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Tax reform – What is Washington’s fair share?

April 21, 2014

OK, it’s Tax Freedom Day, if you don’t count the money the Feds have borrowed, their credit card balance, if you will. If you include that, then it’s May 21, and it gets later just about every year as shown in this graph found at the  http://taxfoundation.org website. Image

 Having to work 39% of the year before you get to keep any of it for yourself is just nuts, so why do we do it?

The multiple solutions

There are a lot of proposed remedies for this problem. The Flat Tax, the Fair Tax, 9-9-9, a balanced budget amendment, change the tax brackets, lower the tax brackets, tax the rich more, have a minimum tax that everyone pays, go to a national sales tax like Canada’s and so forth. A lot of them sound good at first, and some are well-intentioned, but they all kind of miss the point.

Tax reform isn’t the whole answer

Until government is restricted by the Constitution to a reasonable level of spending relative to the GDP, it will continue to operate like a kid who’s spent his allowance and whines until you give him a bigger one.

No one denies that we have to fund essential government services. What is at issue is what exactly is essential and what is used simply to satisfy a political agenda. The budget process has to begin in the President’s office, and all presidents have historically used the budget to assist in delivering on partisan campaign promises.

The government receives funds from many sources, not just taxes. According to info at:  http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/concepts.pdf, “Governmental receipts are collections that result from the Government’s exercise of its sovereign power to tax or otherwise compel payment.” and includes things other than taxes, such as user fees, revenue from sales (such as stamps and surplus property), regulatory fees, customs duties and the like.

The same source states that while budgets have to look forward nine years, the look-back only has to include the fiscal year just completed.

The figures come from the Office of Management and Budget (OMB), and go to the President’s office for use in preparing the budget. The OMB is dependent on data collected from all the various departments of the government, including the IRS. If the departments do not accurately report and justify  their spending it becomes somewhat of a guessing game.

When a unit of the government like the State Department can blithely “lose” the records on how they spent six Billion dollars at the rate of a billion a year, something is seriously out of whack. Try telling the Internal Revenue Service that you “lost” the records on even a few hundred dollars of medical expenses you claimed a deduction for, and see how far that gets you.

Stopping the spending creep

To enact tax reform,  it would seem that  there has to be a legal baseline establishing what is reasonable for the government to spend based on more than one year of revenue data.

Since 1900, all government spending has gone from 7% of GDP to an average now of around 40%, as reported on the website   http://www.usgovernmentspending.com/us_20th_century_chart.html. The mix of which governments get the money, i.e. local vs. federal , has also tipped significantly in favor of the Feds. Previous spikes in government spending were caused by the two world wars.

The first thing any debt counselor will tell a person who is seriously in debt is to spend within the confines of their existing income and cut up the credit cards. In the case of a person, that works, because their paycheck or other income is defined, and the credit card companies can refuse to accept new charges.  

In the case of government, when that spending strategy doesn’t work, it just rolls it over to the government equivalent of a credit card, the national debt. Unfortunately the taxpayer has no recourse to stop that process, i.e. deny the charges.

Redefining the problem changes the solution

What appears to be needed is a percentage cap on what the Federal government’s “fair share” of the GDP should be, based not on wishful thinking or what the Feds want to spend, but on historical GDP figures . That’s all spending, including payments on that credit card balance, the national debt.

Whether the Feds share should be 10% or 27% may be debatable and the discussion largely controlled by what is deemed essential spending, but once set, that should be the paycheck they get. No futzing around, no refund checks, no loopholes. They get their cut, and it’s up to them to make it stretch.

That would seem to be reasonable, based on the current President’s comment that people should give up a luxury like their cell phone bill or their cable TV to afford health insurance.

If individual states want to fund social welfare programs, at least the voters would have a say in which ones work for them. In fact, if the money stayed in the taxpayer’s pocket, maybe the programs wouldn’t be needed in the first place.

Once the percentage is set and the essential spending defined it should be codified by constitutional amendment. That makes  the percentage for the flat tax automatic. No need for 74,000 pages of tax law, no need to file income tax forms, no need for the government to spend money to issue refund checks, and no argument about whether you owe the money. If you get a dollar, the government gets its cut, but no more.

If there is a national argument to be had about the cost of  government, it seems that defining what is a ” fair share” that would be a good one to have sooner rather than later. 

 

 

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