>PRO-GROWTH TAX REFORM WILL BENEFIT THE MIDDLE CLASS AND WILL JOLT THE STILL SAGGING U.S. ECONOMY
By Ian Linker
The Occupy Wall Street crowd is right about one thing: there is no reason the rich should pay a smaller percentage of income in taxes than the rest of us. The rich should certainly pay their fair share. But this does not mean they should pay a higher percentage simply because they can afford to, as the code is currently structured. The U.S. tax code undoubtedly punishes the rich and particular industries deemed nefarious by the government, but the code also contains dozens of loopholes, deductions, credits,subsidies and other giveaways that reward campaign contributors and political cronies at the expense of hard-working Americans. The end result: many people of means and multi-billion dollar corporations end up paying very little, if anything, in federal income taxes. A 2008 Government Accountability Office study, for instance, revealed that 55% of U.S. corporations paid no federal income taxes for at least one year in the seven-year period covered by the study.
The complicated mess that is our tax code also needlessly shackles the power of our economy. Ascurrently written, the tax code double taxes certain money, such as corporate dividends, discourages capital investment, through the tax on capital gains, and adversely affects purchasing power. The code can be an engine of economic growth and job creation but it will require us to scrap the current code in its entirety and start anew. What we put in its place should not only address the current inequities in the code, but must drive capital formation, job creation, and economic growth. We can do it.
Here’s how:
We replace individual marginal rates with a flat tax, which should be a rate significantly less than the lowest current rate of 15%, so all American taxpayers get a meaningful tax cut. We slash the current 35% corporate tax rate to free up capital for investment in plants, labor, and research and development,and we stay competitive with the rest of the industrialized world — so we no longer tax our corporations at a higher rate than every other country on Earth with the exception of Japan, which taxes its corporations at 39.5%. We should eliminate all loopholes, deductions, credits, subsidies, corporate welfare, and rebates, and cut or significantly reduce the capital gains tax and the tax on dividends. And we should finally end the death tax, which penalizes people after they die simply because they chose to pass along their wealth rather than spend it during their lifetime.
But almost as important as the reform measures themselves, the legislation must include a requirement that any future tax increases, which should only be needed in times of national emergency, must pass with super-majorities in both houses of Congress to ensure that future Congresses control their profligate urges.
Revitalizing the economy through a reduction in marginal rates and reducing the capital gains tax are not new concepts. In a 1962 speech selling the virtues of his plan to cut top-to-bottom personal and corporate income taxes, President Kennedy stated:
“The final and best means of strengthening demand among consumers and business is to reduce theburden on private income and the deterrents to private initiative which are imposed by our present tax system. … [which] exerts too heavy a burden on growth in peace time; … siphons out of the private economy too large a share of personal and business purchasing power; … reduces the financial incentives for personal effort, investment, and risk-taking. … In short, to increase demand and lift the economy, the Federal Government’s most useful role is not to push into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures…When consumers purchase more goods, plants use more of their capacity, men are hired instead of laid off, investment increases and profits are high. Corporate tax rates must also be cut to increase incentives and the availability of investment capital.”
Pro-growth tax reform will have another benefit. Over time, the increased economic growth andemployment will result in increased government revenues. Here’s how: increased economic growthmeans more income, more new businesses, and more people working and paying taxes. Even theinfamous economist John Maynard Keynes agreed with this concept. Keynes said: “Nor should theargument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancingthe budget.”
Such a significant reduction in rates must be accompanied by eliminating all the deductions, credits,rebates, subsidies, and loopholes in the tax code. This will have three meaningful effects:
First, eliminating the giveaways and simultaneously reducing rates will expand the tax base by bringing in all those individuals and corporations who now pay little or no tax because they avail themselves of the loopholes in today’s tax code and will go a long way towards offsetting the lost short-term revenue the rate reductions will cause.
Second, by expanding the tax base in such a significant manner, we will correct the significant inequities in the current system. There is no reason why the rich benefit so greatly from loopholes in the code while middle class American taxpayers struggling to make ends meet pay the full marginal rate. Closing loopholes while simultaneously lowering rates will greatly expand the tax base and ensure that the rich pay their fair share. “Fair share” does not mean punish the rich or saddle them with a greater percentage of the tax burden simply because they can afford it. What it means is if you earn money in this country you need to pay into the system. The progressive system has in many ways not been progressive at all because so many at the highest marginal rate have benefited and continue to benefit from the loopholes and giveaways in the current system. It’s time to proportionalize the tax code and make it fair.
Third, with more than 3.5 million words in the tax code, more than 9 million if you count thecorresponding regulations, it is hardly a model of clarity. To the contrary, the code is a chaotic mess.Only a sophisticated accountant or tax attorney can navigate through it. Tax reform would simplify the code and the process of filing annual tax returns.
Enacting pro-growth tax reform will drive economic growth, create jobs, increase government revenue,simplify the tax code, expand the tax base, and level the playing field. If representatives in Congress do not have what it takes to enact meaningful reform, then I suggest we get new representatives who do.
Ian Linker is an attorney living in Ridgewood, New Jersey and is a former Republican candidate for the U.S. Senate from New Jersey.
