All we want is a fair, simple tax system
Special to the Appeal
The annual Rube Goldberg contest challenges teams of college students to come up with insanely complicated machines that perform simple tasks.
This year, the winning team from Purdue University created a machine that assembles a hamburger in 156 steps.
This competition is limited to machines, probably because if it weren’t, there would be the same winner every year: The Internal Revenue Service.
Every year at tax time I think about how many billions of dollars are spent on what is probably the most wasteful and unproductive activity in this economy: Figuring out our taxes. Rube Goldberg himself couldn’t have dreamed up anything so convoluted and stupid as our tax laws.
Just give us a simple and fair tax system.
Since no one in Washington has come up with one, let me give it a try.
Let me state first that I believe every person and business should pay at least some minimum tax, no matter how rich or poor. Everyone benefits from the government, and everyone should have some investment in the system.
It’s also not fair that corporations can get away with paying little or no taxes because they can afford the fleets of tax lawyers and accountants to work the system. That system is rigged in their favor, at the expense of small businesses where most of our economic growth is coming from. Mom and pop businesses can’t afford all those lawyers and accountants, and they can’t relocate their company headquarters to the Cayman Islands, either.
So the first part of my plan is a Universal Tax of 1 percent on the gross income of every individual and business. This could mean a sizable tax increase for some businesses, but they can mitigate that cost by getting rid of all those lawyers and accountants, since their taxes will be easy enough for a fifth grader to calculate.
I wish we could just stop there, but that 1 percent isn’t going to pay the bills. There will have to be some other tax to make up the difference.
There are a lot of liberals out there who don’t like the idea of a flat tax. I’m not one of them. A flat tax can appear to be unfair, since any rate that approaches the kind of revenue needed would mean a big increase for those at the bottom, and a huge break for the richest of the rich.
But if you structure it right, you can make it pretty fair.
The top IRS tax bracket is 35 percent. But this is misleading. No one pays 33 percent of their income in federal income taxes. That’s what all those tax lawyers and accountants are for. Besides that, the richest Americans get a large amount of their income from stock dividends and capital gains, which are taxed much less. So, as billionaire Warren Buffet has pointed out, his secretary pays a higher tax rate than he does. The real rate they pay is closer to 25 percent, if not lower.
With that in mind, let’s consider a new tax rate of 25 percent across the board on all personal income, with no deductions or special breaks. That shouldn’t increase the burden on the wealthy too much.
But what about the poor? To make sure not to bury all those people at the bottom of the ladder, all you have to do is exempt the first $30,000 of everyone’s income.
So, if you are making $60,000 a year, your total tax burden would only be 12.5 percent, plus the Universal Tax of 1 percent. For someone making $1 million a year, he or she would pay a total of 25.25 percent.
The figures I’m using here are just examples to demonstrate the concept. Turning this concept into reality might mean that the total rate and exemption level could change. It also doesn’t take into account such politically sacrosanct deductions like those for mortgage interest, charity, retirement and health care. All of these could still be dealt with in a simple fashion that doesn’t require a tax lawyer to figure out.
It is possible to make a tax system that is more simple and fair than what we have now. The people who will not like this system are the lobbyists and the politicians who do their bidding. They love the Rube Goldberg machine that is our tax system.
Perhaps what we need is a machine that takes 156 steps to give those people the boot. And then we can think of April 15 as a nice, spring day again.
• Kirk Caraway writes for Swift Communications, Inc. He can be reached through his blog at http://kirkcaraway.com