|
|
The
views expressed
on this page are soley those of the author and do not
necessarily
represent the views of County News Online
|
The Daily Signal
Congress Can
Raise Your Income 10 Percent By Updating the Tax Code
Curtis Dubay
April 10, 2015
Congress could raise your family’s income by 10 percent, or maybe even
more. And it could do it with a policy reform that has the support of
71 percent of the American people.
Even better news is this is not some big-government spending program
that would deliver a 10 percent raise. Instead, it’s tax reform.
The Tax Foundation, in a recent study, found that if Congress
implemented a consumption tax, the economy would grow by 15 percent and
wages by 10 percent.
The tax code is a further weight on the economy because it has an
archaic business tax system, cronyist policies in the code that pick
winners and losers, is monstrously complex for families and businesses
to comply with, and heavily taxes investment multiple times.
In a recently released primer for the 2016 presidential candidates, my
colleague David Burton and I explain further in detail why each of
these issues is such a problem for the economy. We also walk through
what tax reform should accomplish and the various ways Congress could
implement the right type of tax reform.
From a broad overview, tax reform needs to accomplish five key economic
objectives:
Lower individual and business tax rates. Tax reform
must lower rates, in particular the top marginal rates, to strengthen
the economy by improving incentives to work, save and invest.
Establish the right tax base. Often overlooked in
the tax reform debate is the fact that defining the tax base (what the
tax code taxes) is as important as lowering the tax rate.
Eliminate the bias against saving and investment.
Tax reform must reduce, and ideally eliminate, the bias against saving
and investing caused by double taxation.
Eliminate tax preferences. More work is necessary to
ensure that the base is neutral and does not pick winners and losers.
That means that tax reform should eliminate any deductions, credits and
exemptions that are not economically justified.
Simplify the tax system and make it more transparent
so that taxpayers understand how much they pay to fund the federal
government.
There are long-standing debates among conservatives about which type of
tax reform plan can best deliver the objectives laid out above. Those
plans generally have more in common with each other than is usually
understood. In fact, the best and most popular tax reform plans use the
correct consumption tax base and have identical economic effects. They
vary only in how taxpayers pay them. A useful way to understand their
variations is to think of them as distinct software programs used to
execute the same function. They all execute that function equally well,
but they interact with their users (taxpayers) differently.
For many, a consumption tax means a retail sales tax such as the one
that most states levy. However, a consumption tax is any tax on income
that is spent on consumption, and excludes income that is saved or
invested. Consumption taxes do not include the estate and gift tax,
also known as the death tax. There are several plans that fit this
mold, including:
the traditional flat tax (often referred to as the
Hall–Rabushka flat tax);
the new flat tax (also known as an expenditure, or
consumed-income, tax);
a business transfer tax (BTT); and
a national sales tax.
There are a host of other issues tax reform should address. But as long
as Congress implements one of these systems in place of the current
system, the economy would boom.
Unfortunately, a revenue collection agency will remain necessary to
enforce any system Congress implements. Whether that is a reformed
Internal Revenue Service, or a new agency created in its place, is up
to Congress. Changes to the IRS are essential because of its recent
misdeeds. But each of the tax reform plans described here would make
for a smaller agency because the new tax code would be so much simpler
than under the current system.
With nearly three quarters of Americans in favor of reform, and all the
benefits it would bring, it is a wonder Congress hasn’t done tax reform
already.
Read this and other stories at The Daily Signal
|
|
|
|
