President Obama tells us everyone must pay their fair share. I think he’s exactly right. But I don’t think he means what he is saying*. Everybody would include more than the roughly 53% of Americans who actually pay federal income taxes. The President wants to make federal taxes more fair by eliminating deductions utilized by “the rich.” He has never defined the term rich. Although he often refers to millionaires, proposed tax changes have applied to those earning at most 25% of what millionaires earn. To President Obama “fair share” means taxing a smaller group of tax payers from the shrinking pool of those who actually pay federal income taxes. Increasing demands on fewer and fewer people does not conjure the word “fair” immediately to the mind of most sane people.
What would be fair?
1) Take the entire Internal Revenue Code and burn it.
2) If you have income you pay income tax; unless you are not part of everyone. If you are not part of everyone you are no one.
3) There will be two tax brackets. 15% and 25%
4) Income brackets will be established by an “over/under” number and the number pegged to the rate of inflation.
5) There will be four deductions as follows:
- Mortgage Interest: federal income tax policy should encourage home ownership.
- Child Credit: federal income tax policy should encourage and support families.
- State Income Taxes (or high state sales taxes where no income tax): federal income tax policy should not take a second bite from the apple.
- Charitable Giving: federal income tax policy should encourage charitable giving. Not only is it right and proper but helps relieve the burden on tax payer funded programs.
The problem with a simplified tax structure like this is that it eliminates thousands of pages of code and the need for hundreds of thousands of experts to interpret it, it eliminates the opportunities for politicians of every political stripe to embed arcane deductions aimed at preferred constituencies and it would eliminate the need for probably 99% of the IRS. Sadly, while President Obama does not mean what he says, enough Congressmen agree with him to make it not matter. And so, we will continue to hear a lot about this issue that says nothing, at best, and misleads more commonly.
*Just for clarity, because Obama is President and not Governor, Mayor etc, I presume he is talking about taxes within the control of the federal government; that is to say federal income taxes and so my comments address federal income taxes. It is awful that I need to say that but with people like Warren Buffet intentionally confusing the issue it becomes necessary.