Registered Investment Advisor specializing in Model Portfolios

SFeb 8, 2013

What Readers Want: More Taxpayers, Completely Different Taxes

Scott Burns

If our elected representatives listened to the people who vote for them, we’d have a radically different tax system. That’s the message from nearly 600 reader responses to a recent column.

Missed that column? Let me give you the CliffsNotes. I asked a question: How could it be that only 53 percent of households paid federal income taxes, but a much larger percentage of households had microwave ovens, personal computers, cell phones, flat panel TV sets and other goodies? I suggested that if we examined taxes in a framework of civic duty rather than envy, more people would be taxpayers.

Then I asked for suggestions that would improve our system and allow us to have more taxpayers.

The email flood started immediately. What was amazing was the consistency of the responses. Unlike most political topics, ideas weren’t all over the map. Virtually all pointed in the same direction. They made a lot more sense than the indefensible tax system that we all labor under today. If there is primary message it is this: our tax system is truly despised.

Here are the basic themes:

Everyone should have some “skin in the game.”

Indeed, that phrase was used dozens of times. One reader suggested a flat $100 minimum tax that everyone should pay, no exceptions. Another suggested $10 a month as a minimum tax.  Others thought civic responsibility should begin when household income exceeded the poverty level. While there is a big difference between a minimum tax of $10 a month and one that begins at poverty level, both would expand the percentage of households paying income taxes well beyond the current 53 percent.

Not a single reader thought expanding the number of taxpayers would bring a revenue bonanza. Many noted that more people should pay income taxes, but that the top 1 percent could pay more and had paid more during much of the post war period.

The important thing, a guiding principle, was that everyone should contribute something, if only a token amount, to the cost of running the country we love and share. They wanted to avoid a voting block of no-pays. They wanted to make sure everyone understood that our government was spending money that it received from taxpayers.

The existing tax system is complex and unfair.

Many cited Warren Buffett’s example of how he pays at a lower rate on his investment income than his secretary pays on her paycheck. Others noted that while we have very high marginal tax rates there are so many deductions and wrinkles in our tax law that anyone with substantial income could pay at a much lower rate. Why, one reader asked, should anyone be able to take tax deductions on a boat simply because it had a toilet and qualified as a second home?

Reader comments about unfairness and complexity went well beyond the personal income tax. Several mentioned that while we in theory had one of the highest corporate income tax rates in the world, few corporations paid at that rate and a number of highly visible corporations paid no taxes at all. It’s all about having a level playing field.

And the solution is? A flat tax or, better still, a consumption tax.

Frustrated by our current system, some readers wanted to eliminate all the deductions, preferences and exemptions  that distort the proportionality of the tax system. Then they would tax every dime of income, but tax it at a single lower rate. Even more readers suggested that we morph from the complexity of taxing income, which is difficult to define, to taxing consumption.

Quite a few advocated dumping our entire tax system. They would replace it with something like the progressive national sales tax advocated by the Fair Tax organization in Houston.

The argument there is simple. Washington would no longer try to influence our decisions, at any level, with tax breaks. We’d make our choices, spend our money as we wanted and pay a sales tax to do it. That sales tax could be high enough to bring in more revenue than the current loophole-ridden hodge-podge of income, employment, corporate and estate taxes.

Collectively, we make a lot of sense. Sadly, what makes sense for you and me would eliminate the deduction, preference, exemption tools every member of Congress depends on to raise the fortunes spent to stay in office. It’s a truly hateful impasse.     

Filed Under: Government, Taxes & Other Disasters