A Centrist’s Platform 2008 — Taxes

(This is one of a weekly series of posts entitled “A Centrist’s Platform”. The complete collection of Centrist’s Platform posts is available on a single page, or via a special RSS feed.)

One of the reasons I decided to relaunch the “Centrist’s Platform” came out of listening to a town hall meeting in which Mike Huckabee talked about the Fair Tax.  My desire to mull about the concept lead to a desire to do an entire series of articles of a political bent.

So, this week I’ll finally take on taxes.

I’m somewhat conflicted when it comes to the topic.  On the one hand, like many Americans, I hate taxes.  I want to be taxed as little as possible, with the government collecting the bare minimum required to efficiently provide the services only it can provide.  I’d rather that other folks paid for those services, not me,  and that the financial and accounting gaming that seemingly permits some folks and corporations to dodge the tax bullet were ended.

On the other hand, to the extent that government should be called upon to encourage (or goad, as the case may be) its citizens to progress in a positive direction and to provide a safety net for the less fortunate (but not the merely lazy), taxes can be a most effective tool in the state’s toolbox.

Our current tax structure is, at first glance, seemingly needlessly complicated.  Perhaps that’s why the Fair Tax appealed to me when I first heard about it.  Eliminating an entire bureaucracy, an entire (in)justice system, an entire massive shadow codex of laws with a smaller bureaucracy necessary to support a simple 30% sales tax has an initial simplistic appeal to me.

I’m also intrigued by the idea of a consumption tax as a vehicle to encourage folks to save money rather than waste it with overconsumption, not to mention getting the magnitude of the tax burden on society out front and center in a number everyone can be painfully familiar with.

However, where I start to run into trouble with the Fair Tax…or any major shift  in tax theory…is in the potential disruption to what I’m going to be paying.  In theory, my take-home pay should be higher, since it would be unencumbered by federal taxes, and the pre-tax cost of goods and services should be lower as they no longer need to load their prices for taxes they or their suppliers (or their suppliers’ suppliers…) pay.

However, figuring whether this would be a net win or net loss to me, or to many folks, is beyond me due to the number of moving parts involved.  True, some entities have made an attempt to make such evaluations, but I can’t help be suspicious of their possibly having oversimplified the calculations, or being subject to motivations that would trigger a certain bias in any assumptions made.

I also have to wonder about the potential impact of losing taxation as a tool when taking a “carrot and stick” approach to changing society’s behavior.  Is it a good or a bad thing for government to lose the ability to (say) provide tax incentives to transition to renewable power generation, or to disincent overconsumption of nonrenewable fuels or avoidance of health insurance.

If we, as a nation, were to seriously consider overhauling our tax system, here are a few items that I’d like to see considered:

• First and foremost, we need to see some fiscal discipline reacquired by the government.  If the feds are going to continue to spend money like a horde of drunken sailors, any change in fundamental tax philosophy is going to be moot.
   
• Where possible, I’d like to see a shift towards “user fees” (or highly focused taxes) in lieu of broad general taxes.  Individuals and businesses who consume a government service or a public resource ought to compensate the government or the public for that consumption.   If that means the costs of some goods would be higher due to this specific load, so be it.
   
• Fair Tax notwithstanding, I do wonder if it’s wise for so much of our federal revenue to be dependant on income taxes, given the games that can be played.  I do wonder if there might be some wisdom in introducing real property or consumption-based taxes in lieu of pure income tax, if only to bring “the underground economy” into the tax system, and to reduce the problem of legal constructs being used to avoid income tax.
   
• I agree with the notion that the Internal Revenue Code is too complex and ought to be simplified.  However, any transition should be phased in over several years.  For example, a 5-year transition could be defined, where in year 1 80% of income tax would be derived from the current system and 20% from the new; in year 2 60/40; etc.

However, again I should point out that the very first thing that needs to happen is re-adopting the notion of fiscal responsibility in Washington.   If the feds are going to cause me angst with tax reform, I’d like to see some evidence that they aren’t frittering it away and maxing out the federal credit cards to boot.