Wednesday, April 22, 2009

Our tax code must be scrapped

The excellent Richard Rahn writes in today's Washington Times about why any attempt to fix our current tax code will fail. It has become way too complex and places a disportionate burden on the most productive members of society. Excerpts:

You may have read that President Obama has just appointed former Federal Reserve Chairman Paul A. Volcker to head a panel to make recommendations for tax reform. Its mandate is to simplify the tax code, raise more revenue, close loopholes, reduce the so-called tax gap - and not raise taxes for American families making less than $250,000. The panel will fail!

It will fail because the complexity in the tax code cannot be lessened without a reduction in rates and the overall tax burden. It will fail, too, because the income-tax code and regulations contain many inconsistent and even contradictory explicit and implicit definitions of the word income, leaving taxpayers both confused and endlessly at risk legally.

... many of the tax- reform proposals being floated, such as higher marginal tax rates on small-business owners and even more restrictive depreciation limitations, are tax increases on the most productive and entrepreneurial people in society... .

The result of these reform efforts will be to force more companies to downsize or move to other countries in order to become internationally competitive. The people who will be most hurt by those tax attacks on business will be the workers who will lose their jobs or face more limited future job opportunities.

Knowledgeable people know the present income-tax system is irreparably broken and must be replaced with a more consumption-based tax system. More Band-Aids on the present income tax system will only result in more complexity, requiring even more police-state tactics in a futile attempt to enforce it.


Randy R said...

It will indeed fail. Tax reform is inevitably just cover for redistributing the tax burden, generally with more complexity. He's right - the simple fact of defining income makes it impossible. The consumption tax of course is the answer if you desire simplicity and transparency. Maybe I'm a pessimist, but since it removes the ability to bestow political rewards, I think the likelihood of passing it is beyond imagination. I really admire those that continue to press for the FairTax.


Scott Grannis said...

Randy Barnett has an intriguing proposal in yesterday's WSJ: a Federalism Amendment. If the Tea Parties gain sufficient momentum, and the country wakes up to the reality of the huge expansion of the power of the federal government, the states do have recourse via an avenue such as this. At the rate we're going, politicians already have way too much power. This must be corrected, but the impetus for change most likely needs to come from the states.