Tax Reform

Tax reform

Originally, the Constitution of the United States stated, “…direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.” Clearly the founders believed that all citizens should be taxed equally and fairly. Currently, there is one proposal for a new tax code that is similar to what the framers believed – the FairTax. The FairTax is a national sales tax that treats every citizen fairly and allows American businesses to thrive, while generating the same tax revenue as the current three-million-word-plus word tax code. Under the FairTax, every person living in the United States pays a sales tax on purchases of new goods and services, excluding necessities due to the prebate. The FairTax rate after necessities is 23% and equal to the lowest current income tax bracket (15%) combined with employee payroll taxes (7.65%), both of which will be eliminated. Sadly, there is no practical way for conservatives to win a legislative battle over tax rates today. We do not have a majority in the Senate, and we certainly will not curry favor with the President.

The Bush tax cuts are due to expire in January. Obama claims he would extend and make permanent those tax cuts for the lower end of the spectrum and only raise rates at the upper end of the spectrum. Millions of tax payers dropped off of the roles on the lower end when the minimum earning level triggering tax payments went up. More people received payments from the IRS after not paying any taxes at all when the lowest level of taxation was expanded upward. This happens every time that the rates are lowered and the brackets are adjusted. These non-tax payers now have no skin in the game supporting the government. Just the opposite is true, the government is supporting them. We must act in any way that we can to move the country back toward fair taxation for every citizen. Unfortunately, our only option at this point in time to increase tax payers and move toward the FairTax is to let all the Bush tax cuts expire, and then fight all future attempts to raise taxes.

In The Christian Science Monitor, on October 25, 1220, in an article titled, “What is President Obama’s tax plan?”, Howard Gleckman offers  this description of  President Obama’s tax scheme:  p Gleckman writes, “…Obama would make nearly all of them [2001-2010 Tax Cuts] permanent, except for individuals making $200,000 or more, or couples making $250,000+.” He continues, “Obama would let the two top tax rates revert to their 2000 levels—36 and 39.6 percent. He’d raise rates on capital gains from 15 percent to 20 percent for high-income households, and hike the rate on dividends to 39.6 percent. This would be on top of the scheduled 3.8 percent tax increase on investment income due to take effect next year. He also says no household making more than $1 million should pay a smaller share of their income in taxes than a middle-class family (aka the Buffett rule). However, he has not said how he’d achieve this.” And then this for the non-payers, “He’d maintain current rules for refundable credits such as the Earned Income Tax Credit and the Child Tax Credit.” And Obama’s reason for this is deficit reduction. Gleckman writes, “Obama would use both tax hikes and spending cuts to achieve long-term deficit reduction.”

Obama has not offered a single spending cut. Kara Rowland and Stephen Dinan writing in the Washington Times on April 13, 2011 in an article titled, “Obama outlines deficit-reduction policy” state, “Specifically, Mr. Obama said he will try to squeeze an extra $360 billion by 2023 from automatic spending programs, which are based on formulas and not renewed by Congress each year; seek to grab an additional $480 billion from Medicare; and cut defense spending by $400 billion versus projected levels and another $200 billion in regular domestic spending.

“The president also called for undoing the Bush tax cuts for upper-income taxpayers, and for canceling other tax cuts many of them receive such as the mortgage interest deduction — items that instead of labeling “tax increases” he called “spending reductions in the tax code.”

“In many of those cases, he said, he is just setting parameters and expects others to suggest or actually make the cuts. In Medicare, for example, he said the new payments board set up in last year’s health care law will clamp down tighter on cost increases, while he will have his defense secretary figure out where military funding can be cut.” He listed lots of pretty sounding general statements and future promises with nothing specific, and he called tax increases spending cuts taking double credit for them. 

If all of the Bush Tax Cuts expire, the lower tax brackets will be re-established bringing more people onto the taxpayer rolls. This increases the number of people in the paying pool and moves us toward the Constitution’s original plan. As long as the conservatives in the House stand united, no action is necessary to bring this about. It will happen automatically when the Bush tax cuts expire on December 31, 2012. This will bring new pressure on Obama  to pass additional legislation to further increase taxes. As long as the House of Representatives resists that, there will be no more increases. We will have to stand behind the conservatives in the House who support this action. They must not give in on tax increases or cuts that remove payers from the tax rolls.