Friday, January 21, 2011

In the Spirit of “Compromise”, How About a Flat Tax?

The recent compromise between President Obama and the Republicans that extended the Bush tax cuts for two years has put the income tax on the back burner, for now. But, it could become a major issue as the 2012 election approaches.

In a recent NJ Star-Ledger article, Compromise holds no hope for deficitNJ Assemblyman John S. Wisniewski (D-Middlesex) has weighed in with some thoughts on the recent Obama-GOP tax deal. He begins by charging the president with “succumbing to Republicans’ unflinching protection of the wealthiest of Americans”.

Apparently – and this is standard Leftist fare – Wisniewski doesn’t believe that all Americans deserve equal protection under our government. The horrifying implications of that statement need no commentary here. The Democrats have nothing but utter disdain for the US Constitution, and the principles upon which it rests, as everyone by now knows.

That aside, I want to put in a plug for an idea regarding major income tax reform. With the GOP ascendancy, and so much of his statist agenda already in place, Obama may be willing to take a breather as he looks forward to re-election. We could see major tax reform emerge from the battle over “tax cuts for the wealthy”. I don’t expect Obama to morph into a free market Rightist. He is socialist/collectivist ideologically, and always will be. He will keep his eye on that North Star. But he may be willing to give a nod to the Right – “tack this way or that”, as he put it - if for no other reason than to appear “centrist”, and actually sign on to some kind of sensible reform of our income tax code.

So, let me present an idea that the Republicans can use to take advantage of Obama’s temporary fit of centrism.

But first, let’s cut through some of the clutter exemplified in Wisniewski’s article.

First of all, this is not a debate about the deficit. Given the wild spending of both Republicans and Democrats in both NJ and nationally over the past decades – and especially the past ten years - neither party can be taken seriously on that score. In any event, government deficits are caused by too much spending – period. Liberals like to imagine the nation’s wealth as belonging to the government, and thus see raising taxes as the only solution to deficits. In Wisniewski’s perverted “logic”, we are “padding the deficit to pay for tax cuts [for the wealthy]”. Actually, he proposes to steal money belonging to a small minority of Americans who will be excluded from a tax benefit shared by all other Americans in order to cover the politicians’ profligate spending. This is a debate over fairness, and there is nothing fair about targeting a specific group for confiscatory taxes. If we’re talking about deficits, we’re talking about spending cuts.

And never mind that the rich must be taxed extra to fund worthy causes. There is nothing honorable about politicians practicing forced “charity” for the elderly or the poor or the disabled with other people’s tax money. And there is nothing honorable about receiving the money paid unwillingly by those taxed.

More fundamentally, it’s not about taxing millionaires and billionaires. The reference to Senator Lautenberg is disingenuous, to put it politely. It’s lovely that Lautenberg would “rather have a strong country than a tax cut”. But, Lautenberg’s millions, and the fortunes of all of today’s “rich”, are out of reach of the income tax. The tax debate is about taxing current earnings … i.e., current production. Not to denigrate the Senator’s business success: He did earn his money, and has a moral right to it. But his fortune is old money. His current income, no matter what rate it is taxed at, is peanuts to him. This explains, at least in part, why so many of the prominent wealthy are socialist oriented.

Rich people like Lautenberg, their previously established fortunes safely protected from income taxes, are after power and prestige - the political power to seize other people’s money, in order to spread it out among his favorite welfare clientele like the “alternative energy” gang or some needy group, so he can claim the unearned, phony prestige of making a “strong country” paid for out of his fellow countrymen’s hides.

When the Left demands higher taxes on the rich, what they are really calling for are taxes on the productive rich. The idle rich like Lautenberg get off scot-free. This is why steep, progressive income taxes hurt everyone. Economic growth is built on current income – i.e., current wealth production. Today’s existing fortunes represent past production. Today’s high earners represent current and future production. The top 2% of income earners represent fortunes in the making – the creators of businesses, products and services, jobs – that other less productive but hard working middle and future middle income people depend upon.

If Assemblyman John Wisniewski and others really care about “the economy” and “the middle class”, they would acknowledge these facts, and radically alter their positions on the income tax.

Now, let’s get to my compromise tax reform proposal. Before I proceed, though, let me state my philosophical position on the income tax. I would love to see income taxes abolished across the board. They are immoral because they strike directly at the heart of human survival – our ability to produce the things required to live and flourish – and they feed the power of politicians and government bureaucrats to control and manipulate our lives. They are impractical because they hamper productive activity (i.e., the economy). Furthermore, they are inconsistent with the constitutional protections for property rights and probably unconstitutional, the 16th Amendment notwithstanding. They are certainly inconsistent with our Founding principles. In any event, the income tax has become a vehicle for widespread wealth and income redistribution. That is clearly immoral and incompatible with the Declaration of Independence, which establishes the principle that the proper purpose of government is to protect individual rights. There is no constitutional authority for redistribution, a fact readily acknowledged by our current president.

However, I realize that abolishing the income tax is a long-term goal and cannot happen today. So, since “compromise” is in the air in the wake of the recent elections, let me propose one of my own – a flat (or single-rate) income tax with no deductions or exemptions other than personal exemptions at the bottom (Steve Forbes has proposed a flat tax that contains exemptions that would make the first $40,000+ tax free for a family of four). That should satisfy liberals because it maintains progressivity. Since everyone pays the same percentage, the higher the income, the higher one’s tax burden would be. Assuming for the sake of argument that the rate is set at 10%, someone with taxable income of $50,000 pays $5000; someone who makes ten times as much - $500,000 - pays ten times as much in taxes, or $50,000, and so on. It would take a monumental act of evasion for anyone to claim that a flat tax is not progressive.

For conservatives, they would get the pro-growth incentives of lower tax rates.

In addition, since each dollar of income, no matter how much, is taxed at the same rate, the flat tax is much fairer and is non-discriminatory. And since everyone professes to abhor “special interests”, this would be a boon: the pressure groups would have nothing to gain from lobbying for tax issues, because the politicians would lose the ability to manipulate us through tax policy.

Now, that would be real change we can count on!

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