Getting down on bended knee and asking that question. Popping the big one! Throughout centuries, men have done it, with sweaty palms and pounding heart. Will she or won’t she? In America today, that question has become will she(he) or won’t he(she)? But the answer to that oft posed question is of little import compared to the implication of proposals now offered to each of us.

In a number of previous posts, I have asserted that no one proposes that the existing tax code makes any sense. Everyone, Republican or Democrat, liberal or conservative, male or female, Senator, Congressman or President, all have been critical of our tax code. I have also stated that, despite this unanimity of criticism, nothing gets done. Maybe that is about to change.

With the coming presidential election, tax reform proposals have begun cropping up like weeds in a freshly tilled garden bed. I pray these will not prove to be just more political platitudes. Placing yet more Band-Aids on the snafu legislation known as the Internal Revenue Code has not worked previously and will not work now. Continued attempts to do so burden America’s combined resources and try Americans’ collective patience.

Who knows? Maybe we will all be pleasantly surprised one day and awaken to discover that our tax code has finally been modified so that it makes some sense. In 2012, H.R. 6169 was introduced in Congress as a “bill to provide for expedited consideration of a bill providing for comprehensive tax reform.” Wait! What? Well, perhaps we can take heart that our elected representatives are taking steps to address this problem. At least Congress considered a bill to compel consideration of a bill.

One disconcerting fact is the source of these most recent proposals. Few have originated from those elected to Congress, members of that body charged in the Constitution to originate measures to raise revenue (i.e. tax laws.) Regardless of the source, however, the fact that these proposals are being offered is promising. Maybe America will not become an economic old maid, her fiscal future left sitting at the dance time and again by tax measures designed to inflict the coarsest, cruelest slight on her.

On a related note, naming tax reform proposals has approached an art form. Each proposal wants to assure us of its inherent fairness or its flat featureless character. Tax reform proponents now use “F” adjectives to describe tax reform proposals as often as taxpayers use the “F” word to describe the tax code. Several years ago, Congressman John Linder proposed a Fair tax. Others have offered a flat tax. Just recently, in his bid for the office of President, Senator Rand Paul gave rise to conjoined tax twins by suggesting a “Fair and Flat Tax Plan”.

Over the next several days, I will post a series of articles written to discuss the pros and cons of various tax reform proposals. In these posts, among other proposals, I will summarize the following specific plans:

  • FairTax—This proposal suggests replacing all existing federal taxes with a consumption tax—a national sales tax levied at 23% of all retail sales of goods and services.
  • Flat Tax—As proposed, this plan is based on retaining an individual income tax that employs a single tax rate of 19% for all taxpayers and eliminating or reducing other types of federal taxes.
  • Fair and Flat Tax Plan—As proposed, this plan would repeal the entire IRS tax code—more than 70,000 pages—and replace it with an income tax of 14.5% on individuals and businesses.
  • Tax Do-Over—I will also review a plan that is fundamentally different than the current income tax system, eliminating corporate and individual income taxes, trust, estate, payroll, and gift taxes. These would be replaced with a tax based on individual, not household, gross receipts.

But, before any discussion can be had, or can make any sense, some agreement on basic definitions must be reached. (Author's note: Good luck with that.) Anyway, my comments will be based on the following definitions.

Fair—This word has a variety of uses and meanings. Those uses can include “scope” such as “that is a fair amount of wheat”, and nautical applications, such as “A fair wind and following sea.” For my purposes, the word will be used to address the questions of injustice and favoritism. In this regard, one problem arises in that fair can be defined as “…proper under the rules…” Under that meaning, as long as everyone complies with the tax code, regardless of its application or results,  it has to be fair. I don’t think so.

For my analyses, I will consider fair as it applies to vertical and horizontal equity. And, fair ultimately mandates that vertical equity means the code treats individuals separated by income in proportionally the same manner as the ratio of their income disparity. Horizontal equity means the code treats those with nearly identical income, nearly identically.

Flat—This word also has a variety of uses and meanings. Shoes can be “flats” while singers can sing below the proper pitch, hence the singer was “flat.” For our purposes, I will consider the meaning to be “…arranged or laid out so as to be level or even…” Flat tax proposals even go so far as to suggest that the proposal means “one rate for all” sort of a turn of the phrase, “economic liberty and tax justice for all.”

Do-over—This word is best defined by the Macmillan English Dictionary as: “to do something again from the beginning, especially because you did it badly the first time.” Make no mistake on this point, Congress has done it badly up to now. For the purposes of the next few blogs, this word will not mean “amend” or “emend” or “reform” or “repair” or “fix” or anything of that ilk. It will mean “start over.”

Before parsing the merits and flaws of any alternative, it must be acknowledged that proponents of any tax system are inclined to exaggerate perceived strengths of their proposal. On the other hand, they tend to obfuscate apparent strengths of any counter arguments or highlight weaknesses in those arguments. Someone less kind might suggest that opponents on either side of the debate lie. The reality of human nature is that everyone employs these practices. Have you read any personal profiles on the multitude of social media websites? Do you think any have been embellished?

As happy hour approaches, I will “do it over” again and again. It is, after all, Miller time!

 

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AuthorDoug Spiker