Time to junk income taxes?

By David Cay Johnston
January 6, 2012

This is America’s 100th year for individual income tax, a system as out of touch with our era as digital music is with the hand-cranked Victrola music players of 1912. It is also the 26th year of the Reagan-era reform for both personal and corporate tax, a grand design now buried under special-interest favors.

With U.S. elections in November, and the George W. Bush tax cuts due to expire at the end of 2012, it’s time for a debate that goes beyond ginning up anger over taxes and the superficial issue of tax rates.

It’s time to consider whether to get rid of income taxes, personal and corporate. What are the strengths and weaknesses of our current system? Should we tax individual and corporate income — or something else?

We need to think about it. Whatever systems we consider, we should weigh up what it takes to raise the necessary revenue along with such other attributes as minimal compliance cost, leakage and economic distortion.

Times change. Tax systems must change with them or else their lubricating effect turns to sand, wearing down the gears of commerce.

Just as the Industrial Revolution transformed a nation of farmers and mechanics into a land of factory hands and office workers, so too the digital revolution and globalization are fundamentally remaking society.

We need for our tax system to serve our 21st century civilization and its needs, including the costs of aging infrastructure and an aging population, costs that will be borne one way or another.

5 PRINCIPLES

Five ancient principles that have survived the test of time and are, therefore, profoundly conservative, should guide us.

The first is the moral principle of progressive taxation — that the greater the gain you manage to attain, whether through hard work or luck, the greater your duty to pay back the society that made your riches possible so that it will endure. This concept is 2,500 years old, coming to us along with its civil twin, democracy, from ancient Athens.

The second is horizontal equity. Each person, or business, with the same ability to pay should pay the same tax. We must not tolerate a system in which one family or company pays far more than another with the same income, thanks to all the fine print in the tax code.

Simplicity, transparency and ease of payment should be the last three of the five guiding principles, as Adam Smith taught more than two centuries ago.

So what do we do?

Narrowly defining what constitutes income for tax purposes bloats the tax code. To the vast majority who earn a paycheck, defining income is simple. For the very rich and for corporations, it is a game. Too many of our most elegant and rigorous minds design techniques for tax avoidance and tax deferral instead of producing new wealth, imposing a huge cost on society.

In ancient agrarian societies the ruler took a share of the crop. In the cash economies created by the Industrial Revolution the state taxed incomes. But is income the right tax base for the 21st century, when computer software makes it possible to wrap economic income in a cloak of tax invisibility?

And why, in our digital era, must Americans file 140 million tax returns? Digital technology could eliminate 120 million of those tax forms, saving billions of dollars in both private and government spending.

QUESTIONS ARISE

In a global economy, is taxing corporate profits smart? Or could we devise rules that both promote investment and job creation while preventing the accumulation of unproductive fortunes — the great risk if corporations are tax-exempt.

Look at the same question in reverse — is our tax system encouraging unproductive or even counterproductive activities?

What else should we call a system that lets hedge-fund and other financial speculators defer paying taxes for years or decades on their carried interest, while discouraging investment in long-term projects that may not pay off for a decade or more? How else to explain our gross overinvestment in housing?

And what about corporate tax accounting costs?

Under President Barack Obama, business has been able to immediately write off 50 percent of new investment one year and 100 percent in two other years. We need to examine the long-term benefits and costs of full expensing. The White House says full expensing lowers the average cost of capital for business investment by 75 percent. But what other effects are there?

More broadly, we need to debate why corporations must keep two sets of books, one for shareholders and one for the IRS. How much more efficient would taxation, and commerce, be with one set of books?

With the individual income tax in its 100th year, it’s time to fundamentally rethink how we tax ourselves. Even if we end up keeping the income tax, personal and corporate, surely we can make the system easier and fairer.

41 comments

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I have been thinking these same kinds of thoughts. Are you up to the challenge of putting up a template that generates some feedback and gets the ball rolling?

Businesses have so many ways to play ring-around-the-profit-rosie for tax purposes, and because enterprises that are big enough and flush enough to buy top expert services for tax minimization will always be a step ahead of both the IRS and their smaller competitors. Therefore, what would be wrong with just taxing the beneficiaries of corporate success — shareholders of corporations and other owners, at rates that would make up for discontinuing taxing corporations on their profits?

Share prices reflect business success globally, do they not, making it inconsequential (if we taxed investor gains at a much higher rate) how much profit is claimed in which country or region.

Posted by TerryOtt | Report as abusive

The income tax is the only method to meet your first principal and insure that the ability to pay is factored into the amount you are required to pay.

A consumption tax could possibly be made to meet this criteria but the tax would have to be applied to such uses of money as stock and bond purchases and also items such as land and even CDs. This would not be very acceptable to higher income individuals.

The method by which income is earned should not affect the tax charged. Capital gains should be taxed as ordinary income with a basis that is adjusted for inflation. Dividends received are the same as interest and should be taxed the same.

Corporations should be required to file as Sub. S corporations which would shift the tax liability to where it belongs, on the shareholder.

Full expensing of normally depreciable property should be allowed but only if it is paid for without using loan funds. (This might be complicated to monitor.)

wrjohn

Posted by wrjohn | Report as abusive

While getting income tax to work would be difficult, it is probably easier than the realistic alternative of wealth tax, and we have a lot of experience.

It seems the most intractable problem is deferral.

For people, it might be desirable to treat all transfers – death, gift, and charitable – as a realization event followed by a transfer. Even if it is difficult to collect income tax from financial geniuses who have consideral flexibility in structuring their affairs, it would be desirable to eventually collect the tax.

Corporations have perpetual life. They can pile up profits in tax havens without any fixed point at which the United States can collect the tax. Complex schemes for putting income into high tax jurisdictions, etc. are bound to have weak points and may make the U.S. less competitive for international business. I would favor a modest (1%) annual tax on accumulated profits in tax havens. This would be the equivalent of 4% interest on an approximately 25% (or less) domestic corporate income tax avoided. This would be higher than the government’s costs of funds, but still a bargain for skillful businesses who could pile up capital offshore for eventual taxation. The U.S. could be a competitive location for multi-nationals while still eventually collecting the tax.

Posted by peterl31416 | Report as abusive

I was a bit skeptical when I read the head line for this story.. It’s about the most common sense article wrote about taxation I have read in a long time.. Usually, its the rightwing “just throw out the code!! We don’t need stinkin’ taxes anyway!!”

The fact is, we do need taxes. Not to redistribute wealth, but to run the engine of this country. A tax code needs to be fair and equitable, as this author states, both in a vertical and horizontal basis. This is something that has been lost in the tax debate for a long long time.. It really started out when conservatives started screaming for revenue neutrality, then negative revenue generation. Now, its regressiveness policies AIMED AT REDISTRIBUTING WEALTH to those that least need it.

Posted by idahofedagent | Report as abusive

The money to pay America’s commitments is within reach, as it has been all along.

Consider a net-worth approach to taxation.

5% household net worth, across the board. It’s progressive, equal, simple, transparent, and easy.

It’s also efficient, effective, and evenhanded.

Household net worth is calculated all the time anyway (for estate planning, divorces, insurance, etc.).

No income tax.
No sales tax.
No tariffs.
No capital gains tax.

Just a net-worth tax for all.

Posted by Buddyg04 | Report as abusive

The work on this issue has already been done. The result of a survey of what we want in a tax code and research by top economists regarding what system will achieve those desires was done over ten years ago. The result is the FairTax, the most popular reform in the Congress. Ironically, it fits modern society while conplying with the principles of our Founders regarding taxation. The gross mistake of the 16th Amendment will be corrected and a modern, efficient and revenue neutral national retail sales tax enacted. The principle of progressivity will be preserved, because it includes the regressive payroll taxes and has a prebate for the amount of tax paid on necessities. It is transparent because you see the amount on every receipt for goods and services. No more record keeping and filing of forms for individuals. The IRS will simply be a corrector of taxes sent to it by the states sales tax mechanisms. Liberty and privacy will be returned to us, and at the same time our economy will boom. Hundreds of billions of compliance costs will be saved. A trillion dollars of uncollected taxes from cheaters and criminals will flow in. Capital stashed abroad will come home. See it all in H.R. 25, or http://www.Fairtax.org.

Posted by Boog53 | Report as abusive

If the IRS was dismantled unemployment would go up to 20%. Accountants, tax lawyers, and their staff would be on the streets in hours.

Those suckers on society would feel it, and the rest of us would have to pay taxes for their retraining. This is sounding better every sentence. Lets get it on!

Posted by ArghONaught | Report as abusive

what twit wrote the non sequitur title?

how bad would it be to simply start by taxing all income, of any form, at a progressive rate. if there are specific deviations, negotiate those separately, based on a fact-based prediction of the effect, a followup after, say 2 years, and either sunset or modification for those provisions that didn’t have their desired effect.

this seems modest, but would have two major effects. first, the rich would get soaked, since they currently wheedle most of their income into formats which are untaxed or more lightly taxed. second, corporations would start to bear a nontrivial portion of the burden – unlike today where they’re only taxed on profit (which is entirely subject to their whim, and usually very low.)

Posted by markhahn | Report as abusive

The UK has the IFS Mirrlees Review:
http://www.ifs.org.uk/mirrleesReview

It’s high time for the USA to conduct a similar strategic assessment.

Posted by matthewslyman | Report as abusive

You’re right, of course.

Of the “Five principles”, only #2, horizontal equity, is a genuine problem. You can create any kind of society you want just by adopted tax incentives and disincentives. But the folks in the $40,000 Cadillac should get no greater writeoff than the folks in the $15,000 Toyota.

You want to live at public expense? No problem. No more food stamps, Medicaid, cash “aid to dependent families”, etc. This isn’t supposed to be a “way of life”, much less a “desirable” or “acceptable” one. Inspections every week to insure the facilities are being properly maintained and that no one is there that has “outside resources” beyond a minimal level. Parking decals identify each vehicle with each residence area. Cinder block military-style barracks is what you get, with a mess hall, common play areas, schools and security. America has lots of surplus military bases that even have hospitals that could become supervised training facilities. I lived this way in the service for four years and I had to WORK for it!

You want privacy? You want a cel phone with texting? You want cable TV? Get a job and move. You want a 4WD monster truck, that’s a luxury, as are the bling rims and skinny tires. Society should not tax-subsidize expensive cars, boats, second homes, excessively large homes, excessive residential acreage, private education, excessive numbers of children or other questionable “life style choices”.

Corporations should not be able to internationally “launder money” to avoid or minimize U.S. taxes, and their ability to flee U.S. jurisdiction with significant assets should be severely limited by law. We need to create significant tax disadvantages for companies to accumulate non-income producing assets or cash holdings from untaxed activity.

Our incentives need to encourage investment and activity within the continental U.S. and Hawaii, which benefits the American economy with up to five “bounces” for every dollar; and discourage that which is one-way “offshore” such as that proportion of goods and services that constitute a trade imbalance with each and every other country as well as all the money immigrants send out of the country on a one-way trip. There is a middle ground between “free trade” and “protectionism” called a “level playing field” on which neither side is able to inequitably exploit the other.

How do we define that? Nobody promised easy. Is there another choice? I just don’t see the endless printing of U.S. dollars as a long term solution to the challenges of creating an American society capable of sustaining itself in a world of static or negative population growth?

The SEVEN BILLION people already inhabiting our big blue marble (with more on the way!) are absolutely going to turn it into a big brown marble if drastic changes are not undertaken and successful. If America does not lead the world to success, the world will certainly drag America down to failure.

Posted by OneOfTheSheep | Report as abusive

Your second principle is impossible to maintain against (1) the difficulty of determining what “same ability” to pay means and (2) the inevitable sale of tax breaks for future campaign support.

This problem might be limited in force by changing business taxes (including taxes on all group-owned businesses, e.g. corporations, partnerships, etc.) to a low franchise (gross receipts) tax.

It may be made even less serious by limiting deductions from individual taxes to those having to do directly with the earning of money. This means no deductions for medical, charitable or home mortgage expenses.

Posted by kopfschlaeger | Report as abusive

We saw the title and thought this would be a good place for a sarcastic comment or two, but we agree with a lot of David’s points.

@ArghONaught — love your attitude. Those guys are all reasonably smart. If they didn’t have all the tax nonsense to muck around with, they might make a real contribution.

Posted by WeWereWallSt | Report as abusive

It’s sinful that a taxpayer has to either pay someone to do their taxes or purchase a computer program to file. The tax code is too complex and needs to be redone so that a regular person can file their own taxes without forking out hard earned money.

Posted by Louisiananian | Report as abusive

Your description of what we need is the FairTax. H.R. 25, S. 13.

Posted by Mike-D | Report as abusive

Time to junk the income tax and replace it with a national sales tax (excluding food and other simple basics).

Spend more, pay more! No loopholes for anyone! All pay their fair share!

Money would then finally be redirected into better investment channels based on making money instead of avoiding taxes…

Posted by 1WorldDone | Report as abusive

Columnist here….
@1WorldDone, you may want to consider the many problems of a national sales tax, including how you would need to get and keep receipts for every purchase and how such a tax would spawn black markets.

@ArghONaught, I don’t know where you get your 20% figure, but taxes are the foundation of all private wealth, which is possible only because we have laws that define property, courts to adjudicate disputes, police to enforce court decisions and myriad other government services (like highways to move goods and schools to produce educated workers). Eliminating the tax police, as you recommend, would make life nasty, brutish, short — and impoverished for all but the most vicious thugs.

Posted by DavidCayJ | Report as abusive

It possible and necessary to junk income tax, AS WELL AS Social Security and Medicare/Medicaid tax for individuals and corporations. But NOT in order to substitute it with any other form of tax whose implementation in the USA (or elsewhere, for that matter) would probably create a worse problem we have today.

This is how the elimination of taxes would work:

Speaking only of the Income Tax, the USA receives approximately 19 to 24% of GDP, from profits declared by corporations and from direct payroll tax (personal income tax) which are paid regardless of whether a corporation made profit or not. No tears please: The greatest proportion of large (and small) business STAYS in business BECAUSE they make profits.

The problem is that the VALUE of this profit is never monetized as it should. Therefore, instead of infusing the society (our towns and cities, if one prefers) with “money” –the heuristic representation of the NEW profits– the new profits are exchanged amongst individuals and other businesses through a combination of private and public credit controlled by (suprise!) the Federal Reserve System, itself a private entity!

But credit represents a value of future income, which as it expands it will necessarily become exponentially larger than the capacity to ever repay the increasing ‘debit’. Hence the minor or major cyclical economic collapses that we experience with rythmic occurrence.

By creating MONEY in equal amount to the value of the new physical wealth created in the, say, year-to-year economic cycle, THE GOVERNMENT will infuse this money into society by ‘purchasing’ the entire amount of newly available wealth OR PROFIT) in the form of goods and services. The services include the cost of Government administation as well as Social Security, Health care, and all other mandatory and non-mandatory expenditures of the different departments. The purchase of ‘goods’ would be used to expand the level of infrastructures and other services required by a society that wishes to enjoy a real higher standard of living.

The availability of this ‘new’ money would in fact facilitate the private commercial and business transactions between individuals and corporations and amongst business enterprises.

Therefore we would end up with NO Taxes, NO credit (other than that between private incividuals and/or corporations –a trully private matter!) AND a consequent exponential increase of productivity based on the elimination of millions of jobs rendered superfluous by the new system.

By the way, no reason to worry in the least about the newly ‘unemployed’ by using this new system: The nation is long overdue to double or even triple the employment of a new wave of citizens int he fields of education, health, environment, civil service, and, ironically enough, in the expansion of the real-wealth producing manufacturing and industrail activity in the USA.

Thank you for your attention.

Posted by gmontante | Report as abusive

1WorldDone – A national sales tax, AKA consumption tax, would be the death of the working poor, who spend 100% of their income, and be the biggest tax break in history for the rich, who spend comparitively little of their income.

Posted by 4ngry4merican | Report as abusive

The article seemed to advocate a simpler form of taxation. This would allow the myriad of tax related leaches such as accounts and lawyers to go find something productive to do with their time. I would definitively support a system with no lawyers and accountants.

Posted by M.C.McBride | Report as abusive

I agree with abandoning income taxes as our means of providing federal revenue. The best alternative would a return to source of all federal revenue prior to implementation of the income tax 100 years ago – tariffs on imports. Prior to passage of the 16th amendment in 1913, which gave the federal government the authority to impose an income tax, virtually all federal revenue was generated by tariffs. Not surprisingly, this also resulted in a surplus of trade and played a key role in building the U.S. into the world’s dominant industrial power. Sounds good to me! Let’s do it!

Pete Murphy
Author, “Five Short Blasts”

Posted by Pete_Murphy | Report as abusive

Mr. Johnston, You’ve given up on the income tax tho, as a previous commenter says, it still offers by far the best chance at progressive and horizontal equity.
There’s little question that the income tax system isn’t working now, because except for the basic tax on and withholding of labor income, loopholes are by far the rule not the exception. The question is to give up on it or try to improve it.
You left out a 6th criteria on which essentially all tax systems worldwide are failing: collections–effectiveness of collections and sheer collectibility of the law as written. The vast complexity of our current system is a key reason collections are so poor.
The only other system with a prayer of raising similar revenues is a VAT, a tax that’s inherently regressive and at least as easy to game and evade as ours. How we would transfer revenue-wise from an income to a VAT tax is really unanswerable. Well, actually, the answer is the transfer just wouldn’t work, and would add even more vast sums to the deficit in the transition.

Posted by writervic | Report as abusive

I’ve got a great alternate title for this piece.

“Overweight Avaricial Caucasion Willing To Exploit Uneducated & Poor For Profit.”

Posted by moneywon | Report as abusive

The income tax should be abolished. It has turned into a monster from the original idea of a 1% tax on millionaires when a million dollars was a lot of money. By the way, long before there was an athens, the God of the Holy Bible wanted everyone to tithe 10%. There was no “progressive” increase in the amount – everyone was to pay 10% of what they had. Progressivity has become an excuse for one group of people to be granted the money someone else made, and to get pols re-elected by robbing peter to pay paul.

Posted by zotdoc | Report as abusive

What you fail to mention is that income taxes first arose as a “luxury tax” levied entirely against the wealthy class.

Since then the wealthy class, through manipulation of tax rules, has managed to shift virtually the entire burden of income/luxury tax back onto the poor (the middle class didn’t exist back then, and soon won’t now).

So, I would say an income/luxury tax is far more relevant today than ever, since we are essentially right back to where we started 100 years ago, with the wealthy class taking all the profits, and what is tricking down from them looks kind of yellow in color.

Posted by Gordon2352 | Report as abusive

Actually, I do agree with you (in a way) that income taxes should be eliminated, as well as all other types of taxes, since most of them are regressive in nature and hurt the economy in one way or another.

I propose that, since ALL revenue comes from the state in same manner — without the state there would be no revenue at all, and we would be living as “hunter/gatherers” raiding each others’ camps for horses and women — so lets employ one single tax to remedy to hodgepodge of unfair taxes that exist today.

I propose a 100% estate tax when a person dies, thus what was received from the benefits of having a state to protect their wealth, goes back to the state to aid others and as a source of investment revenue.

Seems fair to me, since why should those children and relatives of the wealthy, who have done nothing to warrant being beneficiaries of their benefactors wealthy, except happen to be related to him/her retain the rewards of that work? Simply put, they don’t deserve it.

Ultimately, a 100% estate tax would be the fairest tax of all, and do more to create a level playing field than anything else we could do.

In the meantime, NO ONE would pay ANY taxes at all during their entire lifetimes.

Of course, it would demand a balance budget and a change of estate tax rates each year to compensate for changes in our expenditures.

Eliminating the present income tax (and what the wealthy want to do is eliminate all other taxes as well — think not?, then examine Romney’s tax proposals if he gets into office) will create a system of “landed gentry” such as exists in England.

Is that what we really want in this democracy, and land of opportunity?

THAT is actually what I really think.

Posted by Gordon2352 | Report as abusive

The original article was good, but the comments (mostly) are great–very thought provoking.
A few things to emphasize. It is easy to moralize a progressive tax. But what we are approaching, very quickly in the US, is a situation where a majority of the Americans who benefit from the government do not pay (income tax) to support it. With no natural cost/benefit trade-off, there is nothing stopping this majority from using their democratic power to expand the benefits of government without regard to the cost of government. The logical conclusion is a country which collapses under the weight of its obligations.
Second, as stated earlier, most taxation is a form of social engineering where we punish undesirable behavior (sin tax) and reward, or at least don’t punish, desirable behavior (mortgage interest.) If we look at what is valuable to our society and decide that saving and investing, which strengthens and stabilizes the job market benefiting the working class and has the opportunity for more people to access benefits, is more desirable than spending and credit, which benefits financial institutions and lending governments, that indicates something closer to a flat, fair or consumption concept. Vertically consistent percentage taxes are naturally progressive in that the $60,000 luxury sedan would include four times the tax revenue premium of the $15,000 hatchback.
Of course, no discussion on revenue/taxation should happen without a corresponding discussion on spending. We really need to have a long, open discussion on the type of government (high tax/high benefit like Sweden or low tax/low benefit like Hong Kong) that works best for America. Although as long as there is such a huge disparity between those who receive most of the benefits of government with little cost and those who receive little (direct) benefit but shoulder most of the cost, and the politicians who excel at using derision to gain votes, that’s not going to happen.

Posted by KenPen | Report as abusive

Sorry, didn’t mean an change of estate taxes each year which would defeat the purpose of the 100% tax. What I meant was a balanced budget that must be within the limits of the actual amount received each year from estate taxes.

Posted by Gordon2352 | Report as abusive

There were a lot of good comments regarding corporate taxes. It’s important to note that corporations (or at least those offering products or services) do not and can not pay taxes. Taxes are either paid by the owners/shareholders through lower dividends or, more likely, paid by consumers who purchase at higher prices. In a free market (which we are far from) the “savings” from eliminating corporate taxes would eventually drive down prices through competition, offsetting some if not most of the cost increase a national sales tax would impose should our tax policy shift to that model. That iPhone everyone wants would cost a lot less if the companies delivering it didn’t have to bake their tax burden into the price.
And let’s not forget the positive economic effect we would all see when we take away the incentive for global companies to offshore their profits. (I’m looking at you, GE!)

Posted by KenPen | Report as abusive

I was curious about you, so I check to see what your in-depth analysis was based on and this is what I found:

David Cay Johnston
Born December 24, 1948 (age 63)
San Francisco
Education San Francisco State University (No degree awarded)
Michigan State University (No degree awarded)
University of Chicago (No degree awarded)
Occupation Journalist

In July 2011 he became a columnist for Reuters, writing, and producing video commentaries, on worldwide issues of tax, accounting, economics, public finance and business.

Pulitzer Prize 2001: David Cay Johnston, The New York Times, for his penetrating and enterprising reporting that exposed loopholes and inequities in the U.S. tax code, which was instrumental in bringing about reforms.

=====================================

I’m sorry, I thought I was addressing someone who was knowledgeable about taxes and economic issues, but you clearly aren’t.

You simply have “opinions” just like everyone else, but with nothing to back them up.

A Pulitzer for exposing corporate tax scams?

And, exactly, what tax reforms did you bring about?

Apparently, they are giving out Pulitzer Prizes to just about anybody these days.

I worked for these corporate people for most of my live — I am a retired CPA/MBA — and I could tell “tall tales” about corporate corruption myself, if that is all it takes to win a lot of money.

Reuters, while never the cutting edge in reporting, has sunk to a new low if they think your opinion is important enough to share with the world.

Posted by Gordon2352 | Report as abusive

@Gordon2352,

I was curious about you, so I checked your claims to a CPA/MBA. I find a person whose experience and credentials seem more from academia and nonprofits than the “real world” and I suspect the accuracy of the last part of the”CPA/MBA”.

In any case, David Cay Johnston”s Pulitzer is legitimate and clearly has served our society. Alphabet soup “credentials” have never trumped common sense and accomplishment.

Posted by OneOfTheSheep | Report as abusive

Columnist here….

How nice to see that some readers responded thoughtfully to the question I posed about whether income should continue as our main tax base in light of changing economic conditions.

One of the best ways to test a policy is to critically examine our assumptions about it. One of the worst aspects of modern America is how many people reject anything which does not reinforce that which they wish to be true.

A few posts here baffle me, like the post by moneywon, but then I presumably he or she is not familiar with my work on the subtle ways that tax burdens are pushed down the income ladder. Ditto Gordon2352, who may be surprised to learn that I teach tax, property and business regulation to law and graduate business students, using the law of the ancient world to illuminate the principles — and the capriciousness — of modern tax, property and regulatory law.

Gordon2352 is quite right that the 1913 income tax was applied to what were called “surplus incomes” and then morphed into a mass tax in July 1943, the kind of issue I have explained extensively in other columns and in my books, which have been used as texts at a variety of universities for classes on tax, public administration and sociology.

As for degrees, being poor and hard working I moved to advance my career, earning a fine education with more than enough credits to graduate, just not enough at any one of the seven colleges where I studied. A degree requires two years at one school. The awards given to me by business, accounting, law and public policy schools as well as my teaching at three top universities over the years (and lecturing at many others) suggests others have found my knowledge worth their time and money.

@ Pete_Murphy (and presumably @moneywon), to be crystal clear — I did not propose getting off the income tax, I asked a question about whether we should in light of changes in the economy.

Now, please, more serious thinking by readers about financing government and the changing economic order in this year when taxes are a major political issue.

Posted by DavidCayJ | Report as abusive

@ Gordon2352,

It is of no consequence as to why the income tax originated…government is very inventive to jerk feathers off the golden goose from unexpected directions. The “rich” are proportionately few, and therefore the squawking is of less apparent volume. Once the government’s (the camel’s) nose was under the tent, by the end of the 1950s it had exploded to 90% for the most successful Americans.

By punishing the successful to this degree, obviously “society” wanted less success or less successful people. (sigh) The same thing has happened with the “Alternate Minimum Tax”, except it increasingly assaults the upper middle class since the rates were INTENTIONALLY not indexed so as to ever cast a wider net on income. We seem to forget that the U.S. Constitution NEVER intended the federal government to monitor or redistribute the flow of currency between citizens.

It was NOT the “…wealthy class, through manipulation of tax rules…” that is responsible for the lion’s share of the current tax burden on actual income “tax PAYERS”. It is our own, increasingly unfriendly government that sees the bounty created by capitalism as something somehow obscene that should be eliminated. They see only the potential danger of the flame of the economic candle and have no understanding how cold and threatening the triumphant dark will be if they someday extinguish it completely. It is, quite literally, the flame of freedom!

Your suggestion that “…ALL revenue comes from the state in some manner…” is ridiculous. The “state” has NOTHING it does not take from a producer of value. The idea of “…benefits of having a state to protect their wealth…[go] back to the state is also ridiculous. The “state” of America was created by individuals who pledged THEIR personal wealth. lives and sacred honor. It came from THEM and their vision and THEIR personal success.

So long as their efforts and money support the “state” it is the “state” that owes value back for value received. As to a “balanced budget, that, too is owed “we, the people”. We have never authorized ANYONE to spend for ANY reason money WE do not have before we even earn it and our Constitution invests NO ONE with such power, elected or not.

Each human does all that they can in their brief life to improve their lot and that of their family. Taxes should be “fair” if that term’s definition can ever be agreed. They should never exceed in total that amount NECESSARY to accomplish authorized purposes of our federal government, and then only to the degree NECESSARY! Our society acknowledges individual success in the form of patents and copyrights that survive death and the right to educate to advantage or establish in a vocation or business our friends and family. To confiscate all upon death is to return to the hunter-gatherer American Indians who might exclude from the campfire the widow of the Chief upon his death. That is not a good example of a progressive or compassionate modern society.

The two primary problem with governments today. Each and every unelected and unaccountable bureaucrat has at their individual disposal the power to increase the “cost” of doing business or even living in this country. Perhaps worse, our judiciary has made themselves essentially unaccountable to “we, the people” purportedly served, the legitimate laws of the land they purportedly exist to enforce AS WRITTEN insofar as possible, unilaterally and without effective challenge. No longer do the mandatory oaths each must take before assuming the robes and function of office have any meaning for there is no meaningful penalty for violating same.

I’m not sure how or if we can fix these current realities, but is isn’t by abolishing the income tax, the property tax, the sales tax, etc. Tax money is the crack cocaine of the political process, and we will fight a losing battle just to avoid a new and eventually even more expensive “Value Added Tax”. Any tax is the nearest thing to eternal life we are likely to ever observe!

Posted by OneOfTheSheep | Report as abusive

OneOfTheSheep,

For your information, immediately after graduating from high school in 1960, I went into the military to finish my service obligation, since the draft was going on at that time and I was not able to find a job because of it.

Since I was born poor — being raised by my grandparents on social security after being abandoned by my parents — I did not have the opportunity to go to college.

After completing my military obligation in 1965, I worked in the commercial printing industry as an estimating department supervisor for one of the largest business forms printers in the US for nearly 17 years, bidding on print contracts for commercial and for the government printing office.

Since the business form industry was clearly dying, I decided to go back to school full-time. So, in 1980 at the age of 40 years old, I went back to the University of Wisconsin as a full-time freshman. I worked as the manager of the University Center Print Shop, and took out loans in order to finance degree.

I completed my BS in Managerial Accounting in 1983 by going straight through without stopping for any summer breaks, and finished with a very high GPA.

After I graduated, I took a job as a cost accountant for a high-tech firm in Hillsboro, Oregon. Since then I worked my way up to Plant Controller and Finance Manager for several international high-tech firms.

My job was outsourced to China, and I was forced to take early retirement at age 62, otherwise I would still be working.

While I was working full-time in the high-tech industry, I managed to become a CPA in 1987, and completed my MBA in 1992.

And, yes, I can document both of them.

Now, if that isn’t legitimate experience and credentials, I’d like to know what is.

I do recognize your “OneOfTheSheep” name from other moronic postings you have made on other websites.

Care to disclose your credentials?

David Cay Johnston, according to his public resume, is “an investigative journalist and author, a specialist in economics and tax issues”, just like any other holder of a high school diploma.

His Pulitzer prize means nothing in terms of real education and experience. I have awards myself, but I don’t try to make a living by exploiting them.

People like him are a scam, and I am annoyed because he is being presented as though he has real credentials in business and economics.

In fact he is nothing more than a newspaper reporter with a high school diploma who got lucky for some reason.

Can you give me one single reason why I should pay attention to a newspaper reporter with a high school diploma?

Does he have anything valuable to contribute to my knowledge? I think not. And for Reuters (or the New York Times, same difference) to employ this individual is a fraud, because most people won’t bother to check someone’s credentials.

Now, your turn — let’s hear all about your extensive experience and education.

I will keep this page bookmarked if you care to answer me.

Perhaps you remember me under another name I usually use, especially on Bloomberg, which is where I think I remember your inane comments.

PseudoTurtle
CPA/MBA

Posted by Gordon2352 | Report as abusive

Mr. Johnston,

The fact that you teach or have written books means nothing to me without the appropriate credentials.

I have met numerous people in both categories with nothing of substance to say about the topic they are supposedly an expert in.

Your “knowledge” appears to me to be very narrow, which means you do not understand the subject in sufficient detail to understand all the ramifications of what you are proposing.

When I read a news article by someone supposed to be an expert in that field, and then find out they are not, it is irritating to me.

I think I understand the subject better than you.

So when you say:

“Ditto Gordon2352, who may be surprised to learn that I teach tax, property and business regulation to law and graduate business students, using the law of the ancient world to illuminate the principles — and the capriciousness — of modern tax, property and regulatory law.”

That sounds like a scam to me, since I know these things very well. I have no desire to teach, but could teach all of these courses with no problem.

I also attended Marquette University School of Law — and had to drop out due to lack of funds — but I don’t try to teach law because I am clearly not qualified to do so.

Your argument that you are qualified to teach me anything about economics or tax law is not going to convince me of that, since I have only your word for it, and I do not intend to waste my time reading any of your books.

The problem is there are many other people out there who do not understand, and accept your ideas without question.

PseudoTurtle
CPA/MBA

Posted by Gordon2352 | Report as abusive

@Gordon2352,

I really hate to break your bubble, but life isn’t “about you”. In those cases where we can make others stop and think, perhaps challenge even their own perspective, there can be value given and value received.

Push come to shove, no one CARES that YOU think YOU understand a subject better than someone else (and it shows). The most any educator can do is present information before those they would influence so that any wisdom or value is easiest to see. Intimidation has no proper place in their acceptance or rejection of it.

I will not play “degree poker” with you. You would win, yet my “loss” would make you no smarter or more wise or more persuasive than you are now. Such silliness is simply irrelevant off campus.

Your resume is that of a pencil pusher, not “for profit” business management and related decision making. I am a successful, if retired, entrepreneur; and before that I enjoyed employment in diverse technical fields as both owner and employee.

We have all met people who have years and years of experience but that quit learning the second day “on the job”. Some, perhaps like you, endure years and years of academic drudgery and expense or employment for wages with little to show for it.

The “bottom line” is if the school janitor originates a process by which the human race becomes “clean energy independent”, is the accomplishment any less? I don’t think so.

Posted by OneOfTheSheep | Report as abusive

OneOfTheSheep,

Might I point out that you were the one who questioned my credibility, and challenged me to a game of “degree poker”.

Clearly, you are not holding a winning hand, so your bluff failed when I “called”.

Most of what you say — not only this time, but in other articles — is complete and utter nonsense.

You are not worth my time in order to respond to your rantings.

PseudoTurtle
CPA/MBA

Posted by Gordon2352 | Report as abusive

Is the question here one of ideas to be examined or the qualifications of one who puts forth a proposition? Who cares what his qualifications are?

I cannot see what would replace the income tax but that could simply be my failing. Consumption taxes and a flat tax have the result of penalizing the poor and continuing the 30+ years of redistribution of wealth from the poor and middle class to the wealthy. I am amused by those complaining that raising the marginal rate from 35% to 39.6% (pre-Bush tax cut level) is redistribution of wealth. Lowering the marginal rate from 70% (50% for earned income) to 28% under Reagan was redistribution of wealth. Goal accomplished. Wealth has been redistributed.

You can talk about my credentials as MS/CPA who both teaches and maintains a tax practice, or we can discuss what I have posed to you.

ektax

Posted by ektax | Report as abusive

Interesting. Mr. Johnston is proposing that in risky times that interest rates rise to reflect that risk. Radical. But wait. Wasn’t that what we were taught in high-school?
The point of interest was to reflect the risk profile. Are these stable, or risky times.

The system seems rigged by the big five players that compose the Fed, and control the Open Market Committee that sets the rates.

King Knut was making a point when he walked to the beach and ordered the tide to go out. Dang, the tide did not obey. The point was that there are limits to power. Apparently, some in the banking world do not see this point. Just like the bankers in Hong Kong would not write down their losses and created the opium wars.

On another point, I wish Gordon2325 and a few others would limit themself, so we could discuss, as a bunch of strangers and civilians how this question might bear upon our future.

Posted by TheOldSodbuster | Report as abusive

i propose a simple and straight forward process for taxation(which would be it’s demise) – “income tax” not tax whatever’s left after taking umpteen deductions, credits, special deductions, credits, etc. pure and simple – tax income generated that year – both corporate and individual. the only deduction allowed would be corporate for that portion of income given as dividends or bond interest, so there’s only one taxation. i suspect the number to obtain a balanced budget would be in the 5% range, give or take. of course this would never fly, as the wealthy and corporations typically pay less than 5% of their gross income in taxes. the vast majority of us would benefit – another reason it would never happen in my opinion.

Posted by jcfl | Report as abusive

David,

Mitt Romney’s controversial, personal low tax return rate brings renewed attention to the concept of tax fairness and tax reform. This is the first presidential campaign in 20 years to have taxation and tax reform at the forefront. I hope “the press” stays on the subject. Sweeping tax reform can be pro growth and pro employment.

We have had Herman Cain’s attention spike with the 9-9-9 plan, and Rick Perry’s reincarnation of Steve Forbes’ flat tax. In 1992, Steve Forbes ran on his take on the Hall-Rabushka flat tax, Phil Gramm called for earned and unearned income to be treated equally, and Jerry Brown called for a VAT complemented with a flat income tax. In 2010, Mitch Daniels echoed Brown’s plan, and received a knee-jerk blast from anti-tax republicans who fear that a VAT will be an add-on tax.

The republican primary candidates are all calling for tax cuts at a time when government expenditures are 40% higher than revenues. No one really believes that manageable cuts to defense, medicare and social security can shrink that 40% deficit gap by half. Nor has deficit spending successfully grown the economy and increased employment in the last several years.

After all politically practical cuts are made to spending, taxes will still need to rise. Republicans will argue that lowering taxes will boost economic growth and obviate the need for additional tax revenues. There is no such evidence.

Tax reform that includes replacing the Corporate Income Tax with a VAT as one component would have a positive effect on exports, domestic production and jobs. VAT is used by all our trading partners, including China, to exclude the cost of government from the price/value relationship of goods and services in international trade. It is border-adjusted, i.e., subtracted from exports and added to imports. Replacing the CIT by VAT would eliminate the double-taxation of dividends, encourage the return of multi-national profits now parked in lower taxed countries, and stimulate foreign investment. Imports would carry an equal burden, and domestic goods would be more competitive.

As Mitch Daniels suggested, couple the VAT with zero tax preferences with a zero deduction Personal Income Tax with a high threshold and progressive rates and we will have a tax system that is fair, competitive, and stimulative for jobs and growth. Gone would be the corrupting lobbying for loopholes. And, Mitt Romney would pay a much higher, but fair tax.

Steve

Steve Abramson
VATinfo.org

Posted by VATfan | Report as abusive

No one gets it. When the U.S. went off the Gold Standard and fixed exchange rates, the need to balance internal and external accounts was also abolished. Now, all we had to do was guard against inflation since the dollar’s parity with gold was no longer required.

The essence of this paradigm shift in monetary and fiscal policy is that we, as the sole issuer of our currency unit of account, could never be insolvent in our own currency. Government (the Treasury and the privately owned Federal Reserve System (Central Bank)) would issue sovereign fiat currency in cash (coins) and Treasury Securities and Federal Reserve Notes backed by the credibility of the government not specie.

As the sole issuer of the currency, government would never be constrained by revenue to spend. Taxation and interest rate policy would serve only to manage aggregate demand. Tax reciepts would no longer be used as revenue with which to pay for goods and services required by the public sector. Why, when gov. can issue all the currency it needs, would it need revenue?

In this new monetary environment the government would need to, first, spend fiat currency before it could tax or borrow. These stabilization tools would assure the achievement of public purpose… eliminating unemployment, managing inflation and deflation, and providing for the Commons, economic sustainability, absent the vicissitudes caused by fixed rate monetary policy.

However, it didn’t and probably won’t work out that way because not enough people in leadership understand the significant difference between the old system and the new. As a matter of fact not even the President’s advisers appear to know the difference. They allow him to repeat the canard, that America could go broke if we don’t cut “entitlements” defense, etc.

First, we can’t go broke. We issue our own currency. Second, we don’t need to cut programs to eliminate the debt. Doing so increases financial and social costs to society. Third, it is axiomatic that government deficits ADD to our savings (to the penny). This is an accounting fact, not theory or philosophy. There is no dispute. It is basic national income accounting.

A $15 trillion government defict in 2011 means that the net increase in savings of financial assets for everyone else combined was exactly, to the penny, $15 trillion.

The net savings of financial assets is some combination of cash, Treaasury securities and member bank deposits at the Federal Reserve. This simple identity is misrepresented continuously by favored economic advisors, the media financial mavens and pundits, and the highest levels of political authority.

THEY ARE JUST PLAIN WRONG.

If you’d like to learn about other frauds of economic policy in a modern money system visit http://www.moslereconomics.com and http://www.modernmoney.wordpress.com

I have excerpted the above from these to brilliant sources, Professors Warren Mosler and L.Randall Wray,
co- founders of Modern Monetary Theory.

If you read there books you will experience an epiphany.
They prove without a shadow of doubt that exports are costs and imports are savings. That deficit spending should be curtailed only when full employment is achieved.

Please, please don’t fall into the deficit terrorist’s trap by thinking a nation producing it’s own currency can go broke.

Posted by PotomacOracle | Report as abusive