The Issues: Taxation

It occurred to me recently to try and articulate what I think the major issues are in the current Presidential election., Over the next few weeks I hope to write short pieces on what the issues are (for me) and how I feel about those issues. At the moment I can think of four. They are (in no particular order): taxation, the war, education, and health care.

American stand, I think, at a crossroads in terms of the nature and philosophy of taxation. It's not a very sexy issue. It is an issue primarily because a group on the far right of the political spectrum wants to do away with income tax and replace it with a "fair tax" that would charge everyone a flat rate in the form of a sales tax at the cash register.

The "Fair Tax." Genius. That's a better name than No Child Left Behind. Someplace along the way, Conservatives have learned that if you give an idea a really good name you're more likely to be able to make it a law. But I digress...

There are a bunch of things wrong with the "fair tax," as I see it. The most important is that it is a ploy, a disguised effort to control government spending by reducing revenue. I say that because the analysts that I've looked at all seem to agree that the proposal in Congress now would drastically reduce federal revenue. The result of that would be either a) a world in which Congress cut existing programs willy-nilly because it simply could no longer pay for them or b) the Reagan deficit, multiplied several fold. I would bet on "b," but neither is a pretty choice.

I'm not going to dignify this proposal by calling it a "fair tax" again; for several reasons, it's not fair. So we'll refer to it from here on as the sales tax proposal.

The reason the sales tax people have gotten as much traction as they have is simple: the tax system in America is complicated, convoluted, and seems to facilitate tax avoidance for the rich. Ron Paul is in favor of this proposal; Ron Paul is a fruitcake from outer space. But Mike Huckabee is also in favor of it; he uses it ironically to promote his image as a populist.

I found this definition of populism at Answers.com: "A political philosophy supporting the rights and power of the people in their struggle against the privileged elite." Call it part of being an enigma for candidate Huckabee: a Baptist preacher in a rock & roll band, the Republican populist...

The sales tax proposal is a bad idea because it makes taxation voluntary to the extent and degree that you can live on less than you make. Those in then upper class who make obscene amounts of money and squirrel much of it away for a rainy day (or a trip to the Italian Riviera) don't pay taxes on much of it - they get away with not paying their fair share. It also means that middle class Americans who live beyond their means by making purchase on credit cards can conceivably make pay more than their fair share in a give year; if they make $70,000 and spend $85,000 they pay taxes on the $85,000 they spent.

In addition to reducing the flow of revenue into the federal government (the real agenda for the sales tax, in my view), the result of the above situation will be that the burden for paying for government will be shift more onto the middle class. That makes the use of this tax to promote an image of populism truly ironic.

Of course, rejecting the sales tax proposal doesn't solve the problem. The truth is that taxation in America is broken and does need to be fixed. And spending in America really is a problem. The question is one of who can come up with proposals to fix the current system. John Edwards (a populist and a Democrat) and a few others have suggested closing loopholes and addressing some specific aspects of the tax code. Why should someone who makes their money in the stock market pay a lower rate in capital gains tax on their 1040 than a teacher, nurse or secretary pays on their salary? Why should the average Joe pay the payroll tax on almost every penny he makes while the CEO of some company pays it only on the first $62,700 and is off the hook for the rest of his $400,000 annual salary?

Fix the loopholes and the system produces more revenue and seems more fair. If the system produced more revenue, the actual rates might could be reasonably reduced.

The purpose for taxation and the manner in which Americans are taxed - these are among the most important issues on the table this election. And I don't think most Americans realize that...