Raising the tax code Titanic

As elections approach, we hear much about what candidates and potential office holders will do when they arrive in Washington, D.C. One of the constant themes is the need to reform the IRS tax code and institute a balanced budget for the national government.

There is always much talk of this, but of course, nothing ever gets done. The uneven distribution of taxes and subsequent spending goes on in the inevitable downward spiral, soaking future generations with unsurmountable debt and tax collection codes that only a mathematical prodigy or psychic with connections to the nether world could possibly figure out.

In my study of the Constitution, I am made constantly aware that it is not a perfect document. It was not when it was originally written, nor even with a number of amendments. It is still a struggle to ascertain the relevance of some parts of it today. But the fact that it does remain a viable frame of government after two centuries must lead us to the conclusion that to continue so it must from time to time be changed or further amended to keep it on pace with the ever evolving nation, the demography, the economy, and the public sentiment it has so faithfully served.

Back to the issue of reforming the tax code.

Realistically, the chances of reforming IRS policies, which run into thousands of pages, is about as possible as going down to the ocean depths, repairing the hull of the Titanic, and refloating it.

That said, the first and most important amendment to the Constitution in the 21st century is the repeal of the 16th Amendment, or the alteration of it, so to limit the Congress’ ability to institute convoluted income tax regulation, and redistribution of income on the grand socialistic scale where it now stands. The amendment is simplistic in its text, and begs to be explained in a fashion that looks anything like the current tax code.

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

That’s it. So clearly, over the past 100 years the Congress, poked and prodded by various presidents, who have no constitutional power to raise or lower taxes by themselves, but seem to always claim credit for it, have taken a simple concept and turned it into an uncontrollable Frankenstein monster which terrorizes the nations populous every April 15.

Since the Titanic will not be raised anytime soon, then neither will the tax code be reformed. But if we allow our imagination to roam, a solution may possibly be to abolish the income tax completely and replace it with a universal flat tax of some kind, like a national sales tax, or keep the income tax with a flat rate that everyone pays regardless of ability, profession or business, with no deductions or loopholes.

There is something inherently wrong with our tax code that punishes people with education, training, or financial skills with a tax rate ranging from 20-35% while 50% of Americans, less educated, less ambitious, or skilled pay an average of only 2.3%. Let’s instead throw out the graduated income tax with all the loopholes so that the person working at Burger King for minimum wage, pays the same rate as the Internet billionaire, except for a personal living deduction. Here is an example using a hypothetical 10% fixed rate tax with a $12,000 personal living deduction:
• Burger King worker makes $14,000 per year. After the personal deduction the taxable income is $2,000. The tax bill for the year is $200.

• Businessman/CEO makes $4,000,000 per year.  After the personal deduction the taxable income is $3,988,000. The tax bill for the year is $398,800.

A living deduction for children would have to be calculated so that families could file a simple joint return. The entire IRS code would fit on one page, and the Congress could adjust the rate and personal living deduction as needed every two years.

Corporations pay the same rate as individuals, except for those that make profits from overseas labor. They would pay a higher rate, thus encouraging them to hire workers here at home.

Granted, my imaginative example is very simplistic and a great deal of work by economists and think tank types would be required to figure how to fix the current fiscal disaster we have into something capable of keeping the government afloat during a transition to either a flat tax or greatly reformed income tax code.

That it needs to be fixed, that someone has to come up with a solution soon, is not in doubt. Listening to what candidates say about how they would fix the problem is an important part of making a decision about your vote.

But in the current climate in Washington, the whole idea of tax reform may be as fanciful as that film that came out some time back called, “Raise the Titanic.”