Washington Post, March 30, 2012
The tax code is too complex and penalizes success
by Brian Stein
... The current tax code excessively punishes job
creators and wealth builders. Most small business which are
S-corporations see large business revenues pass through to personal tax
filing, even though these revenues exist solely as â€œinventoryâ€ or book
The tax code is income based and punishes success in this country. A system
which is more simplistic and moving toward consumption is more fair as taxes
would be based upon the level of spending people choose to take part in. ...
Simplify the system and move toward a consumption based tax system.
This step sounds like just another level of taxation, but for it to work as
the fair tax indicates, in detail, is to simply remove all other taxation in
current existence and replace it overnight with a consumption based system.
A consumption tax or value added tax (VAT) is an important part of the
solution, particularly where it would help to reduce the disparity between
flow-through businesses and C corporations. A modest tax of even 4% could
enable significant reductions in the corporate income tax rate.
Unfortunately, a tax on consumption alone cannot create the dynamic balance
and tax fairness that is needed. Indeed, complete reliance on consumption as
in the â€œFair Taxâ€ plan is regressive, would require a 30% tax rate, and its
half trillion dollar â€œprebateâ€ program is unacceptable to most Americans
(except for the high earners who will completely avoid income taxes,
government reporting and oversight).
Both individual and corporate tax reform is needed. If we expand the tax
base to include income, consumption and net wealth we can obtain the maximum
benefit with very low rates. It is called the 2-4-8 Tax Blend.
For the first time in history, computers and internet databases have
enabled the possibility of implementing a net wealth tax that would apply
equally to rich and poor. A 5% tax on the $53 trillion in individual net
wealth could replace the entire $2.1 trillion in FY 2010 tax revenue.
A more balanced approach might obtain the same revenue by taxing
individual net wealth at 2% (excluding $15,000 and qualified retirement
funds) and taxing the $12.5 trillion individual income at 8%. By eliminating
the 14% payroll taxes (and paying social security and Medicare from general
funds) all income earners get to take home 92% of their salary. The consumer
power of the working class is maximized. Because the rich and poor would pay
the same rates it would also be the fairest tax system on the planet.
Business tax reform is also needed to shift the economy into high gear
and to raise some additional revenue. A 4% tax on $10 trillion in sales
would yield another $0.4 trillion in revenue and permit reduction of the
corporate income tax rate to 8%. This type of significant corporate tax
reform is also a politically cognizable tradeoff for the elimination of
business tax loopholes (including deferrals of foreign income) which are
entrenched in the tax code. All business tax returns would be digital and
available to the public in order to encourage both tax compliance and public
confidence in business.
Taxes on capital gains, estates and gifts would not be necessary.
Similarly, deductions for mortgage interest would not be necessary since the
unpaid principal is an offset to net wealth computation. The rates of the
2-4-8 Tax Blend also make it easy to quickly estimate the tax that would be
owed for any individual or business.
Eugene Patrick Devany, JD, MPA