This has become the Mantra of Tax Reform, replacing -- at least temporarily -- the Mantra of Simplicity that came out of the Forbes Tax Shop some years back: So simple, you can file your taxes on the back of a post card. Of course, most people file online these days, and hardly anybody would know what this thing called a "post card" is anymore.
There was an op-ed in my morning newswipe about "Broadening the Tax Base and Lowering the Rates" of California state taxes, written by a local (former) pol and prominent business owner (car dealerships).
His main premise is that the California's tax system is a nightmare that relies heavily on the income tax which, in a word, is a somewhat volatile revenue source. "We are dependent upon a system of taxation that us overly reliant on burdening the productive sector of our economy and so highly volatile that it makes rational budgeting very difficult."
Yes, well.
His solution? "A more rational system of taxation is one with the broadest possible base and the lowest possible rate that brings with it the built-in ability to pay. The broad base is to appropriately share the burden of public services. The lowest possible rate is to minimize the drag on the economy. The built-in ability to pay is to provide equity in the exaction."
Essentially, what he is advocating is a flat rate income tax of 4% with no deductions. In other words, "everyone pays." This is the key concept to understanding what he and and everyone else who has advocated "broadening the base" and "lowering the rate" of income taxes is really talking about. There are plenty of people in California who don't pay state income taxes -- because their incomes are too low -- just like there are plenty of people nationally who don't pay federal income taxes. This is considered to be a deeply offensive and unfair situation, "punishing" the successful and "rewarding" the parasites. It's an article of faith with these people that taxes are punishment, and that they should not be punished for their success.
So what they want is a flat income tax that is imposed on everyone regardless of their income. This is actually a step beyond the Forbes plan of years gone by. In that version of the flat tax proposal, there would be a rather large exemption (say, the first $35,000 of income; a subsistence level for a family in other words) that would not be subjected to the income tax. That's been abandoned by the "tax reform" crusaders. Now, they want every dime of wage income to be taxed -- at the same rate for millionaires and field workers.
This, they believe, would allow lowering the tax rates to 4% in California for state income taxes. The current highest rate is 10% with a 1% surcharge on the highest earners to pay for mental health services (which still aren't being adequately delivered, but that's another issue).
If every dime of a worker's wages is taxed, much like the way the payroll tax applies to every dime of a worker's wages up to $106,800, "studies show" that a revenue neutral equilibrium would emerge at a 4% rate in California -- thus cutting the income tax rate for everyone earning an AGI of more than $26,821 (cutting it by well over half for those in the upper income brackets), while increasing the tax punishment on those earning less. Since deductions would no longer be allowed, many more Californians would be subjected to paying income taxes than is currently the case.
This is supposedly "tax fairness."
In addition, there is a push underway by people who sell things (as opposed to service providers) to extend the sales tax to services as well as products ("why should the government be in the business of picking winners and losers?") -- and simultaneously lowering the sales tax rate.
Property taxes (rigorously controlled in California under Proposition 13, primarily to the benefit of commercial real estate) would remain the same. For now.
So basically what this op-ed writer and many others who think like him want to do is to base taxation and revenue almost entirely on the number of payers rather than on ability to pay, quite the opposite of what we have been doing (at least with the income tax) since the beginning.
He didn't get in to "Death Taxes" -- but I would assume he is in favor of their abolition.
Let's start with some First Principles here:
These simple principles are being lost in the urge by America's wealthiest and most privileged to extend the income tax to "everyone," and to continue to substantially lower their own income tax obligation.
That's what "broadening the tax base and lowering the rates" means.
If you're poor, you'll pay more. If you're rich, you'll pay less.
Is that the country we want to live in?
See also:
http://chewhatyoucallyourpasa.blogspot.com/2011/06/broadening-tax-base.html
[I feel like I have to keep repeating what should be obvious. Whenever anyone in the media or politics refers to "broadening the tax base and lowering rates" they are talking (in code) about increasing taxes on the poor, the working classes and the middle class, and reducing or eliminating taxes on the rich, on corporations, and on estates.]
This reminds me of something Michael Hudson said, "The wealthy won’t pay their taxes, so labor must do so."
ReplyDeleteUltimately, even though this is quite bad by itself, this is likely only a first step. Since it can't possibly raise enough revenue (one of the reasons we don't tax the poor in this country is that they literally don't have any money left after they pay for necessities, hence Wal-Mart employees on public assistance), there will need to be some alternative revenue raising schemes cooked up. You can be sure that those schemes will fall mainly on labor.
This has become a chief goal of the rightists. They call it tax "fairness."
ReplyDeleteIt goes well beyond the flat tax crusade of years gone by. Apparently, the rightist think tanks have come up with figures (which I haven't seen) that "prove" that by increasing taxes on the working class, the poor and the lower middle class, everyone else's income taxes can be substantially reduced (like cut in half at the highest brackets.)
It's become an article of faith.
And it's gaining ground among the ruling class. Obama has been making noises about "broadening the tax base and lowering rates" too.
So you know something along those lines is going to be introduced, possibly passed, and when taxes on the many are increased while taxes on the select few are halved, what will happen?
My crystal ball broke.
I guess we'll just have to wait and see.