Have you noticed the increased prattle about tax reform? It's been hard to miss. Must be political season again. Be that as it may, it got me thinking about tax reform.
To me, reform implies tinkering with something already in place to make it function better. I'm not sure reform is the right concept when directed to our current income tax systems (personal and corporate). Seems too timid. Scrap the current system and start anew appeals to me.
So, let's assume the powers that be have asked me to design this new tax system. Granted, this is not likely anytime soon, but let's pretend. Here are my thoughts.
1. Get ride of the 'double taxation' of income earned by a corporation and distributed to the shareholders. Simple fix really - make dividends paid deductible to the corporation. Sure, the Treasury will lose some corporate tax collections, but it will pick up personal tax collections. Corporations will no longer feel the need to sit on their retained earnings to avoid the double tax.
2. One corporate tax rate, period. Let's make it at least 2% - 5% less than the rates of our main global competitors. Want to give corporations a reason to bring back their foreign profits? Make them an offer they can't refuse.
3. Eliminate ALL income deferral techniques no matter how well the intentions when conceived.
4. Eliminate ALL tax subsidies. Let the tax code collect taxes absent economic micro managing.
1. Forget the idea of a 'flat' tax. It sounds tempting and makes for good political fodder, but that's about all it's good for. Why? Simply because it will never happen. We are a society that wants other people to pay for that we feel entitled to. Sad, but true. The rich (always meaning someone with more money than we have) should pay more - it's only fair. And so it goes.
2. Simplify the personal tax system. Simplification means more than just naming the new tax act the Forever Tax Simplification Act of 2013. It means making it simple. Start with the mandate that the objective is to collect revenue. It is to have no other objective no matter how honorable. And, make sure everybody pays something. Learn to accept that a lot of things in life are regressive, affecting some more than others.
3. ALL income is taxable at the same rate. Maybe an exception for capital gains, not sure about that yet.
4. Deductions? No deductions for anything other than unreimbursed medical expenses and true charitable giving.
Well, that's a good start. Some will rightly say 'the devil is in the details', starting with good intentions does not always result in an acceptable result. True. Then you try again and again. Tax policy evolution does not always have to mean going from simple to complicated. Let's try reversing the direction.