Category Archives: Credit Crisis

The Challenge of Creating an Economically Sound, Simpler, and More Just Tax Code (Part 2 of 3)

Part 1

Is an economically sound, simpler, and more just tax code even possible?

The truth of the matter is that there are too many people on the Left and the Right who do not want a simpler tax code that treats everyone equally.
It’s probably not because the defenders of the existing system necessarily think the existing code is good economic policy nor does a better job funding the federal government. The most likely reasons why there is so much resistance have to do with political pandering, vote buying/special interests, and social engineering.

It’s not too difficult to figure out why the Left panders to the working poor because the poor always outnumber the wealthy regardless of how well the economy is doing overall. What would happen if there was such a tax code where everyone paid the same rate without any tax credits or loopholes and without any hidden or embedded taxes? I’m guessing it would be more difficult to raise taxes on the evil rich if it meant that everyone received the same percentage tax hike. When it comes to the tax code, equality is the very last thing the Left wants.

If there is anything I agree with the Occupy Wall Street crowd or the Left more generally it’s the special treatment politically connected individuals and businesses receive via the tax code and/or subsidies. So you say you want to get money out of politics or do something about the role of corporate lobbyists in Washington?

I do too.

The simple answer IMO is to eliminate all taxes on business and all subsidies that benefit business. If there are no taxes or subsidies, there is no reason for businesses to lobby for special tax treatment or subsidies; the main reason most industries send lobbyists to Washington in the first place. If we would like to go any further in limiting influence of special business interests, maybe just maybe we should get the government out of regulating just about every aspect of business* and restrict the government to its limited constitutional powers. What a novel concept!

Finally there’s the social engineering aspect of the tax code. Frankly, I’m not sure if those on the Left or the Right are worse when it comes to using the tax code as a tool to encourage the American people to engage in particular activities. Even with Perry’s flat tax plans, there are a handful of deductions that are sacred cows. The home interest, charitable giving, and state and local taxes are preserved for those who earn up to $500K. Those who earn under $50K can choose not to file under the 20% rate with a $12,500 per family member deduction (which would eliminate all if not most tax liability under the existing rate for those in this tax bracket). With these deductions as part of the plan, the Perry plan can hardly be called a flat tax.

While I’m critical of keeping these deductions in place (he probably could get by with a smaller rate without the deductions), it’s not difficult to figure out why Gov. Perry keeps them in place. Voters would raise all sorts of hell at the thought these deductions would go away. Maybe there’s a good argument to make that charitable giving should be deducted since these funds help people who might otherwise be on government assistance.

But the home interest deduction? Why is that held sacred? Is there some sort of right for homeowners to get a break because they choose to buy a home rather than rent? I suspect that the realtor and home building lobbies and those in government who truly believe that every person should buy a home perpetuate this notion to a point to where now home owners think they are entitled to this special treatment.

Perhaps the most sacred cow of all of the deductions is the child tax credit. This deduction is a feature of every tax reform I mentioned in part 1 (even the Fair Tax prebate is based on family size). In the last presidential debate, Rick Santorum said in so many words that the federal government should promote families via the tax code.

Is this really the sort of thing the government should be concerned with? Should the amount of taxes an individual pays have anything to do with marital status or number of dependents s/he is supporting? Is it fair to make a single person pay more taxes because s/he doesn’t have dependents?

I don’t think there is an answer that will satisfy everyone.

Part 3
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Peter Schiff to OWS: “I Am the 1% Let’s Talk”

Here’s a very fascinating video taken at New York’s Zuccotti Park where Peter Schiff has a dialogue with some of the Occupy Wall Street protesters. Schiff brought a sign that read “I Am the 1% Let’s Talk,” and talk they did.

One of the things that occurred to me watching this was how little true discussion is going on between the OWS movement and their critics. Notice how some of the protesters say things like “you rich people” or “you Republicans” etc. Just as its unfair for these protesters to lump everyone into these groups is a mistake, I think it’s also a mistake to assume that all of these protesters are clueless and don’t have some legitimate grievances.

Kudos to Peter Schiff for going out among the protesters and having this much needed conversation. There seems to be some common ground concerning these grievances; the real differences are what the solutions should be.

Ron Paul Unveils “Restore America” Plan

LAS VEGAS – Republican presidential candidate Rep. Ron Paul unveiled his economic “Plan to Restore America” in Las Vegas Monday afternoon, calling for a lower corporate tax rate, a cut in spending by $1 trillion during his first year in office and the elimination of five cabinet-level agencies.”

[…]

Paul does get specific when he calls for a 10 percent reduction in the federal work force, while pledging to limit his presidential salary to $39,336, which his campaign says is “approximately equal to the median personal income of the American worker.” The current pay rate for commander in chief is $400,000 a year.

Based on Dr. Paul’s speech, there’s not a whole lot not to like. Cutting $1 trillion of government spending in the first year would be a very good thing IMO.

As a Gary Johnson supporter, I can’t help but get more than a little annoyed each time one of Paul’s supporters, member of his campaign staff, or the congressman himself makes the claim that Dr. Paul is the only candidate in the race who would balance the budget. Gov. Johnson has promised a balanced budget, not merely in his first term but in his first budget in virtually every debate, interview, and speech he has given since he announced his candidacy.

That criticism aside, I hope this plan is given serious consideration by the primary voters and debated among the candidates.

Gary Johnson and Ron Paul CPAC Speeches

The 2012 G.O.P. candidates each gave speeches at CPAC following the debates. Below are the speeches from Gary Johnson and Ron Paul. The first video is Johnson’s presentation before perhaps the largest audience he has had in awhile. Johnson spends a good part of his presentation introducing himself before giving an overview of his proposals. In the second video, Dr. Paul who is no stranger to CPAC, gets right into his prescriptions for fixing the economy and restoring lost liberty.

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