Real tax reform
In the first point of their Feb. 25 commentary, "6 ideas for bipartisan tax reform," Steve Bell and Shai Akabas suggest reducing US corporate income tax rates to 28 percent. If we really want to maximize an economic stimulus program we should eliminate all taxes on business. Businesses simply pass those costs along to consumers, embedded in higher prices – which amounts to a regressive tax on the poor and middle class.
As the largest consumer of goods and services in the country, the federal government is therefore, in essence, the largest taxpayer in the country, followed by state and local governments. So one could argue that the largest reduction we could make to all government budgets and individual costs of living could be to eliminate all taxes on business.
Let's tax only individuals – directly and visibly – with a personal income tax and a retail sales tax. The savings to governments, businesses, and families in both taxes paid and their associated implementation costs would be enormous.
The problem with the ideas in this commentary is the lack of any mechanism to keep them in place. Most, if not all, of the loopholes that were closed in the 1986 tax reform were replaced and the rates were raised to higher levels. The problem is the income tax code itself. One of the big reasons lobbyists flock to Washington is to buy "favors" in the tax code.
Here are three alternative ideas for tax reform: Start the process to amend the Constitution to do away with income tax. While that process is taking place, initiate a three-tier flat tax with no exemptions. Once the Constitution has been amended, initiate a national sales tax.
Because raising national sales-tax rates would have an immediate negative impact on consumer spending and therefore economic activity, representatives in Congress would think twice before raising those rates, as opposed to income taxes. And lobbyists would also have no loopholes to buy.