krebscycle

If you are a hard working plumber your income will get taxed at around three times the rate paid by a hedge fund manager – because his income is classified as “capital gains” and yours is “earned income”.  The usual excuse for this tax gift to the hedgie is that it encourages job creation, but obviously the hard working  plumber is boosting the economy just as much or more than someone who is placing bets on the stock market.  When anyone objects, however, we get a chorus of people yelling that the hedge fund employee is just  keeping his own money  when it is more accurate to say he is keeping the plumbers money. Every dollar that the government spends on inspecting meat or paying soldiers, or protecting the border or keeping your grandmother in a nursing home or even paying interest on the debt comes from taxpayers – and the hedge fund guy is getting special treatment that allows him to avoid paying his share. Someone else has to pick up the load. The same goes for special deductions for luxury jets provided to corporate executives (a “security deduction”) or the deduction for mortgages on second homes or any number of other “tax gifts” that go the best connected.

The people who are paid to sell this unfair system to the public rely on the complexity of the tax system to disguise the extent of the scam. Suppose there was one grocery store in town and you were both a customer and a partner.  Looking at the books, we discover that the cashiers have been getting payments on the side to let some customers walk out with boxes of caviar and champagne without paying – so bread and hamburger  prices are higher to make up for lost revenue. If one of the shoplifters said: Prices are too high in this store, my “special deduction” just lets me keep my own money, few would be fooled. But the Federal budget and tax system is so complicated that people who are basically shoplifting have been able to deflect criticism by making exactly this argument: those tax treats  just let me keep my own money. If everyone paid the standard rates, those rates could be lowered for everyone. The system of tax gifts allows connected people to pay at an effectively lower rate – which is why a very wealthy man like Mitt Romney can pay 12% while a plumber or surgeon or a secretary will have to pay higher rates. 

The way to reform the system is simple: all income should be taxed under the same rate schedule and whatever few “deductions” are permitted should be capped. There should be no tax advantage for people who can afford fancy tax advisors and lawyers in five countries.  The complexity in our tax code comes from the million ways to deduct and the hundreds of classes of income – we should treat all income as the same. That’s why the so-called flat-tax is an out-and-out fraud: the rate schedule is not the complicated part of the tax code, the system of deductions and different classes of income is the complex part.

The way to reform the system is simple: all income should be taxed under the same rate schedule and whatever few “deductions” are permitted should be capped. There should be no tax advantage for people who can afford fancy tax advisors and lawyers in five countries.  The complexity in our tax code comes from the million ways to deduct and the hundreds of classes of income – we should treat all income as the same. That’s why the so-called flat-tax is an out-and-out fraud: the rate schedule is not the complicated part of the tax code, the system of deductions and  shelters is the complex part.  Too bad that tax gifts are so lucrative that the people profiting from them can hire an army of scam artists to keep selling them to the public at our expense (all those tax deductible lobbying organizations live on the the wrong side of the tax gift system).