Rahm Emanuel is known in part for his adage "never let a serious crisis go to waste". The unprecedented crisis in the United States that the coronavirus COVID-19 has brought upon us may be an opportunity to correct a glaring problem with the U.S. tax structure.
One of the corrections needed in U.S. overall philosophy that most have been made painfully aware of because of the coronavirus is the need to reduce our dependence on foreign sources of critical needs, especially on countries that have overtly stated their hostility to America. The general wisdom on the subject is that it is the greed of large corporations that has led to so much outsourcing of the goods and services that we consume. Where less than a century ago the US was the undisputed leader in production of most goods and services, today we don't even produce much of our medical or military needs. This is insane and dangerous.
The rarely mentioned factor in the impetus for the outsourcing and offshoring of production is the U.S. tax structure. In particular, the Income Tax is a huge contributor to the reason that the American Worker cannot compete with low cost foreign labor. The added costs to every product made in the USA due to income taxes paid by both the worker and the business that he works for make his product less competitive both in the domestic market and in foreign markets. Any superiority in the efficiency and productivity of the American worker is canceled by the income tax burden that must be included in the price of American goods.
There are many ways to view the undesirability of the Income Tax. On the philosophical side, the Income Tax is a tax on productivity and investment, both of which one should want to encourage, not penalize. The Income Tax is a tax on labor, not product, and thus can be viewed as penalizing the American worker relative to not only the foreign worker, but also illegal 'under the table' workers and even automation.
The costs of maintaining the infrastructure that is necessary for the free market to exist in this country is paid by the citizens of the country, but not by foreigners that participate in our markets for nothing. Instead of foreign interests paying their fair share, that cost is shouldered by U.S. citizens, primarily with the Income Tax. and in effect makes their products more expensive in both domestic and foreign markets.
Another downside of the Income Tax is the detrimental effect that it has on business economic decisions. How many times have you heard someone say "I have to consider the tax implications", or "I need a loss". This is magnified by the many special rules that the lobby driven political class has embedded in the tax code. One wonders if the productivity of American businesses wouldn't explode if the stupidities of the Income Tax were purged.
Then there is the problem of whether to tax gross or net income. It's pretty obvious that taxing gross income would be a total disaster, since anyone that was in the business of reselling a product would have to have a markup greater than the tax rate to make any net profit. But that leaves the problem of defining net income, a task beyond mere mortals, and especially those that try. And even if it could be done fairly, it requires massive bookkeeping to compute net income to tax. This bookkeeping burden further adds to the cost to the American producer.
One last indictment of the Income Tax in the U.S. Since we have a fiat currency that our unscrupulous government is inflating at a non-trivial rate, the Income Tax treats any increase in currency based value as a taxable capital gain. Return on investment in the form of interest or dividends are taxed at the marginal rate such that one must get a return of more than the inflation rate plus the tax on that fictitious gain to not be losing value. Inflation and income taxes are not compatible and the one that is worse is the Income Tax.
Instead of taxing and therefore penalizing labor and investment with the Income Tax, it makes much better sense to tax the product with a retail consumption tax. It taxes foreign products at the same rate as domestic products, thus taxing a $30,000 car made in Japan, Mexico or Detroit the same. It has the same effect on foreign goods as a tariff, without the appearance of a punitive penalty. At the same time, the exported domestic goods are not burdened with the US consumption tax and therefore are more competitive in foreign markets.
Thus
in the midst of a health and economic disaster Americans have a
historic opportunity to at least try to improve their government. The
income tax, a treachery so heinous that it required amending the
Constitution (the 16th Amendment) to be legal, could be temporarily
eliminated. One could further hope that the wisdom of such an
improvement was sufficiently apparent to promptly re-amend the
Constitution to eliminate the possibility of it reappearing.
The
'Fair Tax' bill (H.R.25
- Fair Tax Act of 2019) does an excellent job of
laying out the case for a sales tax to replace the disastrous income
tax. But it's not going to happen unless the rank and file citizen
becomes sufficiently convinced that it's not only a good thing, but
that it's virtually required to avoid an untimely demise of the
United States as the world economic leader. One of the unfortunate
characteristics of the average American is that his/her response to
everything is "what's in it for me". This is despicable,
but it is a fact of life that must be faced. Every American needs to
study the problem, convince himself that there is something in it for
them (unless they're politicians or tax lawyers), and then help get
the word out.
The
Internet is deluged with jokes and other garbage passing from coast
to coast like wildfire. Let's make use of this phenomena to pressure
Congress to pass the single most important piece of legislation
that's come along since the ill considered stupidity that proposed
the 16th Amendment in the first place.
