Tax Reform: 3 Problems and Solutions

There is a lot of talk about tax reform on both sides of the aisle. Obama is proposing the largest tax hike in US history come 2013. Actually in the Republican debates, John Huntsman comes the closest to getting it right out of all the Presidential candidates out there, including the one sitting in the White House today.

Let’s tick off some of the major problems in the current tax structure and code.

1. Too hard to understand. The IRS book is thick, both for individuals and corporations.

2. The tax code as presently structured has lots of loopholes that people and companies try to fit into.

3. The tax code invites special interest groups to lobby for loopholes

Ideally, what should a tax code do?

1. Fund the government to keep the country operating. Governments are good at doing macro things like defense of the country, some infrastructure, and other small macro programs that are difficult to administer privately.

2. Provide incentive to get the maximum amount of economic growth, while taking the minimum amount of money to run the government.

Given all this, how would you set up a well run tax code so that our government could “provide for the general welfare”, yet still have a lot of economic growth so the private sector could really make our standard of living higher?

1. Eliminate all loopholes and deductions for everything. Some of those loopholes, like charitable giving, are indeed good for society-but you have to throw the baby out with the bathwater. Once one loophole is created, it invites the special interests to circulate money.

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2. Eliminate corporate taxes and dividend taxes. This will make it cheaper to do business in the US and attract capital from everywhere. Corporations pay very little tax anyway. Eliminating dividend taxes will force companies to take excess cash and resdistribute it to shareholders. Shareholders will reinvest or spend it creating economic growth.

3. Flat tax everyone the same irrespective of income. 15% no write offs ought to do the trick. Almost 50% of the public pays no income tax today. This can’t go on, and have our country to remain as a republic. Contrary to left wing opinion, there is a lot of income mobility in the US. The millionaire of today isn’t necessarily the millionaire of tomorrow.

That ought to fix the tax issues. We would have a flat policy. Economic growth would explode in the US, especially if we got other things under control like entitlements(55% of budget) and military spending (20% of budget).

This isn’t rocket science. It’s simple economics. The classical way.

John Ransom | Create Your Badge

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