less of what it normally does. In either case, you must give up a portion of your disposable income.

[Tux]

3. FairTax

I read about it at http://www.fairtax.org and I can't see too much wrong (other than tax on rent and lower interest rate which screws Certificates of Deposit). Wh is it considered a loser? I'm a current fan by the way.

[jmowreader]

4. Small business OWNERS don't support tax simplification...

...once they look at their own tax returns.

I'll give you an example: the small business I used to work for. It was a printing company. (To simplify this discussion, we'll pretend that the 35-percent top corporate tax bracket is flat.) The top line on our tax return was about $3 million. At 35 percent, we would have owed the IRS a million dollars.

Now let's deduct the ordinary and necessary business expenses...

employee compensation and benefits
governmental compliance
deductible taxes
paper, film and plates
inks and coatings
proofing material
bindery wire
stripping supplies
chemicals
depreciation on the two new presses and the truck
utilities
fuel to ship orders

and you're now paying taxes on $3000 taxable income.

If taxes were flat, we would have sent them a return claiming we owed them a thousand dollars.

There is a HELL of a difference between owing the government a million dollars and owing them a thousand dollars.

Okay, let's be real generous and cut the corporate tax rate in half while we get rid of all the deductions. This printer would still have paid half a million dollars in taxes.

Now tell me where you're going to come up with the extra money. It can't come out of salaries; this guy paid terribly. You can't cut down the price of paper--customers choose the paper they want, and we used so much of it we were on the vendors' cheapest pricing tier. Ink, chemicals, plates? We bought those things in full-truckload quantities because you save ten percent by doing it that way, and we added on to the shop's air-conditioned space to hold the overflow. Prepress equipment? No one has SOLD a plate processor to a printer in the last 25 years; you get them free when you sign a contract to buy plates. Same deal with our proof-making equipment; DuPont brought it in and set it up. They even brought their own crowbar to get the crates open. We did every possible thing there was to economize--and in an excellent year we still managed to come out with $3000 in taxable income. And of that, one-third of it went to Uncle Sam.

You'll see this in small businesses all across America. There is no real profit in small business. Oh, the owners themselves can do well if the business is managed well, and the employees can do well, but the business itself? The ideal is to make no profit--because profit is what's taxed.

Oh, and I'm well aware that the government doesn't give you money for making donations. But check this out: My donation money goes to a group that used to be called the Animal Haven (this is the local no-kill shelter), the CARE Clinic (the local free clinic) and the Arts Council. Every year they will send me a letter: cut your taxes now, send us a donation before December 31. For people who give a lot to charity, tax reduction is a prime motivator.