Dano: The Flat Tax is Fair, Necessary

This week, Reed and I are discussing the flat tax concept for tax reform. I am arguing in favor of a flat tax. In the interest of full disclosure, I have to tell you that I cannot locate an "objective" web site that argues either for or against a flat tax. This is because, in modern politics, flat tax proposals are almost always championed by Republicans, and criticized as either unfair, unworkable, or irresponsible by Democrats. Even sources that are typically fairly neutral on most policy issues seem to show their conservative/liberal biases on this topic. To locate the reasons that a flat tax is good, therefore, it was necessary to consult fairly conservative sources - I chose The Heritage Foundation (http://www.heritage.org/research/taxes/) and the National Center for Policy Analysis (http://www.ncpa.org/pi/taxes/tax71.html#1). There were many more, but they almost all agree on the features of a flat tax system, so I chose these two for their fairly well-laid-out approach. Most of what follows, therefore, comes from these sources. I suspect that Reed will have had to do the opposite to argue against the flat tax.

Many people don't know what a flat tax is, so I'll give just a brief description. The truest form of flat tax is one that taxes everyone and every business at the same, fixed rate; usually, there are no deductions or exemptions in such systems. A single mother of four making $18,000 a year would pay the same percentage of her income as would someone making $500,000 a year with no children to support. This is patently a bad idea, because it burdens the poor disproportionately. Why? Because each dollar of a poor person's income is worth more to them than each dollar of a wealthy person's income. This is why our current tax system is graduated such that as a person's income increases, the rate at which each additional dollar (within given brackets) is taxed increases.

Assume a flat tax rate of 17%. The $3060 tax burden on the single mother is a more critical insult to the single mother's (and her children's) welfare than the $85,000 tax bill is for the half-million dollar earner with no kids. Because of this inequity, no serious flat tax proposals are true flat taxes - instead, they incorporate an income threshold below which there is one flat tax rate, 0%, and above which there is another flat rate, usually something under 20%. They also provide personal exemptions and exemptions for number of dependents. In such a system, with a taxable income threshold of $30,000 and the dependent exemptions, the aforementioned single mother would pay no income tax, while the wealthier worker with no children would pay the 20% flat rate. In this way, such a flat tax is progressive, or graduated, though it could be argued that there is still only one tax rate, and that those below the income threshold (or who have enough exemptions) simply aren't subject to the tax system. In any case, no serious proposals eschew the minimum taxable income "loophole."

The benefits of a flat tax are many. The most obvious benefit is simplicity. Our current tax code is some nine million words in length, and there are between eight and nine hundred forms necessary to deal with all of the exemptions, deductions, credits, exclusions and other complexities. More than 80% of the tax code deals with these issues. Under a flat tax, there would be two forms - one for individuals, and one for businesses. Both these forms would be so simple they could be placed on a post card (see, e.g., http://www.cse.org/flattax/index.php).

A related benefit, one that represents an almost immediate increase in personal and business wealth, is the money that would be saved by this simplification of the code. It has been calculated that Americans spend around $600 billion per year on income tax compliance; they feel compelled to hire tax accountants and lawyers and financial analysts to help navigate through the IRS rules. This expenditure would be unnecessary under a flat tax.

But there are more goodies. Without going into exhaustive detail, the following are several of the other beneficial features of a flat tax system:

• No double taxation or asset taxation. The flat tax system taxes only income, and only when it is first earned. Unlike the current system, it does not tax savings, capital gains, interest income, or dividends. There is no death tax, either. Because of this feature, a flat tax would instantly increase the value of assets held by Americans.

• Less IRS intrusion. Under a flat tax, the IRS has no need to know what your assets and liabilities are - just income. Because of the lack of deductions, exclusions, loopholes, and related audits, the IRS can be simplified and downsized, further saving Americans' tax dollars.

• Increased global competitiveness. The current tax structure makes the U.S. one of the world's most expensive nations in which to do business. It is therefore attractive to migrate jobs and capital to countries with lower tax rates. A flat tax system, with a much lower tax rate, would eliminate this incentive to leave our shores, and would actually make the U.S. a more attractive operating arena for foreign owned companies as well. This is because the flat tax is based on "territorial taxation," meaning that only income earned within our borders is taxed. Eliminating "worldwide taxation" should make the U.S. much more competitive on the world economic playing field.
  

• No marriage penalty. The flat tax would apply to all earners, so both a husband and wife would get taxed at the same flat rate. It would no longer be possible for one spouse's income to push the couple into a higher tax bracket. Moreover, because a married couple's family-based allowance is twice as high as a single person's, there would be no penalty for being married and filing jointly.

• Reduction in political corruption. Much of what lobbyists and special interest groups do in the halls of Congress has to do with currying favor with regard to tax breaks and other loopholes. Under a flat tax, because of the lack of exemptions and exclusions, politicians would no longer be able to engage in the corrupt practice of trading favors with big business. This would greatly reduce corruption, but would also save corporations the immense cost of lobbyists and, thus, aid in business growth.

Fundamentally, the current Revenue Code is so complex and so flawed that some kind of tax reform is both desirable and necessary - particularly in light of the fact that world governments are jumping on the flat tax bandwagon in droves. The former communist nations in Eastern Europe have almost all adopted a flat tax system, and have achieved remarkable economic gains.

Representative Dick Armey (R-TX) has the most promising flat tax proposal here at home, and it has garnered the most support in Washington (http://www.ncpa.org/ba/ba136.html). While it is unlikely to pass under a Democratically-controlled Congress, Democrats would be wise to give more attention to the concept of the flat tax. Because it taxes all earners at one flat rate, but gives valuable and necessary income threshold exemptions to the poorest taxpayers, it is ultimately fair. Moreover, in the increasingly competitive global marketplace, America cannot continue to maintain a tax system that provides disincentives for businesses, jobs, and capital to remain within our borders.

Musings from the Co-Host

There's a lot going on in our busy, complicated world, so it's heartwarming that our offering has generated some interest and feedback. Thanks, on behalf of Dano and myself, for your comments, criticisms and suggestions. We do appreciate it.

Our goal was to create a format for intelligent conversation, and so far we've succeeded. So it's sad to consider that, while we here in this little corner conduct debate in a way that can only be described as honorable, there are people on the national and international scale whose only agenda is to denigrate and destroy, through whatever means possible, those who would seek to lead our nation.

Jerome Corsi, who started the "Swift Boat" movement in 2004 which doomed the candidacy of John Kerry, is at it again. His book, listed as a New York Times Bestseller (not hard, by the way - 10,000 copies will do it. Print a 90-page anything and publish it from your computer, have your mom buy 10,000 copies, and you're a best selling author) is called "Obama Nation". Put the words together and you get his drift. This book, of which I have read inserts, is a collection of rumor, exaggeration and bold-faced lies regarding the Illinois Senator who would be President. It incorporates the worst of the worst the media, the Internet and the radical right has to offer to demonstrate that Obama's success would be the downfall of America.

Two things make me really sad in regard to this publication. First, Corsi doesn't deny anything I just said. He really doesn't care that his book portrays Obama in a false light. He freely admits that the only reason he wrote it is to help assure that Obama is not elected. For that reason alone, I would implore you to simply ignore anything you hear about it, or fight to get the media and the Republicans to vocally and vociferously repudiate it. America should hear no more from this malcontent.

Secondly, Mary Matalin, a conservative voice that I once respected, has lent her name to this fallacious diatribe, thus costing her whatever credibility she once had. Her husband, liberal commentator and political advisor James Carville, must be grinning over his corn flakes at his wife's major screw up. I would love to be a fly on the wall at their house as the "I told you so's" are mingling with his signature chuckle.

My hope is that the media will treat Corsi in 2008 as they treated Ralph Nader in 2004 - a non-entity on the political scene not worthy of conversation. If that happens, perhaps we will see a return to civility and respect on the campaign trail. Does this suggest there won't be attack ads and personal digs against the opposition? I'm not that foolish.

But maybe, just maybe, this will be the year when we make our decisions based on how well our candidates articulate their positions on the issues that are really important. In other words, how well they do what we're trying to do right here. God, what a wonderful world it would be.

Reed: We Cannot Afford to Wait for Russia to Leave Georgia

The coin has been tossed - but more importantly, the gauntlet has been thrown down, and America must respond.

Boris Yeltsin, the first democratically-elected leader of Russia in its long and storied history, had a close relationship with President Bill Clinton, and the two leaders worked together to strengthen ties and overcome the mistrust and fear that resulted from the Cold War. Unfortunately, for Russia, the U.S. and the rest of the free world, Yeltsin handpicked Vladimir Putin as his successor.

Putin, a high-ranking KGB officer under Soviet Premiers Andropov and Gorbachev, served as director of the Russian Federal Security Service. It has been suggested, both in Russia and the West, that Yeltsin chose Putin to follow him as President simply because his support, among the people of Russia and within his own Cabinet, had totally disintegrated, and Putin remained loyal.

Alas, it has become apparent that Putin's loyalty was self-serving. In spite of President Bush's assertion that he "was able to get a glimpse of (Putin's) soul", he obviously was unable to foresee that Putin's motives were to reestablish Russia's dominance of the Balkans, Caucuses and the rest of eastern Europe in Soviet fashion.

The invasion of the Republic of Georgia is the latest example of Putin's expansionist policies, even though he is no longer the president of Russia. His successor, Dmitry Medvedev, is little more than a front man, and the world knows that, in his new role as Prime Minister, Putin calls the shots. And while many might argue that oil is the overriding factor in Russia's decision to invade, and the most important "talking point" among nations such as France, who would seek to mediate the dispute, it is clear to me that Russia's motives are much more sinister and have to be addressed forcefully, and now.

Senator John McCain, Republican presidential nominee and staunch ally of the Georgian people, is not now, due to political expediency, calling for an American military response. But in 2005, McCain, responding to Russia's stated desire to enter Georgia to "protect" loyalists in the provinces of Abkhazia and South Ossetia, said,"Sooner or later [Putin] has got to realize that the the path he is on will eventually bring down his government."

McCain, in an interview with CNN's Jill Dougherty, pointed out a variety of issues that indicated Putin's lack of desire to work with western allies (see: www.cnn.com/2005/WORLD/europe/02/24/summit.russia.dougherty). These included arresting the head of Russia's only privately-held oil company and nationalizing the oil fields, and controlling the mass media in Soviet fashion.

Politics notwithstanding, our national interest and our loyalty to democratic allies demands that we step up forcefully and, if need be, militarily. Diplomacy, conducted by French President Sarkozy, has obviously failed, since the "cease-fire" agreement Russia signed on August 12 was followed by Russian tanks entering the Georgian city of Gori early on August 13. And even while foreign correspondents reported conversations with Russian soldiers in the convoy (Associated Press - see: Christopher Torchia and Misha Dzindzhikhashvili), Russia denied its troops were even in the area.

This is not a call for ground troops, nor is it a task the U.S. should take on unilaterally. Indeed, based on NATO's previous acceptance of Georgia as an ally, and Georgia's desire to join the treaty organization, NATO should be the force that presents itself as a deterrent to further Russian expansionist policies. NATO's own website refers to Georgia's strong cooperation in maintaining Euro-Atlantic security (see: nato.int/issues/nato-georgia/index.html), and Georgia ranks behind only the United States and Great Britain in the number of ground troops sent to fight the U.S.-led war in Iraq.

Yes, NATO should take the lead, but the U.S. military is a vital part of the NATO alliance, and just as President Clinton utilized the airspace above Iraq to protect the Kurds in the southern part of that nation, so can President Bush protect our democratic allies in Georgia. Russian tanks are no match for American air power, and just as Russia has demonstrated her ability to dominate a weaker Georgia, an ally of America and western Europe, so must NATO and America demonstrate their ability to respond to aggression from what is now a weaker Russia.

If we wait, Russia will continue to consolidate her military might to Cold War levels, and our ability to protect our allies and, indeed, ourselves, will be greatly compromised.

Dano: No Military Involvement in Georgia-Russia Conflict

After the coin flip, I argue this week against U.S. military involvement in the Georgia-Russia clashes.

President Bush and other world leaders have demanded that Russia cease military operations within the sovereign borders of Georgia, which declared its independence from the Soviet bloc in 1991, following the dissolution of the Soviet Union. Georgia is now a democratic state, and is a strong U.S. ally. Despite strong condemnations by the Bush Administration, the presidential candidates, European nations, and others, however, the U.S. cannot and should not consider direct military assistance to Georgia. The reasons are many.

First, from a strictly "moral high-ground" point of view, the fact is that Georgian President Saakashvili sparked the conflict himself by initiating attacks in Tskhinvali, the capital of the breakaway region of South Ossetia. The Georgian Government has long tried to bring South Ossetia and the other breakaway region, Abkhazia, back into Georgia, while the Russians have been seeking to annex South Ossetia and to support the independence of Abkhazia. Toward these goals, Russia has maintained a military presence in South Ossetia, and has granted its citizens Russian passports. Most analysts agree that Saakashvili's decision to send troops into South Ossetia was ill-advised (see http://voanews.com/english/2008-08-11-voa63.cfm). Georgia had nowhere near the odds of victory that David had against Goliath. Moreover, Georgia did not consult with its allies in advance of the incursion, nor did it seek backing from other countries to supplement its military effectiveness. It would not have garnered such support in any case. Despite this, President Bush stopped short of scolding Saakashvili. Bush also declined to defend the Georgian action, choosing instead to condemn Russia's response as "disproportionate." The president's characterization of the response as disproportionate tacitly implies that some more limited Russian military response would have been appropriate. At the risk of making us sound arrogant (and hypocritical), status as a U.S. ally carries with it a responsibility to conduct internal and external affairs in such a way as to garner our approval. Put quite simply, "We've got your back, but only if you're right." The hypocrisy here, obviously, is that we've dug our moral high-ground down to a nearly bottomless crevasse with our actions in Iraq (invading and occupying a sovereign nation under false pretenses); torture of war prisoners and terror suspects in violation of the Geneva Convention and our own laws; brazen political corruption; and even the Administration's deliberate constrictions on Constitutional freedoms for our own citizens. But two wrongs don't make a right, so the adage, "do as I say, and not as I do," seems particularly apropos.


Second, engaging Russia with force is a no-win prospect--not just for the U.S., but for the European Union as well. Russia supplies much of Europe with oil and other resources. For instance, Germany gets 42% of its natural gas from Russia (see , http://voanews.com/english/2008-08-11-voa63.cfm). Any military action against the superpower would most assuredly be met with very damaging economic sanctions against our allies, and, by extension if not directly, against us. You think energy prices are high, now? Clearly, the United States has a vested interest in NOT poking the bear.


Finally, the U.S. simply doesn't have the military assets to engage Russia, or any other superpower. According to the Department of Defense, out of just over a million active duty military personnel, only about 122,000 are not currently deployed--either in Iraq, Afghanistan, or at other posts from which we cannot afford to redeploy them (e.g., Germany, Korea, Bosnia, and NATO attachments). For more on this, see http://siadapp.dmdc.osd.mil/index.html. Moreover, out of the 122,000, only 36,000 are ground forces (the other 86,000 are Naval personnel). Even if we had all our military might available, we would be fighting against the second most powerful military on Earth, and, arguably, a formidable foe whose technology and training are not far behind our own. In a ground war, Russia has nearly twice as many armored vehicles, and almost six times as much artillery assets as the U.S. (see http://www.globalfirepower.com/countries_comparison_detail.asp). Obviously, with all assets free, we could not manage a unilateral military engagement, so these numbers do not represent the balance--inclusive of allied coalition support--of military power that would be in theater if we got involved. But we and our allies would very likely suffer catastrophic losses, even in a conventional war with Russia. We cannot afford to put more of our soldiers' lives on the line for this cause.


Diplomatic measures are required in this conflict. Between the U.S. and European nations, much can be done to pressure Russia into scaling back their military operations. Russia has been seeking admission to the World Trade Organization, and is a sitting member of the G8, an informal group of leaders from eight of the world's most powerful industrialized nations that meets annually to discuss issues of global import. Russia's actions are violations of international law, and Russia risks expulsion from the G8 and exclusion from WTO membership if it does not ratchet down it's operations. This is where the power of the U.S. and our allies rests.

Corporate Tax Breaks?

The Associated Press reports today that more than two-thirds of corporations doing business in the U.S. (including foreign corporations) paid no federal corporate income tax between 1998 and 2005 (see AP story here). This, on combined sales (not necessarily profits) of more than $2.5 trillion. About 25% of the non-paying corporations are considered large, C corporations--with at least $250 million in assets and/or $50 million in receipts. If we're reading this correctly, these U.S. businesses alone, which are subject to a tax rate of 35% on income of more than $18.33 million (and potentially another 15% for excess or undistributed profits), have avoided billions in tax liability over the period.

In a recent Butt and ReButt comment, J.T. Twilley educated us about corporations "not really paying taxes," because they pass on those costs to consumers through higher prices. But according to the Government Accounting Office (GAO), roughly half of U.S. companies are set up as pass-throughs (e.g., subchapter S corporations, or partnerships), and thus taxes are paid by the owners or shareholders through personal tax returns. These companies are not the problem. Democratic Senators Byron Dorgan (ND) and Carl Levin (MI) claim too many large corporations used loopholes and other questionable (illegal?) methods to avoid paying any taxes at all.

I will be shocked if our pro-big-business readers don't have some explanation for how this is either acceptable or just "not a real problem." A subject for future debate, here?

Obama: Advance Notice on VP Available

The Obama campaign is offering registered visitors the opportunity to get Obama's VP pick emailed and/or text-messaged to them in advance of their national press release or news conference. Of course, all the media will have signed up for this info as well. I doubt very much that there won't be a leak even before any of us gets the message. What do you think?

Toilet Paper Debate: Not Worthy

Sorry, everybody. But in our research, it appears that the great toilet paper debate is not that contentious. As it seems, the "over the top" (toward you) crowd seems to be the winner in all the Internet blogs and opinion polls, and, as such, we figure there is no real argument. If you like for it to roll from the back side, you're evidently just wierd. Apparently. We voice no opinion whatsoever.We prefer the bidet approach. We think.