Saturday, August 26, 2017

Tax Reform


As I am not running for office, I can tell the truth: we need to collect more tax revenue.  Why?  So that our National Debt doesn’t reach Mars before we do.  No politician ever won an election saying that he wants to raise your taxes, even though it is what we must do (and in your mind, if not your heart, you know I speak the truth).  But I am not running for office.  So, here goes nothing.

It is the case that in the last 15 years, the federal government has run deficits, not surpluses, in every year.  It is the case that in the last 47 years, the federal government has run deficits in all but 4 years (so, 91% of the time).  It is the case that since 1952, in the last 64 years, the federal government has run deficits in all but 7 of those years (so, 89% of the time).  We are addicted to deficits because we don’t want to pay for what we want to have, but we never elect anyone who wants to raise our taxes so that we could pay for what we want.

So, as I am talking about cutting our National Debt, we must collect more revenue, we must raise taxes.  And I would like to do that as painlessly as possible.

For starters, we could raise marginal tax rates on the rich and the super-rich without inflicting too much pain.  I have made the case for this in my book and in my blog more than once, so I won’t argue it again.  Suffice to say, the more you earn the easier it is to make do with less.  The man who earns $25 million can bear a 20% tax rate much more easily than a man who earns $25,000.  As a matter of fact, the man who earns $25 million can tolerate a tax rate of 80% (leaving him with only $5 million) more easily than a man who earns $25,000 can tolerate a tax rate of 20% (leaving him with $20,000).  And, as Warren Buffett has said, “we should tax the people who have the money.”  Onward.

We don’t want the Fair Tax or the Flat Tax either (argued, again, in my book), as both are regressive tax schemes (that is, the poor and middle classes end up paying a higher %age of total tax revenues than they do now).

Now let’s look at deductions.  As long as we don’t pay all our bills, as long as we run deficits, when the government gives you a deduction, it must be made up by someone else, or else we go even deeper into debt.  So maybe we need to look at cutting back deductions that favor the wealthy, as they can afford it more than you can.

Collecting revenue to pay for what government buys is not the only purpose of taxation.  We tax things that we as a society disapprove of, like alcohol and tobacco.  And we subsidize (reverse tax, like tax deductions) things that we approve of, like charitable giving.  Society wants to encourage individual good behavior and subsidizing your charitable giving is an effective way to do just that.  But subsidizing charitable giving forces me to make up part of the lost revenue that results from the deduction that you take for your charitable giving; and maybe I didn’t give, not because I am selfish but because I am poor.  Not to mention that this particular tax deduction benefits the well-to-do much more than it benefits the average American.  So, eliminate the charitable giving deduction.  If you believe in charity, give!  But don’t ask me to help pay for your decision.

“Hey, man, wait just one minute.  This affects me, and I am not a super-rich dude.”

OK, so this deduction saved you $500, but it saved that super-rich dude $500,000!  Between the two of you, it added $500,500 to the deficit.  But by lowering his effective tax rate, paying off this new addition to the deficit will now fall more on you than on him.  Understand???

We should also eliminate the Interest deduction. 

“Hey, man, once again, that benefits me!  I am not rich, but my mortgage payment is mostly interest and that was a great deduction.”

And once again, it benefits many, but not all.  We do want to encourage home ownership – living the American Dream – but poor Americans rent apartments, they don’t own property.  So, the folks who can afford it least are subsidizing you.  And once again, most of this deduction benefits the super-rich, not the middle class.

I must say here that everything that I have argued for depends on the assertion that the National Debt does matter, that deficits matter.  If Dick Cheney was right, and “deficits don’t matter,” then my argument is pure theory and should be ignored.  So, if you think that it is OK to ignore your Visa and/or MasterCard balance, then ignore this piece too.

Otherwise, …

But here is the killer.  And this one is sure to get me in trouble.

Global Warming is not the only “environmental” challenge that humanity faces.  There are, in addition, peak oil, deforestation, biodiversity loss (the “Sixth Extinction”), over-fishing, our non-biodegradable waste, water shortages, and more.  And every one of these challenges screams “there are too many of us (humans).”  So, our tax code needs to stop subsidizing and encouraging large families.  That raise your eyebrows, Binky?  Those who have large families now, OK, they can’t put their kids back into Mommy’s tummy.   But no more.  The new rule should go into effect in five years, give everyone a chance to get used to it.  A couple can take exemptions for themselves and their first child.  But each successive child needs to be treated as an addition that society can no longer encourage.

family size
# of dependent exemptions
a couple
2
a couple and 1 child
3
a couple and 2 children
2
a couple and 3 children
1
a couple and 4 children
0
a couple and 5 children
-1
a couple and 9 children
-5

Yes, I know that this will offend some folks’ religious sensibilities, but we can’t go on increasing mankind’s ecological footprint until there is nowhere else to go but Mars.  Please read my Be Fruitful and Multiply blog post for that argument.

It has never been my intention to argue for easy goals, there are pundits galore who do that every day.  But that does not mean that I am not thoughtful – and right!

Note: Welfare (AFDC, Aid to Families with Dependent Children) or TANF (Temporary Assistance for Needy Families), need to be adjusted similarly; families can no longer be rewarded for having more children.  However, as all business is aimed at cutting back the need for human labor, how we respond to poverty needs to be re-thought, as joblessness and lack of income is no longer the fault of lazy citizens.  But this is an issue all its own.  Stay tuned!  But don’t hold your breath.