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A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System

A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System

Prologue: Every Thirty-Two Years

In the thirty-two years from 1954 to 1986, history repeated itself, and once again the Internal Revenue Code had to be rewritten. It has now been three decades since the last revision. Everyone agrees once again that our nation’s basic tax law has become a fine mess: so absurdly complex, so byzantine, that it has to be completely revised. Following the historical pattern—every thirty-two years—the next major revision should come in 2018

2. “Low Effort, Low Collection”

There is so much corporate money out there—more than $2 trillion, by many estimates—that stockholders and employees of the companies are demanding that the funds be “repatriated” and distributed at home as salaries or dividends. The companies don’t want to pay the U.S. tax on that money, but at the same time they don’t particularly want to keep their profits stuck forever in a bank in Bratislava.

3. Taxes: What Are They Good For?

The crucial point is not how much somebody pays in taxes but rather how much she has left after paying. This

He goes on to explain that nobody likes paying taxes but it’s important to look beyond one company’s tax bill and see “its organic connection with the whole.”

The world champion at borrowing money, though, is the government of Japan, which has been running annual deficits for years greater than 225% of its GDP. This is less of a burden for Japan than it would be for most other countries because Japanese people have traditionally been prodigious savers, and their bank deposits provide most of the money the government needs to borrow. So Japan has huge debts, but it is indebted mainly to itself

Tax has become a multipurpose government tool that performs many missions

In fact, though, the U.S. income tax was initially designed to apply only to those in the top income brackets; its primary purpose from the start was to offset inequality

4. BBLR

In fact, it’s so simple that the economists generally reduce the essential formula for good taxation to a four-letter word: “BBLR.” That stands for “broad base, low rates

The result is a tax code that imposes the lowest rates on average workers of any developed nation. The comparison with the United States is instructive. An

5. Scooping Water with a Sieve

Because many of these giveaways replicate the kinds of benefits provided by governments in left-leaning European countries, tax expenditures have been called America’s “hidden welfare state.” That is, we give people welfare through the tax code even when we aren’t willing to provide the same kind of support by sending a welfare check

7. The Defining Problem; the Taxing Solution

Because our Supreme Court has defined donating money as a form of political speech, economic clout in the United States turns quickly into political clout

The argument for a lower tax rate on capital income—an argument supported by many economists—runs as follows: (1) economies need capital investment to grow and create new jobs;

  1. capital investment by definition is risky (you could lose it all); and (3) therefore, a lower rate of tax on potential gains is necessary to encourage people to make those essential, but risky, investments.

Epilogue: The Internal Revenue Code of 2018

A progressive tax code can be a crucial tool for fighting the national problem of inequality. Some American politicians

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