Time to Simplify the US Tax Code

I was on a Twitter exchange today regarding the Affordable Care and Patient Protection Act otherwise known as Obamacare. As all of us are beginning to see, as more people get involved and learn what it actually does compare to the hype of the alleged harm it would do to country and “Freedom” killing your mothers, sisters and puppies, people are now becoming supportive of the law. Despite 53 votes in the House to repeal it, 63% of the nation doesn’t want it repealed and on this last day of enrollment, they hit the 7 million mark and polling for the first time shows 49% favorable compared to 48% unfavorable. A long hard and angry battle but the tide has turned and there is no doubt this law will stay unless it’s improved.

This is where I get to the point of the title of this rant. In tweeting this with a reasonable person from the right, we both agreed that ACA wasn’t as bad as projected, that it does have some good in it, and we both believed the improvement would be single payer, otherwise known as Medicare for All. This resulted in a discussion of the tax code.

He sent me a chart and asked me to comment on it. Here it is:

 Federal Revenue

 

He pointed out that most on the left would see the decrease in the revenue from corporations while those on the right see the increase in FICA revenue from individuals. What brought this chart up was my response to him regarding what I thought would happen to the economy if we went single payer but left insurance companies around. This is actually what most of Europe currently has that result in better outcomes with less expense regarding healthcare.

Now I’m no economist, I only play one on Twitter but I told him that I thought it was a good idea providing we lift the cap on FICA taxes (currently at a yearly income of $117,000.00 with a maximum withholding of $7,454.00) in order to fund the increase in coverage by making Medicare available to the entire United States Population from birth. Some want no caps; I think raising it to a million is sufficient. I also mentioned that with the insurance companies still wanting business, and providing they were still held to the customer protections required under ACA, insurance premiums would drop making private insurance even more affordable for good services. I mentioned that I saw this as good for the overall economy and the only negative side, if you want to call it that, would be the reduced profit margins of the private insurance companies.

He tended to agree but implied that the issue with our tax system is that it is too complex with multiple sources of revenue with multiple rules and loopholes and is inefficient. I agree, early on in our history the entire United States Budget was paid for by Tariffs. Alexander Hamilton imposed tariffs on foreign goods that had two positive effects on our new nation, revenue and development of our own domestic industry. Over the years tariffs went down as trade agreements came into play. Then corporations were taxed, income was originally taxed by the federal system during the Civil War to pay for it, then came back 50 years later as revenues to support this nation fell short from tariffs and corporations. Our government and her responsibilities grew and so did the expense.

Now we both had to go off-line but he left me with the impression that not only did he want a simplified tax code, it should be a flat excise/sales tax code. I did let him know that whatever the solution, the code should be progressive. Here are some numbers I came up with and posted on Twitter:

In 2013 the United States total budgetary revenue was $2,770,000.000.000.00 with expenses totaling $3,450,000,000,000.00 resulting in a budget shortfall. We all know that. Though what few still don’t understand, that deficit has been falling faster than at any time since Eisenhower.

Of the $2,770,000,000,000.00 in revenues:

$1,359,000,000,000.00 came from individual income tax payers. (Around 53% of the population)

$959,000,000,000.00 came from FICA revenues. (Paid for by all working Americans up to the cap)

$348,000,000,000.00 from all corporate tax revenues. (This averages 13% of all profits for all corporations combined)

$88,000,000,000.00 from excise taxes.

$33,000,000,000.00 from tariffs.

$13,000,000,000.00 from Estate and gift taxes.

$101,000,000,000.00 from other sources.

Finally, last year 138 million federal tax returns were filed in this country.

As the chart above shows, the total percentile of corporate tax revenue has gone down. Also it notes the total percentile of FICA revenues have gone up. The two almost cancel each other out.

Here are two more charts to consider:

totalfederaltaxdollar

 Total Federal Spending from all government revenue sources including FICA.

2012federalincome

Total spending of income tax dollars excluding FICA

As the largest economy in the world with the most powerful armed forces, the strongest economy and of note, 315 million people of whom the average age is rising, we have an ever increasing number of accounts we need to pay into to take care of our military, our infrastructure, our students, our food supply, our ecology, and our aging population regarding healthcare, housing and necessities of life. It’s what government is for.

Our nation is growing, our population is aging, and our necessary expenditures are increasing. How do we pay the bills? It’s easy to say “cut spending to save money”. It’s also easy to say “penny wise, pound foolish”. Much of government spending does stimulate ours and the world’s economy, especially in times of recession. However it is also true that we cannot continue into deficit spending. The easy compromise is to cut waste, eliminate unnecessary programs that don’t promote the society or helps the economy and raise revenues.

That’s where politicians get scared and refuse to compromise. You can cut taxes they’re already too high. Well they’re actually lower now than at any time since the 1960’s and furthermore, we’ve been cutting taxes, even cut important programs like food stamps, unemployment compensation, housing assistance and we’re still in debt and the cuts have stalled our economic recovery. The richest in this nation are getting richer and paying less tax, the corporations in this country are getting richer and are paying less in taxes and not creating the jobs we were promised. Finally, the middle-class is getting smaller due to good jobs going overseas, resulting in less money being circulated in the economy resulting in more job loss due to less demand for goods and services. Did I mention that demand for goods and services are what actually create jobs, not excess cash?

So how do we simplify our tax code, pay our bills and not ruin what’s left of our economy in the process?

This is what I know:

Our current system was developed over 200 years and cannot be changed in quick order otherwise the economic security of the nation would instantly fall apart. Whatever plan is implemented would have to be done in installments over years, perhaps decades.

Simplifying the overall tax code would help regarding revenues being lost or misapplied. However whatever that code is, it must be progressive. Flat income taxes or a tax system based solely on excise/sales taxes is by definition regressive. This goes back to the famous “47%” who don’t pay Federal Income Taxes. They do pay sales taxes, they pay FICA if they are working, but their income is so low, so paycheck to paycheck that to tax them dramatically cuts into their standard of living, which already isn’t that great. (Raising the minimum wage would help too).

The whole idea of a progressive tax code is that those at the top of the economic ladder have more ability to pay into the society that quite frankly allowed them to be so successful. Further, an increased tax burden on these people has little or no impact on their standard of living. They pay more because they can and it doesn’t hurt them financially. Those with little or nothing shouldn’t take up the burden of paying all of our nation’s expenses if they have little ability to even provide themselves housing and food.

It’s easy to say we need more people working at higher wages to rebuild our middle class. Giving the wealthy and corporations more money via tax cuts hasn’t worked. It hasn’t trickled down to magical jobs out of good will. Instead it’s taken money out of the economy which has resulted in less demand. You increase demand for goods and services by placing money into the economy. If you’re going to sit on your money and do nothing with it, let the government take it by taxing and place it in the economy to those who will use it. I can’t emphasize this more; demand creates jobs, not extra cash in the hands of the few.

We need to yet again review our spending but we need to increase revenue to pay for those things we need to survive and grow as a nation. That money must come from those who have it, not those who don’t. During Eisenhower, the top marginal tax rate was 95%. With tax loopholes, it was actually much lower, but nowhere near the 13% effective tax rate the 1% has today. They can pay more. Corporations can also pay more than their 13% effective tax rate and it won’t kill jobs. In fact, as Henry Ford knew, it would place more money in the economy, driving up demand for goods and services and making more sales for the corporations and other businesses in the country. The corporations will survive, likely thrive, maybe a few CEO would have to give up one of their 8 homes. So be it.

Again, I don’t have all the solutions and I’m not an economist. But I do know simplifying the tax code to make it more progressive and supply just the right amount of revenue to pay our bills is what is needed. I also recognize this will take years to implement since it’s so damn complex right now.

To end on a familiar theme of mine, to get this done, let’s send the right people to Congress and our state houses who are open-minded, pragmatic and willing to do unpopular things to get our affairs in order without favoring those people who need no help at all. Register, research and vote.

Class dismissed.

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