My Two Cents on the Tax Code

The Republicans hope to change our taxes. The first step is passing the Tax Code Termination Act (TCTA). The bill declares, "No tax shall be imposed by the Internal Revenue Code ... for any taxable year beginning after December 31, 2001." Essentially, all income taxes will expire unless Congress gets its act together and passes a new tax law. Making a deadline will force Congress to act instead of dither and make bland campaign promises that are nullified by closed door politics.

But a "confidential" poll by the Republican National Committee shows a majority of voters believe it's a reckless move. The interpretation in the article I read is supplied by the Democrats: killing the tax code without a replacement means people would be reluctant to invest or buy homes or expand factories which may result in a recession. These may be valid concerns, but a poll is no reason for the Republicans to backpedal on an idea.

Our form of representative democracy with the Electoral College and Congress was designed originally by the Romans to correct flaws in Greek democracy. The ancient Greeks' direct democracy was essentially mob rule where a crowd of citizens gathered together in the heat of the moment and decided an issue by popular acclaim. Socrates died because a mob of 800 parents worried about their children voted against him in a scene more reminiscent of a lynching than of a democratic process.

To bypass the "tyranny of the majority" where 51% could decide all issues, the Romans created a somewhat representative Senate for calm, reflective discussions of issues. That system eventually deteriorated into a dictatorial empire. Our Founding Fathers took the Roman system and added a constitution. The system is now decaying into a political stew of committees, lobbyists, and revolving door jobs. We're also reverting back to the tyranny of the majority based on polls.

But reasoned arguments do not hold sway in politics.

The best way the Republicans can answer the fears of voters (or poll answerers) is to suggest a replacement tax code. Some criteria are already listed in the TCTA: simple and fair, a low rate for all Americans, no bias against savings and investment, and no penalizing marriage or families.

Here's a suggestion: A 2% tax on all money received by any person or business. Not 2% of the net with all the rules and regulations about amortization schedules of factory equipment and the size of home offices. Just take 2% of the gross. Employees would pay 2% of their earnings with no deductions for mortgage or children or health care. They'd also pay 2% of any home or stock sales. Fairness seems to dictate only taxing the profit, but that gets complex and thus unfair to the people who cannot afford lawyers and accountants. Of course, the initial investment then gets taxed over and over as people buy and sell, but perhaps the gross tax would soothe the churning of the stock and real estate markets, getting people to invest in companies for the long term and to purchase homes to live in, not just as investment vehicles. This may dampen suburban sprawl. Looking across industries, some companies would seem to be paying more than others, but within each industry, where competition occurs, the tax is fair.

This hybrid income, sales, and capital gains tax meets the criteria. And a tax without deductions is value neutral. It lets people choose their own ways to spend and/or save money and allows Congress to concentrate on important issues instead of on how to pay back lobbyists with special tax breaks.