Tax Reform - Yet Again

Once again, for the umpty-umpth time, Congress is going to come up with 'Tax Reform'. What we are likely to get again is (maybe) a slightly simplified version of the current tax law monstrosity, which will last until the next batch of politicians engage in the next round of vote-buying. The likelihood of meaningful reform, which would require eliminating the Income Tax, is remote.

The Income Tax, a treachery so heinous that it required amending the Constitution (the 16th Amendment) to be legal, should be temporarily eliminated. I say temporarily since the only way to effect even a semi-permanent elimination is a Constitutional Amendment, and as was shown by the 16th Amendment, even that can be undone. In any case, a law temporarily eliminating the Income Tax could be the basis of true Tax Reform. One could further hope that the wisdom of such an improvement would be sufficiently apparent to promptly re-amend the Constitution to eliminate the possibility of it reappearing with the next Congress.

To fully understand the virtues of eliminating income taxes it is helpful to consider the problem in somewhat different terminology. An income tax is primarily a tax on labor, with a secondary emphasis on taxing investment. Since taxing something is, in a sense, equivalent to penalizing it, income taxes penalize labor and investment, neither of which is a desirable policy.

Consumption, on the other hand, could easily withstand a modest tax burden. In fact, an alternative view of the consumption tax, or sales tax, is in part a tax on products. It seems fairly obvious that taxing products rather than labor is a more rational approach in general. But in terms of current American concerns it also has other desirable characteristics.

Taxing the product puts the American producer on the same playing field as foreign producers. Imported goods would suffer the same tax burden in the American market as domestically produced goods. In addition, by not taxing labor with the income tax, American goods would be more competitive in global markets. All the taxes on the American worker that are paid by him directly and by his employer directly and/or indirectly must be added to the price in and out of the country. No wonder we can't compete in international markets.

Another benefit relevant to current American concerns is how to level the playing field between the American worker and automation. By taxing products instead of labor, there is less of an advantage of replacing workers with machines unless efficiency is considerably enhanced, and one does not have to consider 'taxing robots' as one wag has suggested. In fact, the American worker then has an advantage over the foreign worker due to his higher productivity, and thus can command a higher wage without restricting trade imports.

Consumption taxes, or sales taxes, have of course been a favorite of State Governments for a century or more. These, however, have several drawbacks in their current form. Since American States are a common market, the main drawback is that different sales taxes in different localities cause considerable distortion to interstate and even intrastate commerce. There is a temptation to consumers to deal with retail outlets that are in low or zero taxed states, or by mail with out of state companies. States with higher taxes try to avoid this by supposedly requiring their citizens to forward a 'use' tax to the State tax authority, but in practice this is rarely done. A similar problem is found in State income taxes, where people with high incomes tend to move to low income tax states. Since the higher taxed states also tend to embrace more socialistic and welfare oriented policies, they will ultimately end up with all welfarites and no working schmucks, and therefore severe financial problems. Of course, the extreme example of this is the current influx of low-skilled indigents who may or may not seek menial labor jobs, but are also drawn by the lure of multitudinous welfare services and giveaways.

Another drawback with sales taxes as currently implemented by States is the collection method. Adding the sales tax at the point of sale is an annoyance both to the seller and the buyer. With electronic payment extracting small percentages on small sales is easily handled by computers, but sales taxes on cash sales are why we still have pennies in our currency. Due to inflation, the value of a penny is near zip, but to the state a penny extra from each sale is more loot to waste.

So implementation of a National Sales Tax should be carefully designed. Since the tax on a given product would be uniform across all States, the tax on retail products could be computed and remitted by the manufacturer, leaving the States to implement their point of sale taxes as is currently done. Federal Income Tax would be eliminated, but the States again would be free to keep or change their income taxes to compete for residents. Taxing new products is reasonably straightforward, but it is not obvious how to define 'services' to tax without in effect taxing individual income.

Notwithstanding the drawbacks and implementation challenges of a national consumption tax, the benefits far outweigh the negatives. It must be appreciated that most of the difficulty is due, as is often the case, with having the bad solution (income tax) to have gotten such a deeply embedded existence in our country. Any thing short of purging that demon and its burdens that have hampered American economic health for a century will not result in meaningful 'Tax Reform'.

The 'Fair Tax Act' is legislation which has been proposed to every Congress since 1999. It temporarily eliminates income taxes, estates taxes and payroll taxes and creates a National Sales Tax on all retail sales of new products and services. Since it includes provisions for refinement and includes a 'sunset' provision after a trial period if found lacking, it should be considered for a serious candidate for this iteration's 'Tax Reform'.

My book, Musings and Rants - 1985-2016 addresses the tax problem with several essays.

(c) Copyright 2017 Marcus Everett

marcus.everett@citlink.net

The Electoral College and the election of 2016

Once again the Election of the President of the United States by the Electoral College is the subject of much whining and criticism by the losers. As with the 2000 Election, the Republicans won the Electoral College but with the official popular vote won by the Democrats. I say official, since the possibility of voting fraud in many large urban areas leaves much doubt as to the validity of the popular total. In any case, in spite of massive Democrat wins in the urban areas, the fact that the overwhelming majority of suburban to rural counties in the country went Republican helps explain the Republican win of the Electoral College.

Which is why the Founders created the Electoral College in the first place. At the time, there were not so many large urban areas, but the fear was that the more populous states would, in a popular voting system, deny any real representation in the Federal Government to the smaller states. By creating the Electoral College system, the smaller states would have a somewhat better chance of having a say in the choosing of a President.

Furthermore, the method of choosing Electors specified by Article II, Section 1 of the Constitution leaves it up to the State Governments. To wit: "Each State shall appoint, in such Manner as the Legislature thereof may direct, a Number of Electors, equal to the whole Number of Senators and Representatives to which the State may be entitled in the Congress...". Thus, as with the original Senate, the President was to answer more to the Sovereign States than to the people as a whole. Although the Senate as the voice of the States has been nullified by the Seventeenth Amendment and made a second House of Representatives, the State governments still have the authority to determine the selection of their Electors for the Electoral College. In practice this has been usurped by Party Politics in most states to a winner-take-all selection of Electors by the Party winning a plurality of the popular vote in the State.

The current implementation of the Electoral College is not in violation of the Constitution, although it is probably not in keeping with the intent of the Founders. I assume that each State has given its blessing in law or otherwise to the current situation. In spite of the fact that the Founders went to considerable ends to give the Sovereign States a meaningful voice in the Federal Government, they have ceded it over the years to the very plebiscite democracy that the Founders abhorred. The Electoral College could easily be the next victim to this tendency by being eliminated altogether.

As usual this author feels obliged, after complaining about the situation, to offer a suggestion for a modest improvement. Since the original Constitutional verbiage cited above is still in effect, the State Legislatures could direct that the Elector authorized by each Congressional District be appointed by the Party having a plurality in that District, with the two Electors granted to each state by virtue of their Senators being appointed by the Party having a plurality in the State, as is currently the case. Apparently this is the system used in two of the Fifty States: Maine and Nebraska. Even better might be to have the State Legislature appoint their two 'at large' Electors to recover a little of the representation of the Sovereign States that the Founders envisioned. Something like this would at least keep the States with large urban areas from denying any representation in the Electoral College to their rural areas. It also would be a minor step toward returning to the intent of the Founders.