I’m in favor of lowering and simplifying America’s tax code. There is wide bi-partisan consensus amongst economists and (not-as-wide, but still some) consensus amongst politicians that America’s bloated, convoluted tax code can and should be made significantly simpler and smaller.
The US tax code is currently approximately 73,000 pages long. That’s longer than the Bible! But why is it like this? The simple answer is: giveaways.
Between corporate lobbyists paying legislators for the chance to write the law in their sector to suit themselves, and craven politicians promising giveaways to constituents for subsidized housing and having kids, there’s more tax that is exempt than is actually collected, making the US tax code like Swiss cheese with more holes than cheese.
This can and should be fixed. It’s a glaring wart on the face of America’s image as a can-do place where things get done competently and efficiently. You could lower the top tax rate to 33%, (making it the same for individuals and corporations because after all, if corporations are people, they can be taxed like it), and make the bottom rate 20%, and still increase the overall tax take if you got rid of all the corporate giveaways that subsidize some of the most profitable companies in history (i.e. oil companies, big pharma, big agriculture).
But here’s the thing. We need to bear in mind tax cuts overwhelmingly favor the rich; the richer you are, the more they favor you. Which is why I think simplifying, lowering, and flattening the tax code should only be done in ways that are fair; i.e. ways that don’t comparatively disadvantage the poor and middle class.
The single best illustration of this point is the graph below, courtesy of The Atlantic Wired, that shows the winners and losers of current Republican presidential candidate Herman Cain (and darling of the billionaire Koch Brothers & the Tea Party) and his infamous 9-9-9 tax plan:
it shows not only that tax liability would go up for the bottom 80 percent of income earners increase under Cain’s plan, but also that the tax savings of the top 1 percent and top 0.1 percent are several orders of magnitude greater than the tax increases on those poorer.
Yeah that’s right, under Cain’s plan tax rates would actually go up for the bottom 80%, while they went down for the top 20%, and down by several orders of magnitude for the top 1%. Now if Cain’s plan actually managed to lower rates, flatten and simplify the code – and increase the overall tax take, then I’d certainly be in favor of it.*
There are credible plans out there right now that do exactly that by widening the overall tax base, but Cain’s plan manifestly does not. It would merely accelerate the trend begun under Reagan; that has seen, contrary to what the voodoo economics of “trickle-down” theory piously preaches, ever increasing wealth redistribution – upwards.
America has consistently lowered taxes and seen vast productivity gains over the last forty years, yet the overwhelming majority of Americans over this period have seen their share of the wealth at best remaining static, and more often going backwards. Productivity and wages have decoupled since the 80’s when the neo-liberal platform was instituted.
The empirical data we have is quite clear: lowering taxes alone does not create the ‘rising tide that lifts all boats’ – particularly not when the lowering of taxes is done American-style: by way of handouts rather than systematically, economic theories be damned. But we absolutely can, and should, flatten and simplify the tax code as one step towards creating a fairer system and an actual, rather than rigged, free market.
(*Public services that only government can provide, such as infrastructure, benefit everyone, rich and poor alike, but, completely opposite to lower taxes, they benefit the poor and middle class disproportionately. To paraphrase Gandhi: the measure of how advanced any civilization is, is in how well it treats its lowermost members. Well, that’s the main difference between the developed and the developing world – the quality of infrastructure, institutions and services like roads, schools, courts and hospitals that the middle class and worst-off disproportionately benefit from. If Americans really want to start feeling like their civilization is leading the world again, they need to arrest this headlong rush into ever lower taxes and services, and start thinking more holistically about government).