If I were to say to you, "It doesn't matter how much money or how little money you make, or how much or how little you spend, we're all going to pay the same tax rate," your first reaction would be, "Well, makes sense to me."
That was certainly my reaction when Steve Forbes proposed a flat tax system during his Presidential campaign in 1996. While I gave the publishing magnate a less than 17 percent chance of actually winning the Republican nomination, I paid close attention to his point, well-received on both sides of the aisle, that our tax system was inherently unfair, unwieldy and complicated, and reform was necessary.
But my research then, and my belief now, is that the "flat tax" proposal Steve Forbes proposed, and most if not all such proposals prior and subsequent to Forbes', are incapable of meeting the revenue needs of the government of the United States while still preserving our institutions and protecting our citizens.
Forbes was certainly not the first to point out the flaws of America's system of collecting the funds necessary to run our government. From the founding of America to today, leaders and citizens have debated the pros and cons of taxation as a means to "establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty for ourselves and our posterity".
But no one denies that these principles, espoused in the preamble to our Constitution, are necessary to uphold, with our labor, our honor and our dollars.
So as our society has evolved over 232 years, so has our system of taxation, and no longer is it possible to say, "Okay, you earned $5000.00 this year, give Uncle Sam $500.00 and he'll protect you." What we earn, what we save, what we spend is all relative to factors that make a flat-tax system unworkable.
A simple but telling example of the fallacy of flat taxation rests in pure geography. According to the U.S. Census Bureau, the state with the lowest household income is Mississippi, at $34,500.00. (see: www.census.gov/
This would seem to indicate that our current tax system is "regressive", that is, skewed toward the wealthier citizens. Many in the upper middle class and beyond would argue the opposite. But most data indicate that almost any system of taxation is "regressive", based on definition and practical application.
The value-added tax, or VAT, has been offered up by some economists as a "flat tax" which could replace the income tax as the government's main source of revenue. The VAT is a sales tax which is applied to a product at all levels of its "life-span", from production to consumption (www.investorglo
The VAT is a regressive tax because the wealthy, with their income now non-taxable, can continue discretionary spending for such things as a new table, and still afford to invest and spend at will. The middle class family is left to determine if a heavily-taxed item is a necessity, or a luxury.
Another potential problem with the VAT also applies to the flat sales tax proposal put forth by organizations such as FairTax.org. A 30% sales tax as proposed would cause many products to be manufactured and sold on the "black market", through cross-border or Internet transactions. Tax evasion would become the norm for major purchases, especially in households where income was below the median. But the wealthy would certainly not miss an opportunity to take advantage of these shady offerings, and the U.S. Treasury would be unable to maintain the revenue stream necessary to meet the government's Constitutional obligations as a result.
The Hall-Rabushka flat tax proposal of the early 1980's, proposed by two fellows of the Hoover Institution, was a variation of the VAT that would apply to businesses and individuals. It made adjustments for the inherent "regressive" nature of the tax by taking into consideration a company's or individual's income, material costs, pension contributions, etc. In other words, it weighed itself down in much the same way as has our current, convoluted tax system.
William G. Gale, a Brookings Institution fellow and proponent of the flat tax, pointed out that "many of the gains (attained through the flat tax) are also available through judicious reform of the income tax, in particular by making the taxation of capital more uniform." Reform, then, according to Gale, could solve many of the problems of the current tax code.
One of the most recent proponents of the flat tax has been Daniel J. Mitchell of the Cato Institute. In Cato's July/August 2007 Policy Report, Mitchell argued the merits of the flat tax by pointing to the various countries and protectorates that have adopted such a method of financing their government programs. Estonia, Latvia, Serbia, Slovakia, Mongolia, Kyrgyzstan, Macedonia and Montenegro are among the 19 economic "powerhouses" that have found merit in such a system. Would we trade our system for theirs?
Alas, it takes great political will to achieve even small, incremental change in such a vast wasteland as is represented by America's tax system. And until Congress can muster such will, or until we elect a President willing to take on the special interests that most benefit from the convoluted nature of our current code, then modest reform is all we can hope for.
Posts
11 comments:
Reed, as you point out, a flat tax sounds so reasonable on its face, that it's difficult not to support it. You brought up some of the problems with the flat tax, but if I understand your point, what you're really saying is you would prefer to look at reforming the current code to make it more fair.
Your primary complaint seems to be that the flat tax would not generate sufficient revenue for the government to do our business. Why not?
Finally, I confess that I do not understand the Mississippi/New Jersey example as it relates to taxes. Could you explain that argument a little better (or connect the dots for me)? How does the CPI relate to regressive taxation?
The problem with the arguement of not generating sufficient revenue for the government is that if the rate of tax is set at a revenue neutral amount, then the only way it doesn't "generate sufficient revenue" is tax evasion. So you change the job descriptions of IRS agents. Plus, there's going to be lots of accountants that are going to be looking for a career change :)
That's one arguement, but not the one I would make. I would argue that the founders of this nation had it right in the first place. Small federal government that protects people's property from themselves and foreign invaders and is funded by import tariffs. This tax system keeps the government small because it doesn't have the money to do anything bigger. It also encourages businesses to STAY in America and employ Americans. And it also controls outside competition for those with cheap/slave labor from trying to undercut American prices. We've totally dismanteled that tax system and its a shame. It worked for many years. You can track the explosion of the U.S. Federal Government to the adoption of the 16th Amendment adopted in 1913. That, my friends, is when we went down the rabbit hole.
j.t., you bring up one of the points that neither Reed nor I discussed in our posts: No matter what the reform chosen, be it the flat tax, fair tax, VAT or major current code reform, the $600 billion spent each year on tax compliance would no longer be spent on tax compliance. What will all the tax accountants, tax lawyers, and financial analysts do to make up their shortfalls? What do the displaced IRS workers do? The IRS, as currently configured, is larger than the FBI and CIA combined. How much unemployment would result from these "desirable" changes? None of the economic models I've seen treat this issue (or, if they do, it's buried somewhere in those pedantic studies where it's hard to find).
My argument against the pre-1913 tax system is that the world is not as simple as it was then. When the founders designed the system, they could not have envisioned a global economy of the size and complexity we now have. Tiny U.S. government is no longer as viable as it was when the entire U.S. population (and economy) was smaller than that of the state of Florida.
While there are lots of good arguments regarding keeping businesses within our borders and such, going back to the antiquated (and quaint) system our founders operated under would do nothing more today than isolate America from the rest of the world. Very dangerous.
Call me an isolationist if you like. Maybe so. The old "world is not as simple" arguement is one that has been used to essentially destroy our constitution. At least in 1913 they bothered to amend the dang thing when they wanted an income tax. (Although its adoption was somewhat dubious).
There's no way of knowing. The pre-1913 revenue generator was import tariffs. And it worked for more than half this country. What changed? The power-hungry politicians in the early 1900s got inventive and decided to change and redefine the interpretation of the "General Welfare" Clause in Article I, Section 8 of the U.S. Constitution. Under present interpretation, Congress can spend money on anything they want. Given the writings, books and documents of the founders who wrote the darn thing, not what they meant.
Oh, but we've got to have a living constitution to show that we're progressive and not antiquated. A living constitution is NO constitution. THAT's the whole point of a constitution -- to not change in form or meaning -- without a heck of a lot of people agreeing it should.
Yeah, j.t., I am aware of your position on the "living Constitution;" we've had this conversation before. And as I've said before, I think that if the founders didn't want the Constitution to be amended, they wouldn't have put a provision in by which it could be. The beauty of what they did lies in their knowledge that circumstances would change; they couldn't foresee the state of matters in the distant future. We now have the oldest continuous Democratic (okay, representational republic) government on Earth, SPECIFICALLY because the founders created a living Constitution. Remember...the original Constitution considered women and blacks less than full citizens, without even the right to vote. By your logic, they would still be left out of the process.
Whether the tariff system would be better than income tax is certainly debatable, but arguing that the Constitution should never have been allowed to be amended just doesn't make a lot of sense to me. Even Ron Paul does not begrudge the amendment process.
When constitutional law scholars refer to our constitutional as "living" they are not referencing the amendment process. What they are describing is that the interpretation of the same words change.
I believe in originalism -- the meaning of the words mean what the meaning of the words meant when it was passed. Originalist do believe in the amendment process -- as do I. The problem is with a "living constitution" philosophy amendment processes are rarely needed, becasue you simply change the interpretation. And if enough Supreme Court justices believe in a "living constitution", then it is the law of the land. And yes, it is constitutional to impeach Supreme Court jutices. And it could be said that using foreign constitutions as a basis for the constitutionality of our constitution in an extreme sense could be considered "treason" and in a less extreme sense could be considered "partisan politics."
By the way, there was an impeachment of a U.S. Supreme Court justice by the House of Representatives in 1804. While the Senate did not convict of "High Crimes and Misdeamenors," that may be to say that the evidence simply wasn't there. Oh, and the charge against the Supreme Court justice in 1804 --- "partisan politics."
For refernce you may check out wikipedia's listing for "living constitution" and on the Supreme Court impeachment check this sight: Click here
And, j.t., as I've also said before, the founding fathers placed one and only one duty on the Supreme Court: Interpret the Constitution. They didn't say, "it doesn't need interpreting, follow it to the letter." The fact that a sitting justice was impeached means only that he was accused. That he wasn't convicted means that he wasn't found guilty. Nothing more, nothing less.
Actually, Dano, the founders never explicitly gave the U.S. Supreme Court the power to inturpret the constitution IN the constitution. As a matter of fact, the U.S. Supreme Court INTURPRETED the constituition to mean that they HAD that power. One could argue that this was a coup by the judicial branch very early in the country's history. The case I cited above about the impeached judge -- the events leading up to that event was that coup I just mentioned. Link provided in above post.
Find me where it says anything in the constitution about the Supreme Court being given the authority to interpret the Constitution. Its not there. But at the turn of the 19th Century the U.S. Supreme Court TOOK that power.
It's like me declaring that I have the power to make all the law in the land and that my first action under that power is to declare that I have all the power to make all the law in the land. But never having anyone actually GIVE me that power. That's EXACTLY what the Supreme Court did. Here's a link to Section 3 of the U.S. Constitution that deals with the power given by the founders to the judiciary: Section 3 of the U.S. Constitution
To bring this back on track. The problems with the tax system is the spending system. And the problems with the spending system is the current inturpretation of the "welfare clause" for which everyone in Congress believes means they can take our money from us by gunpoint and spend it on whatever they link. I personally do not believe this was the intent of the founders. I also believe if the founders were alive in 1913 they would have started a new revolution over the passage of the 16th Amendment.
So the 16th (Blank Check) Amendment, coupled with the inturpretation of the "Welfare Clause", couple with people's total lack of understanding of all the other rights they've let slip away through court interpretation -- means we're basically screwed.
Also, to find out how the Supreme Court siezed the power of judicial review of the Constitution, you may read up on Marbury v. Madison.
It's a very interesting case and considering the foundation it set for the nation, one could easily argue the most important case in defining our Republic that has ever been decided. Here is one link, there are many:
J.T, I think you and a lot of issue-oriented Constitutional students try not to put words in the mouths of the founding fathers, but rather take words out. The "checks and balances" inherent in the creation of a three-tiered form of government can only logically be interpreted as to accomplish its mission through, a: a legislative body creating laws, b: an executive to carry out the laws, and c: a judicial, to determine, through interpretation, what the law is when the other two branches disagree (as has often been the case.) It is agreeably unwieldy at times, but far and away the best we've encountered. Somehow I think that, deep down, everyone would prefer a dictator, as long as he was "our" dictator. But since such can not happen in a pluralistic society, we must have representative government that has, as a means to reign it in before it becomes a dictatorship, a check and balance that is the judiciary. The Constitution didn't have to say what the judiciary was designed to do other than respond when someone said, "hold on, that other bunch is out of line." And based on historical understanding, they've done a pretty good job all in all.
Reed, a checks and balances is certainly needed. But the case of Marbury v. Madison, and circumstances surrounding it, began a dangerous precident. Because the surrounding situation was an impeachment proceeding for a sitting Supreme Court judge. And it was highly political. Essentially, the case established that judges could act in partisan ways. And the climate at the time, the case Marbury v. Madison where the Court siezed judicial review, was purely politcal. It protected a sitting judge (Chief Justice John Marshall) for an oversight of his while he was Secretary of State during the Adams administration.
Essentially what happened was they not only granted the Supreme Court judicial review, they set precident making it near impossible to impeach a Supreme Court justice. In fact, no one has tried it since.
The Impeachment, just as its there for a president who may try to sieze supreme power, is there for justices of the court as well. But its even MORE important impeachment be available for judges. With presidents there's another election in four years. With justices there is no lawful remedy. Essentially the U.S. Supreme Court gave itself the power to say Blue means Red or Up means down. And there's nothing anyone can do about it. That's not checks and balances, bud.
The closest thing we've seen to that is when the court has in recent years issued opinions based on International Law and constitutions of OTHER countries.
Checks and balances. Good. There is no checks and balances for the court. And that's a product of the court's actions in and around Maybury v. Madison.
Post a Comment