Mother Of All Tax Reforms

Politico is writing about The trillion dollar tax fight.

By now, everyone knows Rep. Charles B. Rangel is poised to introduce the “mother” of all tax reforms, the biggest and most expensive tax code overhaul since 1986. But what they don’t know is how the New York Democrat plans to pay the more than $1 trillion price tag — and that uncertainty is fueling rampant speculation from Capitol Hill to K Street.

The fiscal fortunetellers fall into four categories: Robin Hoods, Goldilockses, Chicken Littles and Scarecrows.

Robin Hoods expect Rangel to swap the AMT for a new tax targeted exclusively at the highest-income payers. One often-mentioned idea, proposed by Leonard Burman, director of the Urban Institute’s Tax Policy Center, would impose a 4 percent surcharge on unmarried taxpayers making more than $100,000 a year and couples making more than $200,000.

The 4 percent tax proposal is more progressive than the AMT, Burman said, as it would place more of the tax burden on the wealthy. Burman’s idea carries more than a whiff of irony. The AMT was originally designed to increase taxes on high-income individuals.

The Goldilockses anticipate a slightly different landscape. This group predicts that Rangel will cobble funding together through a set of tax code tweaks. The Goldilockses say he’ll try closing different variations of the so-called tax loopholes until he finds the politically palatable mix that’s “just right,” as Goldilocks once said.

The Goldilocks path wouldn’t be easy for Rangel. After all, the more industries you tax, the more enemies you make in the process.

A small but growing group of Chicken Little-style predictors are churning fears with cataclysmic claims about Rangel’s intentions. “We are looking at the remainder of the year to be ground zero for the tax fight of all tax fights,” said Rep. Eric Cantor (R-Va.). “This tax hike is going to hit the American people, businesses and investors who are, quite frankly, relying on this Congress to be fiscally prudent.”

Finally, there are the world-weary voices of the Scarecrows, who offer the sort of thoughtful analysis of perilous predicaments that calmed the character’s fellow travelers in Oz. The tax sky isn’t really falling, they say, and it’s highly unlikely Rangel will get much done before the end of the session. Rather, he’s simply setting the stage for a longer battle.

Here's What Needs To Happen

• The tax code should be scrapped in entirety.
• All loopholes, tax breaks, and incentives should be abolished for the simple reason that every loophole, tax break, and incentive is unfair to someone else.
• A flat tax or combination flat tax / consumption tax should be put in place of a trillion miles of tax code.
• Ideally the new code would fit into a single 10 page document and written so that anyone with a sixth grade education could understand it.
• Taxes would be collected out of salaries and out of consumption (sales) taxes. There would be no forms for individual taxpayers to file. Corporations would simply have to prove withholding.
• There would be no need for the IRS and it should be abolished.
• Congress should not spend more than it takes in.
  

That's it. It's simple and logical. The last bullet point is crucial. It would stop nonsensical wars like the one in Iraq. Either taxes would be raised or the war would not be fought.

Of course H&R Block and a million tax consultants would hate it. So would the NAR and the NAHB. So would anyone getting a break on mortgages, education, or whatever. So would Congress who likes to spend money building bridges to nowhere in addition to a zillion other stupid pet projects.

But the fact remains that in aggregate everyone would be better off on a fair and equitable system that treated everyone equally. Instead, expect the mother of all battles by every interest group under the sun, all arguing why their tax break should remain.

It's pathetic really, but that's what we are dealing with. Therefore, I expect the Mother of All Tax Reforms to go nowhere. Things will likely remain on the course we are on until it all blows sky high.

Three Things You Can Do

Some Emailed me yesterday with this comment: "Mish you always talk about these problems but never say what to do about them". OK. Here's three things you can do.

• Talk to people about Ron Paul.
• Donate money to Ron Paul's campaign.
• Vote for Ron Paul.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/