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EDITOR: Governor Romney is pushing tax code reform. President Obama says he’s all for it. Simpson-Bowles said the same thing. Well, duh! Our online community achieved consensus — a rare event — on this topic years ago. The only question left is which “loopholes” to eliminate. Consensus on that topic will be a nut of a different texture.
As a free market zealot, I think all deductions, credits, write-offs, subsidies, etc., ad nausea, must be eliminated. The only exception is personal and dependent exemptions to adjust for the poverty line. Every free marketeer knows what these “tax code expenditures” do to markets, and it is repulsive.
Representative McClintock was criticized for voting against repeal of oil company subsidies. I say good on him for knowing the folly of sacrificing only one sacred cow; every special interest has them; if we don’t kill them all — including our own — we’ll get a rats nest of lobbyists and lawyers gumming up the entire works. Finally, how else are we going to get the politicians to vote for eliminating funding for their conventions?
The middle class’ most sacred cow is the mortgage interest deduction. It artificially inflates mortgage interest rates and results in a direct transfer of tax dollars to lenders. How much? If your tax rate is, say, 20 percent, your effective interest rate is lowered by the same amount … 5 percent becomes 4 percent. The markets have reached equilibrium at an effective rate of 4 percent, with the extra 1 percent fed to the lenders.
Now let’s pretend this deduction disappears for any contract signed after midnight tonight. What happens next? Markets would suffer a short period of chaos as they seek a new equilibrium. Markets are made up of millions of independent decision makers pursuing their own interests on the margin’s razor edge. That was true before and after midnight. Therefore odds are real good that a month later the same hypothetical mortgage would sell for real close to an effective rate of 4 percent.
A simple — as opposed to “simplified” — tax code is so worth it. The efficiency gains associated with a post card-sized tax form is mind boggling. Just think of all those unemployed lobbyists … a free marketeer’s dream come true. I urge Mr. McClintock to fight for this with all his might.
KIRK MACKENZIE
Placerville
The Mountain Democrat does not necessarily condone the comments here, nor does it review every post. Read our full policy
James E.September 11, 2012 - 5:42 pm
If we want a post card-sized tax form, then no deductions at all -- no personal, no children, and all the rest. No deductions, every ox gored the same. Income X rate = tax. Every last one of us in the same boat. Any takers?
Ken SteersSeptember 11, 2012 - 6:12 pm
Very nice Kirk.
Kirk MacKenzieSeptember 12, 2012 - 12:13 pm
Mr E -- A post card has enough room for income ______________ exemptions ___ * exemption($) == _________ taxable income ___________________ tax rate ______________ total tax _____________ Unless you need it written rrrrrrealy big. My preference is for those under the poverty line to pay no taxes. Mr Steers -- thanks.
Kirk MacKenzieSeptember 12, 2012 - 12:14 pm
damn the MD's comment formatting!!!!!!
Martin SchumannSeptember 17, 2012 - 1:09 am
Why have any personal taxes, have a consumption tax; no deductions, everyone pay even the wealthy and people that don’t pay will have to pay. Remove all taxes from clothing, food and medical items; that way the poor won’t be hit hard but even the drug dealers, under the table workers and even the baby sitter will have to pay. I think if you charged 20% on all purchases our debt would be cleared up in less time than a person may think. If you used a graduation tax payment on large purchase such a car, one that cost 20k make that 10% then graduate it up to 20% the wealthy would have to pay more than the less fortunate. Many ways to make a consumption tax work just think they wouldn’t need all those IRS agents.
Kirk MacKenzieSeptember 17, 2012 - 7:48 am
Mr Schumann -- I am not a fan of the consumption tax because it seems regressive. The adjustments you suggest mitigate that a bit, but we need to crunch the numbers (hard data, not SWAGs). How much is spent outside the core goods that should be excluded? How much of that falls into the "luxury" category? I did a little looking on the net and find too much of the wrong data...
Greenwood BillSeptember 17, 2012 - 8:44 am
Free Market = Free range greed. I want mine and more at the expense of everyone else.
Kirk MacKenzieSeptember 17, 2012 - 9:34 am
Mr Bill (thanks for that bit of fun) -- Greed (aka self interest) is intrinsic to human nature and exists in all economic systems. One reason free market theory works so well is that it incorporates that fundamental truth of human nature. But I'm guessing you are complaining about the state of our current system -- a fully evolved Capitalist system, where capital has (long ago) naturally concentrated to the point that it actively warps markets (lobbyists, unfair competition, etc) in its own favor. Where is Teddy Roosevelt when we need him?
CatherineSeptember 17, 2012 - 10:45 am
Kirk, I assume you mean in a global marketplace, where other countries still have trade regulation and their own ability to provide financial incentives to foreign investors? I'm not sure how the chips would fall. Please walk us through an example, maybe using Apple Computer. Apple uses a number of what one would call loopholes--exemptions for R&D expenditures, complex acquisition write-offs, ability to use unprotected labor classes abroad, refusals to repatriate profits for taxation, and on and on--so where would the "free market" boundaries be drawn? I don't want to dampen your zeal, but how does it play out in the real world, for real corporations?
Kirk MacKenzieSeptember 17, 2012 - 11:12 am
Catherine -- I don't understand your question "where would the free-market boundaries be drawn?". And I don't understand how that relates to eliminating tax code expenditures.
Dink LaneSeptember 17, 2012 - 11:52 am
Kirk -- Let me ask you, How many middle class workers called up their Congressman asking for 'Tax-exemptions' taking jobs overseas?; How many factory workers wrote their Legislators asking for 'International Trade deals' that gave tax breaks to USA Corporations to go overseas?; How many automobile drivers begged the Legislators to keep 'Oil subsidies' (Yes they come under the tax-code) while oil companies were making record profits & NOT-charged RENT on their Federal Land Lease contracts?.... Kirk.... Congress (McClintock at the lead of the pack) fought hard for these tax-breaks....a simple campaign promise from a Presidential will NEVER break the hold Corporations have on the tax-code....Now, Middle-class tax breaks ... kiss them good-bye....Somebody has to pay for Haliburton's Record Subcontracts with the Def. Dept.
Kirk MacKenzieSeptember 17, 2012 - 12:11 pm
Mr(?) Lane -- I don't know how many middle-class types asked for those tax breaks, but based on my discussions with friends and neighbors I'd guess none. Yes, congress -- both parties -- have worked hard an been paid well for those breaks. If your point is that representatives need to know they will be held accountable for their actions, I could not agree more.
Ken SteersSeptember 17, 2012 - 12:25 pm
Kirk I had no idea that you are a free market zealot. As I'm watching it seems the questioners from the Left want you to answer or account for a tax system that you no longer support. I grow tired hearing the talking heads on TV discuss how the President is going to fix the economy. Americans must decide what is important and we need to decide what type of economy is acceptable.
Kirk MacKenzieSeptember 17, 2012 - 1:02 pm
Mr Steers -- "a tax code I no longer support"? I've never supported this tax code. I can understand how folks would be surprised with me being a free marketeer...like our founders I see that some services (national defense, post office, healthcare) don't lend themselves to market theory. I agree Americans need more input to the decision making process. The original design was for representatives (as opposed to senate, executive, and judges) to be accountable to their constituents. "First. As it is essential to liberty that the government in general should have a common interest with the people, so it is particularly essential that the branch of it under consideration should have an immediate dependence on, and an intimate sympathy with, the people. Frequent elections are unquestionably the only policy by which this dependence and sympathy can be effectually secured." (Federalist Paper #52). We the people dropped the ball on this shortly after the party system began. How can they represent us if they don't know what we want? How can I hold them accountable if I don't know what we want? The only viable solution I see to the accountability gap is to collect constituent preferences on individual issues, publish the results, and compare with how the representative actually votes.
Ken SteersSeptember 17, 2012 - 1:26 pm
No longer or don't. ACCOUNTABILITY is the problem with our system today. If our government worked efficiently and held to the same standards it holds me to then I'd say we can't give them enough money. But it is broken. I don't want to privatize our government. Many very hard working people who spend their working career in government jobs. I was amazed at how customer service orientated our local DMV is. But what is at hand is America is broke. First thing to get a consensus is to agree that we are broke. Then how to fix it. Many believe that the whole system of Free Market must be trashed and a new system like European Socialism would be the best solution. Many believe that the Free Market system has been corrupted by socialism. I'm for sending delegates from every state to Philadelphia next summer to hammer out a resolution to our dilemma. No AC, no ice for their drinks.
Penny B.September 17, 2012 - 2:01 pm
Over a year ago the NY Times totted up the government's bailout tab: $2.5T spent; $12.2T committed. Plenty of corporate "socialism". Does this figure into the discussion?
Kirk MacKenzieSeptember 17, 2012 - 2:12 pm
Mr Steers -- I agree our government is broken and accountability is the main problem. I don't agree with another Philly convention of delegates to hammer out a solution. I believe that the founders gave us a perfectly good system, we just haven't figured out how to work it yet. Today we have the technology to collect and publish constituent preferences on individual issues, and that is the key to fixing the accountability disconnect. One thing I am sure of: any solution that requires politicians voting against their own interests is doomed to failure. We must create a climate where their interests are aligned with the interests of their constituents...in other words: Represent US or get another job.
Kirk MacKenzieSeptember 17, 2012 - 2:24 pm
Ms B. -- I'd say the bailouts belong in the discussion somewhere. They used the taxpayers' credit card, but did not get our approval. I'd put that in the representation discussion -- they should have taken direction from the people; instead they used the card and tried to convince us it was in our best interests. I think they did what was necessary at the time(s), but the various bailouts were done so badly that most of us are sickened by the whole deal.
CatherineSeptember 17, 2012 - 3:09 pm
Kirk, I agree, our tax code should be gradually simplified; it's the result of piecemeal policy and process development. But I think your concept of a free market is simplistic. You've given an example of what would happen if a personal tax loophole--the mortgage interest deduction--were removed. You feel the system would self-correct in a reasonable period of time. But on the corporate side, you know the loopholes are safeguards against global competition. If you removed them on January 1, I don't believe it would be a short period of chaos as things found equilibrium. Stocks would drop like a rock and large companies, like Apple, might send even more work to China. Because our corporate tax structure and global trade agreements are intertwined, and because other countries enjoy a multiplicity of economic systems, US corporate taxpayers and stockholders don't appear to want a free market--they want continual negotiation and arbitrage on their behalf, and where they can't win globally, they want tax breaks. Fixing the tax code is a messy job, with lots of moving parts, and it's not going to be a postcard and a magic free market anytime soon.
James E.September 17, 2012 - 5:01 pm
If the president cannot fix the economy, ergo he cannot be blamed for a bad economy.
Kirk MacKenzieSeptember 17, 2012 - 5:02 pm
Catherine -- Thanks for the clarification...your questions make sense to me now. You are too kind in your description of how politicians and lobbyists have manipulated the tax code..................... I would agree to phasing out loopholes over time, and allowing any existing contracts to retain pre-reform context for their duration. However, gradual simplification has the obvious problem of giving those same politicians and lobbyists room to manuever, and that never ends well for taxpayers.......... "Free Market" theory is pretty simple, and modern day real world business is very complex. "Safeguards against global competition" is one reason for the complexity, and runs directly counter to free market principles. If we phased in pro-market reforms, I believe most stocks -- those not related to the tax code bureaucracy -- would do very well; partly because of improved efficiency (allocating capital for market, not tax code reasons) and partly because our nation's fiscal house would be put in order. Large companies like Apple would bring jobs home because a) offshoring tax incentives would disappear and b) the attendant drop in corporate tax rates would make the US very competitive.......................US corporations don't vote. US stockholders I know want a more market oriented -- and less insanse -- economic system. Regardless, it should be we the people who decide these things, not the political-industrial complex..............Yes, fixing the tax code will be messy. The more wiggle room we give the politicians and lobbyists, the messier it will be. And the more we the people will get ripped off.
James E.September 17, 2012 - 5:21 pm
Given that money has fatally infected our political system, the fixes in our tax system will go to the highest contributors. Until contributions are called what they are (bribery), posting constituent preferences will be meaningless, as money buys and retains political office. As for getting rid of 'unnamed deductions' -- you can be assured those cancelled will come from the middle class and not vested corporate interests (those above noted highest contributors to our bought and paid for politicians). Am I being too cynical? Nope, I think it's all too obvious.
Evelyn VeerkampSeptember 17, 2012 - 5:28 pm
Add one more cynic to that list. I can't begin to imagine the needs of ordinary people impacting any tax code "fix". (Which is not to say it shouldn't be striven for.)
Kirk MacKenzieSeptember 17, 2012 - 5:35 pm
Mr E. -- Collecting and publishing constituent preferences, and comparing them to representative voting, is the only way to hold representatives accountable. Money will rule until they can be held accountable. Unless you believe these same politicians will vote to eliminate the money that flows their way...?
James E.September 17, 2012 - 6:32 pm
Mr. Mackenzie, politicians will never vote to stop the money. I presume you mean we can hold them accountable by voting them our of office -- yet money buys them into office and retains them in office. Seems a problem without a ready solution.
James E.September 17, 2012 - 6:33 pm
*** out
Greenwood BillSeptember 17, 2012 - 6:40 pm
Clueless Dreamer! and self-centered greed to boot. Apple will bring home jobs because of the tax code being simple? Really? How freaking clueless are you? They hardly pay any tax now (Irish Sandwich anyone). The jobs are overseas because they can get someone to do it for $10 a day not $20 an hour and "free market" will actually make that worse. Take away protections or tax incentives and the greedy (like you) will take more an more.
Kirk MacKenzieSeptember 17, 2012 - 6:52 pm
Mr E. -- I find it interesting that you would argue against a) telling our representatives what we want, and b) knowing how well our representatives do their job. Perhaps you prefer our current "blank check elections", where the only information voters have to go on is party and marketing spin? If we know how well, or poorly, our representatives are doing their job, we will have the only piece of information that counts.
CatherineSeptember 17, 2012 - 7:10 pm
It's perhaps only self-soothing that makes me focus on the fact that these are not new problems at all, not the least bit related to political party. When Theodore Roosevelt set up the Department of Commerce and Labor, he was faced with the same corporate theme--success drives owners beyond self interest to unbridled greed. I think it's very, very naive to assume markets will self regulate if taxation is less of an encumbrance. A fair tax code has to demand adequate revenue from corporations, not make it so low that they can enjoy what America offers while 'juicing' shareholders at $700 a share and not contributing.
Ken SteersSeptember 17, 2012 - 7:12 pm
Good stuff from most. No I don't think the president has as big a cause and affect on our economy as the TV pundits make out. If we take as a start the pay roll tax and simplify that first? Regarding the investment tax credit. Many corporations are gobbling up the housing market in this area paying cash. They are on the buy because the see real estate as a safer place to invest. International Corporations would need incentive to bring jobs to the US. Jobs mean more revenue to the economy and the government. It is simplistic but true. Kirk I was just wanting to see a bunch of politicians sweat in Philadelphia.
Kirk MacKenzieSeptember 17, 2012 - 7:54 pm
Catherine -- you are right about these issues not being unique to our time or place. Unchecked, greed and power will oppress the people. And I agree that corporations -- and individuals -- must pay their share. Last year GE and Exxon paid no taxes, and even got refunds. Now that is insane. Corporations (record profits) and the wealthy (record concentrartion) have reaped the lion's share of GDP growth over the last 50 years. They -- not the middle class and poor -- should bear the lion's share of the burden digging us out of this hole. Get rid of all the tax code expenditures, tax all income and profit at 25%, and our fiscal house will be in order...................Mr Steers -- yeah, sweating politicians gives me the warm fuzzy, too.
TerrySeptember 17, 2012 - 7:56 pm
Congratulations, drop the name calling and an actual intelligent debate breaks out. Simplifying our tax code is one of the lynch pins of fixing this economy. Before starting the process, I would first write down a set of rules/philosophy that would guide the process. The first rule would be that taxes are for revenue generation only not for social or economic engineering. This provides a litmus test for all code changes that follow. When a loophole is proposed, all can stand up and cry foul. In a simple system, violations of the rules are easy to see and correct. My second rule would be fairness, taxes must be uniform for all people and uniform for all corporations/businesses. Third, any tax imposed should have minimum collection and implementation costs. Finally, the taxes collected must be visible. For example, once a year we get to total up our income tax, hence we see the total bill in comparison to our total income. The result is often shocking. However, we do not see the myriad of little excise taxes collected on tires, jewelry, telephones etc. The new tax code should eliminate these little hidden and expensive to collect taxes. Once the rules are set then the fun begins. As noted above, changes to the code should occur gradually over at least one decade. The changes should be public well in advance of the implementation date so people can adjust accordingly. Here we are less than four months from a new year and still do not know what the tax rate will be next year. As has been said many times, corporations do not pay taxes, their customer’s do. So who gets the taxes for making that i-phone you just bought? China? If Apple made it here, they would pay 35% on any profit. Would it not be better /fairer to eliminate corporate income taxes altogether and replace them with a national sales tax (not a VAT)? This way the imported china-phone is assessed a tax at the same rate as a domestically made usa-phone. Keep the ideas coming. We may yet get James to start contributing. It would be great to get his gray matter working again.
Kirk MacKenzieSeptember 17, 2012 - 9:18 pm
Terry -- I agree with your "rules", but don't trust politicians and their lobbyists to do right by them. As for a national sales tax, I don't like it because it is inherently regressive. If you take out the basics and tax luxury goods at a higher rate as Mr Schumann suggested, it would be better. But we'd have to crunch the numbers with hard data to figure out if it is viable. The fact that wealthy folks save (hoard?) a large percent of their income leaves me skeptical........... I have enjoyed this extended Bull-In-The-Ring session, but I need to get to bed so I can get up early for my greedy selfish volunteer gig at the Food Bank.
TerrySeptember 17, 2012 - 9:28 pm
Kirk, I trust politicians about as far as I can throw a sow at a hog tossing contest. That's why the rules need to be clear and simple so that all can see the cheating when it is proposed. Have a good night.
James E.September 17, 2012 - 11:01 pm
Goodnight Terry, goodnight Kirk, goodnight Ken, goodnight Catherine, goodnight Bill, goodnight Evelyn, goodnight Penny, goodnight Dink, goodnight Martin -- goodnight to all and pleasant tax code dreams. Someone lock the front and back doors and please turn out the lights. And, yes, I walked the dogs.
James E.September 18, 2012 - 10:38 am
OK, everyone, time to get up and back to the deduction (specifics that Mitt and Ryan refuse to reveal) question. May I suggest they will seek to remove our mortgage, charity, and property tax deductions. And, of course, with the added revenue going not to the nation or the national debt, but used instead to pay for tax cuts for the rich. ADDED: Reference 'we built it," did I read that Bain got a $10 million dollar bailout from the government in 1993? Not sure, maybe it was a dream. But, devastating if true for such a self made man.
James E.September 18, 2012 - 7:55 pm
Everyone still asleep?
Billy MiddletonSeptember 18, 2012 - 8:04 pm
Lots of great ideas here and surprising agreement from people who usually just hurl epithets at one another. I find myself even agreeing with Martin, who usually... oh wait we were keeping this polite, right? Martin's idea of a consumption tax, AKA national sales tax holds many unintended benefits. No more freeloaders; no matter who you think the freeloaders are- illegal immigrants, drug dealers, unlicensed contractors working for cash. Everybody pays because everybody spends. Heck, we will even be supported by all those foreign tourists going to all of our national parks. I also like James' straight up one line tax form with NO exemptions, NO dependents, etc. Sure, raising kids is expensive. Kids also cost the government lots of money. Schools, health care, infrastructure demands, etc. Don't think it's fair? Don't have 'em! No break for capital gains either. Same rate everyone else pays.
kidpowerSeptember 18, 2012 - 8:19 pm
GDP= $16 trillion. Tax all goods & services at 22.5%, = $3.6 trillion. Federal budget = $3.6 trillion. Done.
Kirk MacKenzieSeptember 19, 2012 - 5:16 am
Kidpower -- That is a good rough estimate...2011 GDP was ~$15T, and "we" spent ~$3.8T, so either we run a deficit or raise the rate. But a ~23% sales tax would be acceptable to most. That would do away with the (regressive) payroll taxes, and (regressive) tax code expenditures. Here's what still bugs me: the poor and lower-middle class spend all their income while upper-middle class and wealthy spend lowering percentages. Those that currently pay ~14% tax (ie Gov Romney) would continue to pay (roughly) the same amount. That means the extra tax revenue would come from lower-middle class and poor....................... Mr Middleton -- good points on the unintended benefits. I am a little less cold-blooded when it comes to kids and lower incomes, but that's just me.
Ken SteersSeptember 19, 2012 - 7:06 am
President Mackenzie, With a VAT or consumption tax, replacing the pay roll tax one affect that you might not realize is the reduction of labor cost to business. More people would have the ability to hire people or go into business themselves with out the heavy cost and burden of the pay roll tax. Also if everyone had "skin in the game" and contributed equally I think more people would participate "vote" in the political process. Finally if your government was overseeing a 15 trillion dollar economy, 25% of the worlds economy and managing 3.8 trillion dollars a year in tax revenues. Be prepared for people like me to hold you accountable as to how you spend and manage that money. I would demand accountability from your regime. And expect to see social programs designed to help people move up the economic ladder that actually work. Finally as another consequence of the changing of the tax system that might not have been visualized is this would allow the people like me to go back to their short lives and not have to focus on politics. We can worry about real problems like if the A's are going to make it to the play offs, fantasy football or who are kids are dating.
Ken SteersSeptember 19, 2012 - 7:08 am
"our"
Kirk MacKenzieSeptember 19, 2012 - 5:01 pm
Mr Steers -- I get the benefit of lower labor costs, but I was referring to taxes payed by the employee for medicare and social security that are extremely regressive. But together, all the payroll taxes paid by both employee and employer would disappear, lowering the cost of labor significantly. Would that result in higher wages needed to pay for the higher consumption tax? Depends on the employer, but I'm with the cynics on that one. As for "skin in the game" improving voter turnout, I doubt it. Most non-voters -- including me at one time -- are motivated by the fact that their vote has no value. When your choices are two party drones and a raft of also-rans, and the parties work for the same political-industrial complex, many decide it's not worth the trouble. IMAO, "skin in the game" is not the key to improving voter turnout. Most non-voters already pay taxes. Now if we actually had a way to hold elected officials accountable...we always get back to that critical junction, and I've made my thinking clear on that topic.
JohnSeptember 19, 2012 - 5:49 pm
Is everyone's memory so short they cannot recall what happened recently: we had more or less extensive tax reforms under Carter, Reagan, Bush I, Clinton and Bush II. No sooner was the ink dry than the special interests, like oil, coal, big Agriculture, Pharma--everyone except powerless suckers like us, rolled back the reforms that affected them. The only reason the mortgage interest deduction survives is because the real estate and developers' lobby is very powerful. So, I would counsel Mr. Mc Kenzie: be careful what you wish for--you may get it.
Kirk MacKenzieSeptember 19, 2012 - 5:59 pm
John -- you are correct. My recollection is that the primary example is the Reagan/O'Neil success in eliminating loopholes and lowering rates. It took several years, but eventually the lobbyists weaseled their way back into the tax code. I would agree that eliminating ALL loopholes is not enough -- it should be accompanied by a law against adding new ones. That would be true for both an income and consumption tax.
Ken SteersSeptember 19, 2012 - 6:39 pm
Kirk, it didn't take several years for the Reagan tax cuts to be transformed. Not only is Reagan credited for closing loopholes and cutting taxes he is credited with the largest tax increase in American history. So back to your VAT or National Sales Tax or Flat Tax system. Our Fed government spending must be corrected also. In 2000 it was 1.79 Trillion, 2007 it was 2.73 Trillion this year 3.8 Trillion dollars. We collected 2.3 Trillion this year and 2.8 Trillion in '08. Anyone know what we got for that extra Trillion dollars of spending? This is why there is a consensus from the Left and Right that Washington DC is dysfunctional. I think that it might be time for the Tea Party to have a rally with the M.O.W. crowd. Both groups believe that our politicians are disconnected. It might be better for everyone because they all could commute to the rally. Most of the M.O.W. crowd lives with their Tea Party parents anyhow.