There was a recent Associated Press report that the super rich are paying even less income tax now and over half of the US pays no income tax. (See this link)
Can we continue like this? No, I don't think our current income tax system sustainable in the long haul. Not only are wealthy individuals able to dodge the income tax, the corporations are also avoiding taxes and doing even better! There was a good report on 60 minutes a few weeks ago about how all of the major corporations are now "offshore" and avoiding most of the state and federal income taxes. (If you didn't see it, click here: http://www.cbsnews.com/video/watch/?id=7360932n&tag=cbsnewsMainColumnArea.10
Our income tax laws are far too complex! They are welfare programs for the accountants and lawyers --and, of course, the tax preparers. Filing taxes invades our privacy, and makes us "guilty" until we prove our innocence by filing our deductions. The incentives in our tax system to encourage social improvements are no longer very effective because of the complexity in the system. For example, if I buy a new solar panel for my roof, what is the net savings in taxes? It is difficult to figure out without running Turbo Tax on a pro-forma tax situation. When an individual or corporation makes a decision it is not obvious what the tax implications of that decision will be. It used to be much more simple.
I think it is time the US converted to a Value Added Tax (VAT) similar to what most other Western nations use. It is self-auditing and easy to administer. It taxes "consumption" and rewards saving and conservation. It promotes quality products rather than "throw away" VAT also "taxes" the people who work "under the table" since everyone has to buy stuff. Illegal immigrants, drug dealers, smugglers, and homeless bums will all have to pay VAT when they buy something.
There should be a small tax on interest and dividends that is collected by the banks and corporations and deducted before being sent to individuals. Eliminate capital gains tax -- that encourages people to invest for the future, rather than spend today. That helps to reduce inflation.
A lot of economists like the VAT. See this article on CBS News. However there is plenty of opposition and resistance to change.
- Liberals in US have traditionally fought against it because it looks like a "sales tax" and argue it would affect the "poor" more than the "rich" -- But helping the poor through taxes isn't as effective as direct help for medical, housing, education, or food.
- Conservatives like the laws as they are, because they can take advantage of it and pay very little corporate or personal income tax.
- All lawyers, accountants and tax preparation companies, of course, would be against a VAT for job protection. (Majority of our Congress/Senate are lawyers). The tax preparation companies have huge lobby budgets and contribute to most politicians re-election funds.
- Most people wouldn't care or be affected on their "bottom line"--but we are all concerned that if a new tax (VAT) is created, the old one (income tax) should be completely eliminated --otherwise it results in simply more taxes and more complications. Once a tax is created, it is difficult to "kill" it.
A VAT will eliminate a lot of wasted effort in our economic system. For example: Most corporations need to keep two sets of books for tax laws. It will also discourage the "off shoring" of our corporations which is also just a big tax scam and waste.
Finally, it will put our companies on an equal footing with competitors in other countries. VAT doesn't have to be collected when the end item is exported which puts our US corporations at a competitive disadvantage.
Our taxation system is going to "choke" on the baby boom generation now starting to retire. As more of us retire, there will be a smaller percentage of workers with "taxable" income. However, since everyone "consumes" a VAT will be able to tax us baby boomers even though we're not earning much income.
I think it will be a tough sell to the US citizens to get a VAT implemented. However if we could get some real leadership in our Government, with careful explanation, I think it could be done. Maybe Obama could pull it off in a second term.
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