A Modest Proposal on Taxes

First of all, like Barry Obama, let me be clear. Taxes are my issue. They have always been my issue and they will always be my issue. I graduated from college in 1980 and thankfully got my economics MBA on the streets calling on small business in Grand Rapids, MI. I was fortunate to learn from people that had invested their own sweat equity and risk tolerance that the government was an adversary to be tolerated and nothing more. I cut my political teeth voting for Ronald Reagan and thought Steve Forbes would truly change the country. I hate taxes not because I am greedy but because I see them as an afront to the most basic American principle which is freedom. If the government points a gun at you and says you have to pay then you are not free. Braveheart is a great movie because it illustrates the undeniable truth that FREEDOM! is the one thing that is worth dying for. That is why I hate these Socialists so passionately. They seek to rob us of the one thing that truly gives us dignity, personal liberty.

That being said, we have what some would call a conundrum. We have the Bush tax cuts set to expire, a (Crook)Congress which has run up a $XX Trillion worth of debt, while robbing the Social Security trust fund I might add, 9.5% unemployment(it’s really probably 15% but don’t tell anyone) and a party in power which has spent the last eight years demonizing the aforementioned tax cuts, even though if they would have just extended them for ten more years we wouldn’t be in the mess we’re in. Fun , isn’t it?

Well, something has to give. I heard Barney Frank saying today that probably the tax cuts expiration won’t be dealt with until the new Congress beginning in 2011. I think that is correct. I don’t think the current Congress is rational in a political season and certainly something so fundamental should not be considered in a lame duck session. Let’s see where the chips fall in November. This could be easily taken up in January and February and put into place early next year.

Given those parameters, here is what I would suggest. I think we need to make the tax code to be fairer and flatter. One of our problems is that the bottom 47% of earners currently pay no income taxes. This is a structural problem in that, of course, those that don’t pay any income tax are always going to be all for any government spending even if it is wasteful and doesn’t make any sense. I think below a certain amount we even pay tax credits(EITC) which sounds like a Devil’s workshop to me. BTW, those that don’t pay income taxes probably don’t read their phone bill or cable bill or cell phone bill or pay attention to gasoline taxes to see how hungry the Federal animal is. In any case, we need to get almost everyone with skin in the game to keep these damn Congress Critters in check.

So, here is what I propose. Let’s eliminate the EITC. I really don’t get what these transfer payments are intended to do. If you want to help working people out there are other ways to do it. First $50,000 of income is exempt from taxes, no EITC. $50,000-$150,000 you pay 20%. $150,000-$500,000 you pay 30%. $500,000-$1M you pay 40%. Everything over $1M you pay 50%. Keep the Child Deduction, Capital Gains, Dividend taxes, etc. where they are now. Lock it in for ten years. I bet this actually overall is a tax increase but it spreads it in the right way. It is fair, easy to understand, probably brings in more to the Treasury but is something everyone can live with.

One final word of caution. We need to start unwinding Government spending at every level, Federal, State, and Local. I am one of those flamethrowers that think the Department of Education and Department of Energy are a complete waste of money. State governments and even counties and cities are going to have to be held to account, too. This may be a tax proposal under which our private economy can flourish but I say let’s never again let our political class be so unreponsible with our funds as they have been over the last 80 years.

Social Security and Medicare are seperate issue to be dealt with another time. But let’s get a tax code in place that makes sense and allows us to grow for the next ten years. I would like to put rules prohibiting tax changes in the constitution or at least requiring super majorities but that is a debate fo a different time. Let’s get this first thing right and then we can build on it to create a more perfect union.

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