The potholes will lead to the sinkhole

Major League Baseball’s return to D.C. in 2005 made me happy. I saw the Phillies live seven times at RFK Stadium this year and couldn’t have been happier. (I could’ve been if we’d won one of the two we lost when I saw them, because then we could’ve played the Astros for the Wild Card, but such is life for a Phillies phan.) Area residents rallied behind the Nationals, showing an exuberance for the team many suspected would develop more slowly over the next few seasons. Major League Baseball made the correct decision, but it was the inevitable decision. D.C. could not be logically excluded over Las Vegas or Portland, and everyone but the D.C. City Council knew it. They were the group that Major League Baseball held hostage negotiated with, though, which is why the District now faces this mess:

The District government filed court papers yesterday to seize $84 million worth of property from 16 owners in Southeast, giving them 90 days to leave and make way for a baseball stadium.

By invoking eminent domain, city officials said last week, they hope to keep construction of the Washington Nationals’ ballpark on schedule to open in March 2008. The city exercised its “quick take” authority, in which it takes immediate control of the titles to the properties.

Under law, the property owners and their tenants must vacate the land within three months unless a judge declares the seizure unconstitutional.

In papers filed in D.C. Superior Court, city attorneys said: “The Properties subject of this action . . . are taken for an authorized municipal use, namely the construction and operation of a publicly owned baseball stadium complex.”

This is crap, of course, because authorized doesn’t mean legitimate, but when was the last time that stopped a government from invoking eminent domain? I hope the property owners have good negotiators to achieve a reasonable price. And attorneys when this ends up in court because the city won’t pay a reasonable price. That’s just me thinking government should serve the public. I could be wrong.

I’m not, naturally, so I’ll move on to this:

Some activists have argued that the stadium is a private project for Major League Baseball, but District leaders say the $535 million project will create significant tax revenue [sic]. Developers have snatched up land just outside the stadium plot in anticipation of a waterfront revival, and the city is planning to create a “ballpark district” featuring restaurants and retail.

Their goal as a Major League Baseball franchise is to win baseball games, but that’s only one goal. The Nationals are a business. Their most important goal is to make a profit. (The owners of the Phillies ran the team for years to not lose money. Big difference. But I digress.)

One way they do earn a profit is by enticing fans to pay money to come to the ballpark. As a business the team controls its expenses for wages, overhead, maintenance, and whatever other expenses a baseball team encounters. How is acquiring use of a ballpark not inherent in their business? What makes the local government better at managing the ballpark than the team that plays there (or a separate private entity)?

It’s inappropriate for the city government to build a stadium solely to generate tax receipts. That isn’t the government’s purpose. It’s not why citizens entrust the government to issue debt, which is what D.C. will do to finance the stadium. Government’s purpose in this case is to provide functioning infrastructure, law enforcement, and tax policies. The team should take care of the rest. Until the city gets the revenue from the stadium, it shouldn’t pay the costs.

This should be obvious to the city, but its eyes are too glued to the golden calf of tax receipts. But how golden is it? Tax receipts generated by the Nationals arrival in D.C. fell short of expectations this year.

The District government appears likely to fall short of its goal of earning $10.5 million in tax revenue [sic] from sales at Robert F. Kennedy Memorial Stadium for Washington Nationals games, even as the team is on pace to earn larger profits than estimated just four months ago.

The city’s potential tax shortfall from revenue generated by sales of tickets, parking, concessions and merchandise could be more than $500,000, according to financial officials, who expect to have final numbers at the end of the month.

Meanwhile, the Nationals, still owned by Major League Baseball, exceeded expectations by selling 2.7 million tickets in their inaugural season and will earn a $25 million profit, about $5 million more than the team projected at midseason, team officials said.

Why should anyone who pays taxes to the D.C. government believe the District’s projected tax receipts for the new ballpark district?

I’ll pay for pregnancy insurance when I grow a uterus.

I’ve made a specific argument in my entries and comments about tax reform, but George Will described a perfect example of what I’ve written on the subject. Consider:

General Motors took an interesting turn on Monday. It is going back into the automobile business.

Granted, GM has always been in that industry, but it has also become the nation’s largest private purchaser of health care. This supposedly secondary role has become primary.

GM has been forced to allow product development, pricing and other decisions to be driven by the need to keep sufficient revenue flowing in so it can flow out in fulfillment of GM’s function as a welfare state. GM provides $5.2 billion in health care annually — more than Harley-Davidson’s revenue — to 1.1 million workers, retirees and dependents. Retirees outnumber current U.S. employees 2.5 to 1. The $4 billion that goes annually to retirees does not go into developing products people want to buy.

Concessions by the United Auto Workers will provide GM with annual savings of $1 billion in health care costs. But GM’s hourly workers, who pay no health care deductibles and only nominal co-payments, will still enjoy coverage better than most Americans have. Since 2000, the percentage of American businesses offering any health insurance to workers has declined from 69 to 60.

It makes no sense for GM or any other company to offer healthcare. It’s not the primary business, siphoning funds that should be spent growing the business through innovation and/or offering employees higher salaries. I’d contend that most, if not all should go to the employees. It’s part of their compensation, even if part of the expense is overhead. That’s overhead the company wouldn’t encounter if it didn’t offer health insurance. Human Resources is certainly designed to research and purchase insurance competitively, but where are the decisions on what individuals as individuals need (not part of the collective group of workers) best made, the fifth floor conference room or the family dining room? And what of the worker whose spouse’s company offers better health insurance? The worker loses that compensation from his own company because that portion of his compensation is non-monetary and must come in the form of health insurance or not at all. That’s not smart. Better to offer the compensation directly and let the employee decide what best suits his needs.

Mr. Will concludes:

Herb Stein, the University of Chicago economist who served as chairman of President Richard Nixon’s Council of Economic Advisers, famously said: If something cannot go on forever, it won’t. Delphi’s resort to bankruptcy and GM’s attempt, with the cooperation of the UAW, to avoid, for now, doing that, suggest that America’s welfare state — its private sector as well as its public-sector components — is reaching its Herb Stein Moment.

Let’s hope. Ultimately, a structure of competitive health insurance could replace this nonsense. Self-employed people somehow find health insurance without the benefit of employer funding and management. It’s logical to conclude that it would work when implemented on a larger scale, with insurance becoming just another product people purchase. I secured life and disability insurance policies on my own, as well. It’s funny how capitalism works to satisfy a need where it exists. Employer-provided health insurance subverts this process. Tax reform may not be 100% of the solution, but tax nonsense created the problem. It shouldn’t perpetuate it.

My MacGyver theory of government

Mr. Doughnut here. When I wrote Wednesday’s flat tax post, I mistakenly thought that point # 5 was obviously ridiculous. I misunderestimated that point. “The rich benefit more from government than the poor, so the rich should pay more for those services” is buried deep, and probably latched on like a parasite, in many minds. Since it’s not, I’ll address it here. I think it’ll be more efficient for me to reply to this comment directly rather than starting from the beginning. Consider:

I guess a snarky answer comes in handy when one doesn’t have a logical one. Is the notion that poor people are getting all those big welfare checks, while rich people are out there making money with no help from anyone? Get real. Clearly the rich benefit more from our stable system than the poor do. They (or at least, some of them) also make the system possible, which is why we’re talking about taxing them a couple of percentage points higher, rather than confiscating all their money.

I was aiming for exasperation more than snark, but where I may have failed in that, it was not from a lack of logic. I don’t think the poor are getting big welfare checks and I don’t think rich people are making money with no help. But that still doesn’t mean the rich benefit more from our centrally planned stable system. And how is what amounts to little more than a use tax justified as a rational, progressive income tax? I don’t buy that argument, but if I did, I wouldn’t support it that way. But on to the logical answer, devoid of snark.

Anyone who’s paying attention to what I’m writing about the flat tax should understand that I also support governmental reform. It’s why I so thoroughly reject the revenue-neutral nonsense bantered about in this discussion. There are things the federal government does now that it shouldn’t do. While tasked with perpetuating the public good, we’ve somehow managed to include every crumb of American life as part of the national sphere. Our kids need education? The federal government can help. Our kids need a drug-free life? The federal government can help. Our kids need digital television? The federal government can help. But how? How is the government helping when kids still fail out of school, kids still do drugs, and kids will watch television, whether it’s digital or analog? We’ve migrated local and state tasks to the federal government, in a long-building abandonment of federalism. Now that it’s virtually complete, rather than admit our mistakes and fix the system, we perpetuate the notion that the rich get the most from the nanny state. Even if that’s true, the system is flawed.

But what should the government do? That’s the important question, and one which the commenter seems to almost get at. Consider:

I make a great living in the securities industry, for example. If it were not for government regulation of the securities markets, there would be no public trust in the markets and thus no money-making opportunities. Not to mention that our entire financial system relies upon government backing of our currency. Not to mention that our government negotiates trade arrangements with foreign countries that make our industries possible in innumerable ways.

Securities industry regulation is a viable public good, but who benefits? Just Wall Street people? Corporate CEOs? Doesn’t the public trust in the markets extend down as far into society as individuals wishs to take it? Consider the poor who won’t trust even their neighborhood bank, choosing to store their life’s savings in cash hidden in their house. Do they not have to pay for the public trust built into the securities industry by government regulation? Do those individuals have an external, rich vs. poor barrier that excludes them from participation, a barrier that is not in their mind? Of course not. If I buy a gym membership and never use it, do I get a refund or a discount?

I’ve read arguments that police protect more wealth and assets for the rich, so the rich should pay more. Carrying the idea further, the military could be said to do the same. Both police and military are a public good, for which everyone should pay, but is there a reasonable truth in the rich/poor divide on this? Of course not. As much as security forces protect wealth and assets, they protect the ability to earn and accumulate wealth and assets. It’s not tangible, but it’s a legitimate function. If I have to call the police because my house gets burglarized, do I get a refund? As much as securities regulation builds trust, security builds trust in the system. Anyone, rich or poor, can take advantage of that trust and strive for wealth.

A basic idea of our government is that the federal government serves everyone equally. “One man, one vote” and all that craziness. Is the issue federal under the Constitution, serving the public good, or is it left to the states, where communities can decide what’s best for them? (Think generous welfare without work instead of censorship, unmentioned versus protected by the Constitution.) We’re in the process of deciding that that Constitutional question is quaint and irrelevant for the touchy-feely goals we want but the Constitution never meant to convey. Hard work matters. Skill matters. Intelligence matters. I happen to believe that everyone can make something out of what they’ve got in life. Those who pretend that the rich must prop up the poor seem cynical and condescending about the poor to me. I came from a humble background, devoid of monetary wealth, yet I’ve managed to build a little for myself. I’m working to build a lot. I don’t want to support a government that rewards the opposite.

Yet, somehow I’m wrong on logic. When I say that we should remove non-federal issues from the federal government, pushing them down to the states where the represented are closer to those making the decisions, it isn’t clear that progressive taxes are unfair and unnecessary. The commenter, in ignoring what I’ve clearly included in other posts about the flat tax, transitions to this bit of logic to support his opinion that I’m wrong:

But put that aside. The real reason for a progressive tax system is that if someone has to pay a few extra dollars, the rich can give them up with less pain than the poor. Again, people talk as though there’s a 90% tax on the highest tax bracket, or as though there’s no incentive for rich people to make more money since taxes soak it all up. Of course there’s plenty of incentive to get rich under our current system, which is why so many people keep trying to do it. We’re talking about a difference of a few percentage points, an amount that is only meaningful to those who are barely scraping by.

I’ve never suggested hosing those who can’t afford it, going so far as to explain how to avoid doing so, but again I’m devoid of logic. I mocked the idea that progressive taxes are touted because “the rich can afford it”, but “the rich can give them up with less pain than the poor” is different? Right. It doesn’t make sense to me, either.

Swapping the deck in the house of cards

I’ve tried to avoid getting too upset about the Tax Advisory Panel’s preliminary recommendations. All indications are that they’re still deliberating possible reform ideas. I’m about 0.4% optimistic that their deadline isn’t until November, but it’s still something. Reducing the mortgage interest deduction and capping the healthcare exemption can’t be all they’re proposing. I know there’s the idea of extending the charitable deduction to non-itemizers and the (commendable) proposal to scrap the Alternative Minimum Tax, but there has to be more. Otherwise, and this not rhetorical, why bother? Why?

Instead, I’ll play around with this article explaining some of the recommendations. Consider:

At its last meeting, in July, the commission agreed to recommend abolishing the alternative minimum tax for individuals, a step that would cost the federal government $1.2 trillion in lost revenue over 10 years.

With a mandate to develop a proposal for changing the tax system that is revenue neutral – meaning it neither raises nor lowers total tax receipts – the commission must find enough revenue to offset the amount now generated by the alternative minimum tax.

That is mainly what led to an examination of ways to modify the deductions for mortgage interest and health insurance, two of the largest tax breaks now available to individuals. Together, the two deductions will cost the treasury about $250 billion this year.

Is this where the cynic in me reminds you that I said the panel started with a flawed mission from President Bush? The proposal must be revenue neutral. So, the panel recommends eliminating the AMT, but must find another revenue source to offset the loss of that abomination. How is that reform, exactly? As the final paragraph highlights, the recommendation does little more than shift the tax burden from one method to another (and indicates that deductions cost the government rather than benefit taxpayers). With this nonsense, the government still plays in the central planning sandbox. It just decides to use sand from a different beach. Brilliant.

Reading other responses on the Internets, I enjoyed this response to the panel’s announcement:

… And note, this is not in service of real reform of the tax code, like losing all preferences and replacing the current code with a flat tax.

No, it is merely scratching around for money to “offset” the cost of repealing the absurd alternative minimum tax. That is exactly backwards. Junk the rest of the code and keep the AMT and call it a flat tax. There is also nothing radical about proposing to use ability-to-pay standards to soak the “rich” in search of more government revenue. Wow, that’s a new one.

This is a horrible idea and needs to be taken out behind the barn and dispatched as quickly and as painlessly as possible before real and lasting damage is done. The Bush spending spree followed by the Bush tax hikes. Like night follows day, people.

I’d be remiss if I didn’t highlight this wonderful insight on why we should be thankful to the panel. Consider:

“We’ve got to make bold recommendations without regard to the politics of them,” said John Breaux, the panel’s vice chairman and a former Democratic senator from Louisiana. “The politics will be debated for a long time.”

The politics will be debated for a long time because the panel hasn’t eliminated them, or even changed them. It’s still the same scheme of preferences to soak the rich and offer handouts to the poor. Our elected officials, and the people they appoint to carry out tasks, should be able to lead. If they can’t lead, they shouldn’t be involved. Freakin’ idiots!

I do, in fact, know that I’m living in a fantasy land.

The Earth isn’t flat. Taxes should be.

Apparently, Utah is considering a flat income tax. Or should I say, was considering. Here’s an editorial cheering its demise. I want to focus on one segment which gets the argument wrong. Okay, so the entire editorial gets it wrong, but I only want to focus on one. Unfortunately, I can’t decide which gets it more wrong. Thus, I offer them together. Consider:

But even if the tax rate is the same, and the dollars paid by the rich are more than those paid by the poor, a flat tax is not a fair tax. A tiny reduction in the income of a working family stings much more than the same percentage, or even a much larger one, charged to a higher-income household.

Besides, nobody pays only income tax. As part of the mix with property taxes and, of greatest impact, sales taxes, a flat income tax rate only serves to make the total tax structure more regressive, more burdensome on the lower-income brackets.

There are exemptions and rebates that could ameliorate the burden on the working class. But every one of them would reduce total revenue and require higher rates to make up the difference.

Keeping the charitable deduction, as the [Latter-day Saints] Church wants, is reasonable. The real solution, of course, is a truly progressive income tax structure, one that would increase the burden as a household’s ability to pay increases.

Most of those non-arguments can be countered with the fundamental point I linked in my previous post about the flat tax. Here it is again.

A flat tax on personal incomes combines a threshold (that is, an exempt amount) with a single rate of tax on all income above it. The progressivity of such a system can be varied within wide limits using just these two variables.

As I said, I believe we should remove as much progressivity as possible from the tax code. Completely removing it, though, isn’t practical or reasonable for the most basic reason listed in the editorial. But we can’t pretend like it’s logical for a household’s burden to increase as it’s ability to pay increases. That’s so anti-success as to be downright socialistic. I hide under no delusion about the editorial author’s likely inclination to socialism, however, given the ideas thrust forward in the editorial.

The editorial suffers from two particular flaws. First, in its argument for progressive taxes, it highlights the existing tax burden, consisting of property, income, and sales taxes. This burden is not the fault of the flat tax, but instead suggests that Utah needs tax reform. The author points to the sales tax as the greatest trouble for the poor. My interpretation of the author’s failure to attack this instead of the flat tax suggests an animosity for the so-called rich rather than concern for the poor. That’s an ideology rather than a solution.

According to this article about the Utah flat tax proposal, the flat tax appears to reduce the burden for the poor(er). Is this wrong? If so, explain why. If it doesn’t imply the correct income level for “poor”, explain why and consider a modified plan. Solve the problem or get out of the way for those attempting to do so.

That, of course, reveals the editorial’s second problem. The author dismisses the flat tax, calling for a “truly progressive income tax structure”. Fine. I disagree, but I’m listening. Show me why it makes more sense to increase a household’s burden as its income increases. Do the rich not take care of the poor if they’re allowed to keep the money they earn? Should they? I don’t know because the editorial never says. As I said, I’m left to interpret the author’s intentions as a socialistic “soak the rich” mentality. If that’s right, say so. If it’s not, enlighten me. I’m waiting.

Until then, the flat tax is the right answer, for all the reasons I’ve listed.

You just don’t fit in

One of the reasons I advocate a flat tax is that it incentivizes wealth-building without a class mentality. It encourages success across the nation without punishing people for achieving that success. I believe this can work and want the discussion to start so that we can get to real change. Debate on this issue is productive. This, however, is ridiculous.

I would offer Americans an even lower flat tax rate–14% as opposed to 17%–and at the same time do more to help low-income people. Boston University economist Laurence Kotlikoff and I have put together a plan that works in the following way.

First we’d get rid of the across-the-board $9,000-per-person exemption in the Forbes plan. Why should billionaires like Bill Gates get an exemption? Forbes is giving too much money away to rich people. We’d save that exemption money and give it instead, in the form of a rebate, to the bottom third of earners, those who bring home roughly less than $25,000 for a family of four.

Second, Forbes ignores the 12.4% Social Security payroll tax (split between employer and employee). Currently, income over $90,000 a year is not subject to the tax. We don’t think it’s fair that a $50,000-a-year autoworker has to pay payroll taxes on all his income while a million-dollar-a-year auto executive does not. Under our proposal all wages would face the same income and payroll tax rates.

We would also use the rebate of tax dollars to the bottom third of taxpayers to solve other social problems. For example, instead of people automatically getting the 14% rebate, we would require them to show that they have health insurance and a retirement pension as a condition. Specifically, to get one-half the rebate (7%), low-income families would have to produce proof of health insurance. This would encourage millions of people who qualify to enroll in Medicaid or in their employer’s health plan. Barring that, families could apply the tax rebate to health insurance they purchase on their own. We propose making the other half (7%) contingent on proof of a pension, an IRA, a 401(k) or some other savings account.

So instead of national health insurance and more government spending on the elderly, we would use our flat-tax proposal to urge people to solve these problems on their own.

With this proposal, we receive a progressive tax system with special incentives and loopholes. Brilliant. This is little different in spirit than what we do today. I can’t comprehend how keeping the same screwed up mentality qualifies as reform. Specifically, who would administer all of this? Some bureaucrat has to sit in a government office and verify health insurance. Some other bureaucrat has to sit in another government office and verify pension accounts. This does not reduce the size and inefficiency of government. The question of affordable private healthcare remains. And if taxpayers have to have pensions to qualify for half of the rebate, why bother perpetuating Social Security? Just funnel FICA into private pension accounts. It also leads to interesting conundrums regarding privacy and self-determination.

Ultimately, though, the obvious flaw is that this plan assumes people won’t do these things if they have money in their bank accounts. It imposes a blatant Nanny State oversight upon poor people, condescending to them that perhaps they’re just not responsible enough to do these things. In some cases, that’s undeniably true, but we can’t legislate against stupidity. If people wish to do dumb things, so be it. No amount of new, creative laws will change the fundamental self-determination, however stupid, that people exhibit.

Worse, the government has shown for decades that it doesn’t trust the citizens who elect it. Like every other tax reform that changed only the redistribution effect, the scope creep of this tax recommendation will not stop with the poor once Congress begins playing with the parameters. Tax reform is essential, but as important as the numerical details are, changing the tax mentality is most important. The flat tax can do that, but not when supporters rig it with patronizing gobbledy-gook.

Impaled by “Borrow and Spend”

I decided a few days ago to write about the debt madness gripping President Bush and Congress, planning to explain how servicing the increasing national debt will crush us economically as the growing interest payments overwhelm our ability to pay for government with reasonable taxes. MSNBC beat me to it.

The cost of hocking ourselves to the eyeballs shows up in the line of the federal budget that says how much interest we’re paying. Interest will run about $350 billion in the current fiscal year, according to projections by the nonpartisan Congressional Budget Office. It rises to $385 billion next year, $426 billion the year after and so on. This is without Katrina. Just the interest on Katrina-call it 4 percent on $200 billion-is $8 billion a year. While $8 billion is trivial in a world of $2 trillion federal budgets, it’s still $40 billion over five years. That’s more than the aforementioned $35 billion of social-spending cuts would save.

Anyone who’s ever gotten himself into credit card debt understands the basic principal behind this. Borrow a little money and the interest payments are wasteful but manageable. Borrow a little more and the trouble begins. Fail to increase income or reduce expenses and the growing interest payments become a snowball. I did this in college and it took me a decade to dig out of it. The difference between me and the federal government is that I acknowledged my recklessness and adjusted.

Remember, President Clinton and Congress balanced the budget in the mid-1990s (with help from the Social Security Trust Fraud Fund, but rigged and balanced is better than rigged and deficit). Then the electorate gave complete control to one party (the “fiscal conservatives”, no less) and the budget flailed about, spitting out money without burning its own fat or gobbling any new funds to meet the demand. Under President Clinton, tax increases enabled the balancing. I don’t support tax increases now, and even if anyone in power did, it’s not going to happen. That leaves cost-cutting. Every time Congress votes for more pork and every time the president signs that pork, know that there are real consequences. And those consequences grow every year.

embezzle money get loaded see europe

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. — Article XVI.

The word “progressive” appears nowhere in the 16th amendment. Yet, America has tinkered its way to an elaborate maze of exemptions, credits, and refunds, supported with a “soak the rich” mentality, that wastes economic resources and retards growth. Every few years, politicians promise tax reform only to fail when action becomes necessary. There are occasional blips of rational behavior, but they’re rarely perfect and never permanent. The descent into economic foolishness plods along.

As part of his economic agenda, President Bush established the Advisory Panel on Tax Reform to determine reform possibilities for our ridiculous tax code. Specifically, he expects “a report containing revenue neutral policy options” meeting the following objectives:

o simplify Federal tax laws to reduce the costs and administrative burdens of compliance with such laws;
o share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society; and
o promote long-run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace.

I think the “revenue neutral” assumption is a terrible foundational assumption because it implies that our government deserves a specific, minimum monetary amount. When the Congress spends nearly $500 million on two bridges in Alaska, and the President willingly signs the bill over his own protests, the government has shown that taxpayers need to be rethink the government in its entirety. There is no ongoing victory in our battle for economic survival. But this is the mandate from President Bush, so I don’t expect a deviation from that by the Advisory Panel. I’ll accept that grudgingly as I deal with the objectives.

Obviously one of the key expectations of tax reform is to simplify the code enough to reduce cost and administrative burdens; otherwise, why bother? I won’t challenge that. And the third objective also begs little irritation. Again, if we’re not looking to improve America’s economy, why bother with the tax code? We’re screwing it up fine and can continue screwing it up without reform. We can continue electing politicians content with economic suicide; eventually we’ll get the result we seem so indifferent about. But since we’re supposedly interested in true tax reform, I contend that the government’s job isn’t to promote anything economically as much as it is to get out of the way of business, but that’s mostly semantics in the way I read the objective. Thus, I’m willing to let that one slide without attack.

That leaves the second objective, which any reasonable economic thought quickly discredits. This objective does little more than rig the reform system to a predetermined outcome. Being a new homeowner, I will definitely enjoy the tax benefits from homeownership through the mortgage interest deduction. Now that I’m itemizing, I’ll also enjoy the charitable donation deduction. It’s all wonderful and I’ll take advantage of them as long as they’re in the tax code. That doesn’t mean they should be in any final recommendation, though. Not only do those exemptions guarantee a greater level of complexity on their own, they imply that other special favors and handouts are reasonable and justified. That’s how we got to where we are; perpetuating that is absurd. Politics is as politics does, I suppose.

The major mistake in the second objective is the dangerous phrase “in an appropriately progressive manner.” This is garbage. Our progressive tax code is an abomination against every ideal we allegedly possess. It builds an inherent class system into our expectations of who should pay for government and how. It entrenches our economically-ludicrous policies of redistribution, conveying that our poor citizens need to be forever supported by their benevolent economic superiors, while encouraging those most affected by higher rates to buy their way out of high taxes. This is wise? This is fair? How much growth and progress do we destroy because we legislate that success is good, but not too much success? It’s insanity. The Advisory Panel should recommend scrapping the progressive nature of our tax code.

The prevailing ideas for (significant rather than minor) reform are a national consumption tax and a flat tax. For various reasons, I think a national consumption (sales) tax is a bad idea. First, it would require at least one (repealing the 16th Amendment), and probably two (authorizing the consumption tax), amendments to the U.S. Constitution. Even with congressional support, the anti-reform lobbying will be out of control. With a hostile Congress, which seems to be a given with the inevitable talking points and resultant partisan bickering, the anti-reform lobbying will fracture any nugget of support. Yet, “reforming” the Constitution is essential if the Advisory Panel determines that a consumption tax is the solution. If we don’t repeal the 16th Amendment, we’ll soon enough enjoy a consumption tax and an income tax. That’s not particularly good reform.

Second, a basic consumption tax, at whatever rate ultimately reigns, would be horribly regressive. When the poor, who presumably spend the bulk of their income on necessities, face a consumption tax, it will eat away an obscene amount of their ability to afford even food and clothing. The increase in poverty would be atrocious, so naturally exemptions would appear. First it would be food, with all the varying debates on what food. Fruits, yes. Vegetables, yes. Candy, no. And don’t forget the potential to retain a “sin tax” aspect against items such as fast food and cigarettes. We’ve already seen that sin taxes rarely work, so a “consumption as sin” tax isn’t likely to be different.

Then the discussion moves to clothing and medicine. Will only clothing at (favored) discount retailers and only generic drugs, for example, be exempt? It doesn’t end until every lobby has carved out some protection or special tax rate for its preferred item or distribution channel. With the ever-growing list of exemptions, we’d have to return to the income tax, but any rational understanding of our government implies the conclusion that the consumption tax would remain long after the government dusted off the 1040. The whole idea is an economic Hindenberg.

That leaves the flat tax, which has been around for years in various theoretical iterations. My first exposure to it came in the 1992 presidential race, when Jerry Brown ran for the Democratic nomination. I supported him then because of the flat tax, and I’ve thought it our best possible tax outcome since. The guidelines for the Advisory Panel almost exclude the flat tax by definition, but the it should set aside that stupidity. America should adopt the flat tax.

Someone new publicly advocates the flat tax every few years. Usually, it gets a little national play before the advocate gets his political legs chopped off. In 1996, it was Dick Armey. Today, it’s Steve Forbes. No doubt Mr. Forbes’s plan (and book) are timed to coincide with the deadline for the Advisory Panel. This article by Mr. Forbes offers a decent introduction. Above all else, I want to highlight this point:

The economic boom the flat tax would unlea
sh would be stupendous, ushering in a long-term, noninflationary expansion of historic proportions.

The practical evidence offered by emerging economies in Eastern Europe shows that this concept is workable, but I’m concerned about the ease with which anti-reform and pro-consumption tax folks will use such predictions to appeal to economic, class-based fears because the way Mr. Forbes phrases it, we’ll all get exceptionally wealthy and be able to roll around in our money. Regardless of the potential rhetorical misperceptions, his point is valid. Moving to a flat tax will foster economic growth. The most obvious, immediate benefit is saving time and money previously wasted in tax compliance. Instead, those resources could be pushed to more productive economic purposes.

The most useful benefit is tied directly to who would do the pushing. The flat tax allows the marketplace to determine how best to allocate resources. Gone would be the socialist central planning that now occurs through tax subsidies to lesser, insignificant or obsolete businesses. Businesses that aren’t viable should be allowed to die. The market terminates any business not enticing sufficient revenues from customers to meet basic costs. Get the government out of favoring one business just because it will offer jobs or community improvements or whatever and the market will decide what needs to happen. It might be ugly initially, but that’s because we’ve tampered with the system. Once the bureaucratic detoxification occurs, the economic changes will be astounding.

There’s an additional reason for implementing a flat tax. The consumption/sales tax may be re-labeled the Fair Tax in a marketing ploy to make it more palatable, but the flat tax is the true fair tax. In America we supposedly believe that “All men are created equal.” The flat tax is inherently fair, since all people will be paying the same percentage of their income above eventual threshold. The dollar values will change, but that follows the idea that all men aren’t equal in outcome. Any person who puts effort and skill into earning success would no longer see the fruits of that success stolen because it’s considered in excess of necessity. That’s the meritocracy our capitalist society should hold as the example and to which we should perpetually strive. The progressive nature we glorify defeats what’s true with what’s appealing to the masses.

As I’ve already stated, I think progressive taxes for the sake of punishing the rich are a bad idea. Don’t punish incentive because the results of such thinking are detrimental. But some level of progressivity resides in the flat tax, which this article from The Economist indicates. Consider:

A flat tax on personal incomes combines a threshold (that is, an exempt amount) with a single rate of tax on all income above it. The progressivity of such a system can be varied within wide limits using just these two variables.

The least progressive flat tax would set the exemption at $0 and tax everything at the flat rate. That’s stupid, and a non-starter since everyone needs a basic, humane level of income to pay for necessities. Some progressive scheme must end up in the code to account for that. I can live with that. Further analysis can determine the (theoretical) optimum balance between exemption and tax rate, but I think Mr. Forbes’ plan is reasonable as an initial assumption.

The progressivity is where most fiscal liberals will chime in about the warm, fuzzy definition of fair and call for mimicking what we have today or worse. It’s already begun with subtle lies such as this [emphasis added]:

Bush should understand, [Mr. Forbes] warns, that “to tinker with the tax beast won’t work.”

Tinkering, of course, is just what Congress has been doing since the progressive income tax concept was enshrined in the Constitution in 1913.

So we can’t abandon the travesty of progressive income tax rates because it’s enshrined in the Constitution. It’s no more enshrined there than the notion that blue, three-legged aliens from the planet Zoldor live in Peoria. It’s more subtle than I expected to find this early in the current debate, but it’s a bold move. I’ll be surprised if this ignorance isn’t chanted repeatedly in the weeks following the Advisory Panel’s recommendation. Anyone who believes it is a fool deserving of the economic theft that results.

Obstacles to implementation exist. Do we scrap the current system and adopt the new system immediately? That would be outstanding, but it’s not practical. The change is too radical, the need for adjustment greater than merely adapting to a different brand of chewing gum. Mr. Forbes offers an idea, which may or may not be the best possible outcome, but he shows that the obstacles are not insurmountable.

When the flat tax is implemented, you can file your postcard return under this new, simple system, or continue to file your tax returns, with all of their mind-numbing complexity, under the old system. See for yourself which is better. I think most would conclude that the flat tax is best.

As much as it works for the psychological effects, it works for the procedural effects, as well. According to Mr. Forbes, existing taxpayers may choose either method. Once a taxpayer files under the flat tax, though, she is no longer allowed to file under the old system. All new taxpayers would be required to file under the flat tax. This eases the transition to a period of years rather than an immediate, massive switch.

The flat tax always meets enthusiasm before falling to hysterical criticism, but it’s the best tax plan for our economy. It modernizes our government’s economic approach while freeing our citizens to imagine a better economy. The Advisory Panel should recommend the flat tax to President Bush. Convincing Congress and the nation might be politically hard, but the path of least resistance lead us here. Who’s happy with here?

And so you see, the new worrd is inevitabre

Sitting on the couch last night, I couldn’t prevent my focus from shifting back and forth. First, the president’s speech. Then my wallet. Back to the president. Wistfully on the contents of my wallet. Open-mouthed at the president. Teary-eyed at my wallet. Defeated at the president.

Should I just give the Treasury pre-approval for open withdrawal from my checking account or do I have to go through the charade of writing the check?