The Observer, February 29, 2008
Volume XL, Issue 19
Proposed reforms will improve taxation
It seems that during every presidential election, conservative candidates are proposing dramatic changes to the tax code. The most recent crop is no exception. Despite these promises, the advocates for a new tax system have made little to no headway. Even so, why is it that conservatives see a need for tax reform?
The American tax code is thousands of pages long and costs millions of dollars to administer. For the individual taxpayer there are a number of rules and exceptions depending on how much you make or how many children you have. Income you earn is first subjected to income and social security taxes. If you invest it, you're subjected to capital gains taxes. If you die, your family's inheritance is subjected to an estate tax. In addition, companies pay a separate corporate income tax. The problem with the current progressive income tax system is the amount of money it takes out of the hands of individuals, which increases according to an arbitrary standard of wealth.
Despite what you might hear or think, conservative attempts at reform are not simply to give money to the rich at the expense of the poor. The goal is to create a tax system where Americans, regardless of their wealth, pay a similar percentage of their income. Some may argue that the wealthy have a responsibility to shoulder a greater burden. However, the tax code should not force citizens to give a greater percentage of their income simply because they have a greater income. If the wealthy want to help the poor, they can donate to charity or voluntarily write the government a check.
During this presidential season, two conservative candidates proposed ways to bring change to the tax system. Before his withdrawal from the campaign, Fred Thompson proposed a practical solution. His variation on the flat tax would be a voluntary alternative for American taxpayers. You could choose to stick with the old tax system or forgo all the complications for either a 10 or 25 percent tax rate, depending on income. While you would lose any exemptions or kickbacks, the rate would be lower and the process of filing simplified.
The more radical plan came from candidate Mike Huckabee. Under the Fair Tax System, all forms of taxation would be replaced with one national sales tax. The idea is that all taxation eventually funnels back to individuals through higher prices and other mechanisms companies use to recover tax liabilities. Not only are individuals eventually paying for corporate taxes, but the price they pay is hidden in the cost of their goods. By creating one tax, the system becomes more transparent, allowing Americans to see the true cost of government and forcing them to pay it. Making it a sales tax means people only pay taxes on non-necessary consumer goods. This eliminates yearly tax filing and the millions spent in the process. Every paycheck would represent your full earnings, giving you the right to spend it however you want. Yet the biggest draw of the Fair Tax is its completely voluntary nature. If you don't want to pay taxes, don't buy anything. If you hate the war in Iraq, protest it by opening a savings account.
Both plans for reform would provide much-needed improvement over our current method of taxation. Thompson's Flat Tax provides a workable solution that wouldn't force a change on the current tax system. While the Flat Tax might be more likely to survive the legislative process, the Fair Tax is an alternative for Americans desiring a tax system that not only fair, but more importantly, free.
