The Peter G. Peterson foundation recently funded a study by Eric Toder of the Tax Policy Center and Alan Viard of the American Enterprise Institute on corporate tax reform.
They conclude that congressional proposals now being debated fall short of solving the complex problems of worldwide taxes. They suggest that we either reach an international agreement on how to allocate income among countries, or abolish the tax and raise the revenue directly from the shareholders.
The notion that we may negotiate an international solution as to where a tax obligation is incurred assumes that nations will act in their best economic interests absent political agendas. We might run that one by Israel.
The second option, to eliminate corporate taxes and tax the shareholders, creates new problems. Taxing capital gains reflected in that day’s stock value would make revenue projections even shakier than today’s best guesses.
I propose a reform on corporate taxes that is understandable, transparent and liberating. ABOLISH THEM!
Over the years, my wife and I started six corporations. We kept looking for that secret drawer that held the money to pay our taxes. We never found it. Our customers paid them along with all of the rest of our costs. They were all built into the price.
In fact, the only taxpayer in the world is the consumer who consumes the product or service and is stuck with the cost. So let’s just be honest with them and stop pretending that someone else is paying that bill.
You will remember Sen. Russell Long’s famous line, “Don’t tax him. Don’t tax me. Tax that man behind the tree.” That would be you and me behind the tree.
Every corporate CEO takes that big office with three groups on his or her mind. The shareholders, the employees and the customers. But sitting at the head of the table is the guy from the IRS with 74,000 pages of regulations written by people who have never had a customer or an employee. He’s there to help.
So the boss sits down with the attorneys and accountants and makes business decisions for tax reasons. Individuals do the same and get the same results – inefficiencies that reduce our productivity and our nation’s economic growth.
The Mercatus Center at George Mason University puts the economic costs of the current tax code at about $500 billion each year. An earlier study concluded that it costs a typical small business $724 to collect, comply, and remit $100. That is not just inefficient; That is stupid.
Our tax code has led to an underground economy of $2 to $3 trillion a year and keeps $20 trillion in offshore financial centers.
A Harvard study concludes that 22 percent of what we currently spend at retail represents the embedded cost of the IRS. You are paying the income tax costs and the payroll tax costs – and the accountants and the attorneys to avoid the tax costs – of each of the thousands of companies it takes to get a loaf of bread to your table; from finding oil to make gasoline and mining ore to make steel all the way to the baker and grocery store.
Eliminating the corporate tax would improve our planning and bring efficiencies that that would give us double-digit economic growth and global economic dominance. Manufacturing would return and the jobs created would have us welcoming new workers.
In truth, those who sell to Detroit would rather be in Detroit to reduce transportation costs, but because of the tax component in the price system they are not.
The embedded tax costs in American goods are carried all the way to the consumer putting our exports at a price disadvantage on foreign soil. Conversely, foreign nations rebate the tax costs on their exports creating a price advantage for foreign products in the U.S.
To fund our government we should tax the only taxpayer in the world – the consumer – at the retail checkout counter. The FairTax.
The FairTax is a single, universal retail sales tax on all new goods and services purchased for personal use. There is no tax on used goods. Nothing should be taxed more than once.
No tax on business activity. No tax on personal income, corporate income, dividends or estates. No gift tax, alternate minimum tax, capital gains tax or dividend tax. All gone – along with the IRS – which is a Racketeering Influenced Corrupt Organization and needs to be put away. Forever.
Currently the average income earner gives the federal government 23 cents of every dollar they earn –15 percent income tax and 8 percent payroll tax. That is in addition to the 22 percent embedded tax cost in everything we buy.
Under the FairTax we would only pay 23 percent out of every dollar we spend. Money not spent is not taxed.
Competition will drive the embedded tax costs out of the price system and the purchasing power of those who spend all of their income each month will be increased by 22 percent through a combination of price reductions and increases in take-home pay.
[sharequote align="center"]The FairTax taxes spent wealth rather than earned wages.[/sharequote]
Americans have always cared about the neediest among us and the FairTax provides for their protection. Every household would get cash distribution each month sufficient to untax everyone on necessities.
Defining necessities would be a political nightmare, so poverty level spending was used as the benchmark. Annually, the government determines how much a given sized household would have to spend to buy its essentials. Under the FairTax a household of four could spend $30,000 with no tax consequences. Beyond that everybody pays the same. We will all be voluntary taxpayers, paying taxes when we choose, as much as we choose, by how we choose to spend.
America taxes wages, not wealth. The wealthy do not live on wages; they live on capital gains and dividends that are taxed at a lower rate. The FairTax taxes spent wealth rather than earned wages. Even Bill Gates agrees on this point.
Taxing consumption provides a more predictable tax base than income. In the last eight years of economic upheaval, a tax based on consumption would have declined 2.5 percent in 2009 and returned to 2008 levels in 2010. Our revenues, based on income, declined by 16.5 percent in 2009 and didn’t return to 2008 levels until 2013.
The Toder-Viard proposal would require an increase in tax rates to be revenue neutral. The FairTax would bring in 10 percent more than current law.
We will turn to the FairTax when we realize that there is no place else to go. Every tax increase of the last 30 years was passed on the promise that it would only impact the top 2 percent. States are now getting into that act and they are learning that rich people are often smart people and they move. They are moving from the U.S. too.
The FairTax (HR 25) is simple, understandable, transparent and fair. It is 132 pages long. Congress doesn’t need to pass this bill to find out what’s in it.
The FairTax gives the American people the greatest gift that freedom has to give – anonymity. No agency of government should know more about us than we are willing to tell our children.
John Linder served in Congress for 18 years from Georgia. He and his wife, Lynne, have retired to a farm in Northeast Mississippi. He can be contacted at: firstname.lastname@example.org
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