Will WE Ever Get Tax Reform? (The Politics of Tax Reform, by GWB Economic Advisor)

American Enterprise Institute ^ | 11/4/97 | Larry Lindsey

[Leto]

However, one is not about to alleviate those problems by retaining any form of the income tax, or by using income based business taxes, as history has very amply demonstrated. Such taxes always lend themselves to definition of what is income versus what is allowable as a deduction. VATs and bracketed income taxes, being outside of the perceptions of the majority of the electorate through exemption and non-participation, such shennanigans are the rule of the day.

The same things will happen once any new tax system is put in place. Exemptions from the sales tax will be demanded in the name of fairness. I prefer eliminating business taxes, and taxing the profits the owners take from the business. Public have to declare their profits for the markets already and will continue to do so. Business exemptions will be removed (BTW Hollywood has tons of this stuff). In the case of privatly held companies and small business the profits the owner takes will be taxed when removed from the business. If profits are not removed from the business and used to grow the business (tis usually involves buying new plant & equipment and hiring new workers) this activity shouldn't be taxed when the owner realized the subsequent profits and takes them from the business (as salary dividend or capital gain) it is taxed as income, this process is managable.

[ancient_geezer]

There seems to be rumors that O'Neill will leave in the next couple of months.

Those rumors only lead one to infer that Lindsey will be leaving and and that O'Neill might will not fill his shoes.

O'Neill's days at Treasury numbered 

"BY ROBERT NOVAK SUN-TIMES COLUMNIST If Lawrence Lindsey resigns as President Bush's national economic director, would the administration's economic leadership problems be solved while Paul O'Neill remains as secretary of the Treasury? The confidential answer from the White House is an unequivocal ''no.'' "

The statement of whether or not either is actually leaving, especially O'Neill is never really raised. Only the hypothetical If "Lindsey resigns" is ever suggested.

The only statement made is "while Paul O'Neill remains as secretary of the Treasury", the administration's economic leadership problems would not be solved.

Hmmm! One would be advised to ask what economic leadership problem is a SecTreas supposed to solve? I sure don't see one.

Lindsey is "economic Director", and said office is not expected to be filled by SecTreas Paul O'Neill, by anyone.

In other words the whole question is a strawman, with no substance, but gives Novak something to write about on an otherwise lackluster day.

[jayef]

Flat Tax, Sales Tax. What difference does it make? Unless spending is curbed dramatically, your tax burden will be the same. It's the spending, damn it!

[ancient_geezer]

The current system is a real VAT also

Not far from it, you're starting to learn:

http://www.taxfoundation.org/foundationmessage03-00.html

"Under the WTO definition of the term, a sales tax is an indirect tax, as is an European-style VAT. The economic equivalence of an European-style VAT and a subtraction-method VAT is well-established. A subtraction-method VAT is essentially identical to a business income tax except that all purchases of plant and equipment may be expensed, rather than depreciated as under current U.S. law."

It is interesting that Hall Rabushka and Mitchell describe the Flat Tax as a Consumption tax the same as an NRST such as HR2525 or the Tauzen NRST.

By the economist's equivalencies, any tax that does not tax investment is a "consumption" tax, regardless of its mechanics.

Consumption = Income - Investment

Retail taxes are applied to the left side of the equation, VATs to the right side of the equation.

[ancient_geezer]

Flat Tax, Sales Tax. What difference does it make?

A little matter of your liberty, personal privacy of your finances, and visibility of the tax.

Unless spending is curbed dramatically, your tax burden will be the same.

How does one encourage the public demand a curb in spending, when the majority of voter's dos not perceive the real cost of their clammer for largess.

Milton Friedman as quoted by Northwest Florida Daily News, 10-16-2000:

• "If we're to have an income tax, it's a good thing for everyone to pay at least a nominal amount," he said. "If non-taxpayers become a majority in society, what would restrain them from voting for ever higher taxes on others?"

 

Walter Williams, World Net Daily, 10-25-2000

If you're among those who pay little or no federal income taxes, what do you care about tax cuts? Moreover, if you think tax cuts pose a threat to government handout programs, you might be openly hostile and support Al Gore's silly "risky scheme" talk. So many Americans paying little or no federal taxes makes for a natural spending constituency. It's like me in the restaurant: What do I care about extravagance if you're footing the bill?

 

Right now the bottom 60% perceive little to no "Individual Income Tax" burden,(in many cases even a handout) and 70% of the voting public clamors for more from government looking for the top 40% of income earners/producers to foot the bill. That perception continues to grow ever stronger by eliminating even more participants from the Federal Individual Income Tax rolls as proposed in the tax reduction proposals through changes in personal exemption limits and other mechanisms such as the EITC.

Those who perceive little burden play the role of Poor little Paul:

Effective Individual Federal Income Tax Rate (Percent of gross income)
Income Category	1977	1979	1981	1983	1985	1987	1989	1991	1993	1995	Projected 1999
Lowest Quintile	-0.6	-0.8	-0.2	-0.5	-0.2	-1.3	-1.9	-2.9	-3.4	-5.6	-6.8
Second Quintile	3.6	3.9	4.6	3.5	3.9	3.2	3.3	2.7	1.8	1.8	0.9
Middle Quintile	7.1	7.5	8.3	6.8	6.8	6.1	6.5	6.3	5.9	6.1	5.4

Those that readily perceive some of the burden.

Effective Individual Federal Income Tax Rate (Percent of gross income)
Income Category	1977	1979	1981	1983	1985	1987	1989	1991	1993	1995	Projected 1999
Fourth Quintile	9.7	10.4	11.3	9.5	9.3	8.7	8.9	8.7	8.5	8.7	8.4
Highest Quintile	15.8	16.3	17.1	14.5	14.3	15.1	15.1	14.8	15.5	16.2	16.1

To play the role of mean ole Rich Peter.

While Congress plays both ends against the middle; hiding the real burden in inflation, higher prices on all goods and services, lower takehome pay, lower return on investment, and higher interes

While Congress plays both ends against the middle; hiding the real burden in inflation, higher prices on all goods and services, lower takehome pay, lower return on investment, and higher interest rates. All keeping the poor right where they are and pushing for more freebees.

Consider that 15.3% SS/Medicare tax on the 1st $75K of wages/self-employment income, plus the 6% Federal/State Unemployment tax, all of which are but a portion of the effect of federal taxes embedded the price of all products we purchase. Taken together with the Individual tax rates above we all pay more than:

Effective Total Federal Tax Rate (Percent of reported income)
Income Category	1977	1979	1981	1983	1985	1987	1989	1991	1993	1995	Projected 1999
All Families	22.8	23.4	23.5	21.4	21.8	22.6	22.5	22.6	23.5	24.7	24.2

Data from IRS collections statistics and The Bureau of Economic Analysis as compiled in tabular form by the Congressional Budget Office.
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

---

We wonder why over 60% of the voters PERCEIVE no problem with the taxrates and vote for polidiots that promise to bring home the most bacon because they are the only ones that benefit from higher taxes with more spending on socialistic "gimme" programs. As this continues under Bush or anyone else for that matter, expect a liberal tax and waste congress for many years to come.

To remove taxation of the individual, is to remove the goad which assures accountability of government to the electorate. Federal tax rates are high because a majority of the electorate do not share proportionately in the burden their demand for largesse imposes on the minority of citizens.

The siren call for representation without taxation is the formula that got us where we are at today. The ability to hide or disguise taxation from the view of large sectors of the electorate allows the Congress to get away with the creation of the evergrowing monster that it fosters.

A government which robs Peter to pay Paul can always depend on the support of Paul.
-George Bernard Shaw

Liberty and freedom have a price, responsibility. If that price is avoided there are no brakes on the growth of government, the ultimate result is the end of freedom through creeping socialism.

The Original Intent of the individual income tax is for political and social control not revenue collection. The Individual Income tax is maintained to establish and hold every person in the country perpetual legal jeopardy. That is a situation that must end with the repeal of the income tax from the statutes, and the prohibition of its use by Constitutional amendment that future generations will not face the same manner of manipulation and interference in their lives.

[Moonman62]

Now I know why President Bush chose Lawrence Lindsey as his chief economic advisor. Lindsey sees everything as being constrained by "inside the beltway" politics. Reagan showed the only way to do what's right for America is to have a vision for all Americans, and to take that vision to the American people. Politics must be transcended. The Rove/Bush administration prefers to handle everything inside the beltway. The purpose of the people is to be fooled and manipulated.

[Leto]

How does one encourage the public demand a curb in spending, when the majority of voter's dos not perceive the real cost of their clammer for largess.

Milton Friedman as quoted by Northwest Florida Daily News, 10-16-2000:

"If we're to have an income tax, it's a good thing for everyone to pay at least a nominal amount," he said. "If non-taxpayers become a majority in society, what would restrain them from voting for ever higher taxes on others?"

Walter Williams, World Net Daily, 10-25-2000

If you're among those who pay little or no federal income taxes, what do you care about tax cuts? Moreover, if you think tax cuts pose a threat to government handout programs, you might be openly hostile and support Al Gore's silly "risky scheme" talk. So many Americans paying little or no federal taxes makes for a natural spending constituency. It's like me in the restaurant: What do I care about extravagance if you're footing the bill?

Well Well, 2 of my favorite economist, They (and you) are absolutely correct on this point. When people have no skin in the game, in the form of taxes, they have no incentive to see spending and taxes reduced.

Now This is why I object to one of the provisions of HR2525, The exemption shields some income from all taxes both Federal and Fica. Under The Forbes, Armey and Tauzen plans, while ther are exemptions from before the first dollar of Federal taxes are levied, EVERYONE pays FICA since it isn't bundled under these plan as in HR 2525.

I do voew the size of the personal exemption in Forbes's and Armey's plans as a problem, I'd rather see lower marginal rates and lower exemptions, so more tax payers have an incentive to see spending and Taxes reduced.

BTW. I'm sure your aware that Freidman and Willams are opposd to instituting an NRST without first REPEALING the 16th amendment, as paraniod as I am about Socialist they are even less trustful of the Socialist. Theyve seen their lust for the pwoer to spend others money from up close. :-)

[Leto]

Lindsey sees everything as being constrained by "inside the beltway" politics. Reagan showed the only way to do what's right for America is to have a vision for all Americans, and to take that vision to the American people. Politics must be transcended.

The tax system and the socialist welfare state has be building for 86 years. If you want to deconstruct the damn mess you have to know how your enemy works. Reagan didn't win all the battles by any means. Then again, I'm not sure Bush sees the final goal as clearly as Linclon. Lindsey amy have the know how to outmanuever, the rats and RINO's.

[Fledermaus]

PJ is correct. What these stupid politicians, of both parties, don't understand is that if they just went to DC and gave us simple, constructive policies and spend more time at home instead of passing new laws, they'd be overwhelmingly re-elected.

I'm sick and tired of local people thinking the federal government needs to be tapped for money for their pet project. I don't give a hoot about a big hole in Boston (most big holes in Boston are in the heads of it's residents) or a light rail system in (fill in the blank).

You want it? Pay for it. If I stub my toe on a broken sidewalk plank, I don't go to my Senator to create a demand for nationwide sidewalk reform. And don't laugh, someone did to help the "handicapped" in wheelchairs!

[Moonman62]

If you want to deconstruct the damn mess you have to know how your enemy works.

Right, but who is the enemy if the Republicans use the same tactics as the Dems, but are only slightly less worse? There's a new tone in Washington -- you approve my expansion of government, and I'll approve yours. Who needs to worry about the economy when you can have a bipartisan witch-hunt before every election?

[Leto]

One of the reasons for Tax reform is to try to create more grass roots support for lower marginal tax rates. THere is a tough road to how. THe Ponzi scheme we call Social Security need to be scrapped. That will be very tough to do.

One step at a time. Althouhg a lot of times it is one step forward two steps back.

[ancient_geezer]

The exemption shields some income from all taxes both Federal and Fica.

Ahh, but they still pay the 23% tax at the retail counter never the less.

Under The Forbes, Armey and Tauzen plans, while ther are exemptions from before the first dollar of Federal taxes are levied, EVERYONE pays FICA since it isn't bundled under these plan as in HR 2525.

Under Forbers, Armey. Those without "earned income" pay no FICA. If one's income is investment income such as retirement, welfare, SS/medicare, stock dividends or bond interest, or a combination there of there is not tax to pay or participation at all.

Only under Tauzen is you analysis in actually correct. However even there as well as under Forbes, Armey Flat Tax & the current system, FICA is perceived by most who pay it as an insurance premium and/or retirement contribution and not as the tax it is in actuality.

The whole payroll tax system is rife with political myth and nonsense obscuring it's true nature making it useless as a deterent to tax increases or incentive to demand reduced government spending, quite the contrary in practice.

I'm sure your aware that Freidman and Willams are opposd to instituting an NRST without first REPEALING the 16th amendment, as paraniod as I am about Socialist they are even less trustful of the Socialist.

Doesn't change the issues at all.

Under the Flat Tax, or Income tax the 16th is perceived as required and resists repeal for supporting the status quo of income & payroll taxes.

Under an NRST only system, the 16th is not required either perceptually or in actuality. It becomes an obsolete Amendment that is easier to justify and support repeal as a consequence.

NRST only, is the one condition by which the political environment will exist to encourage the repeal the 16th and expressly prohibit taxes in regard to income.

I guess we'll have to just agree to disagree on that one.

[lewislynn]

Thanks, that's an interesting article and a good find.

I frankly don't care what tax system is used, they're all going to screw you. All I want is to know up front what it is.

I'm sick of the sales tax being touted as a gift from heaven with the implication of guaranteed lower prices, lower taxes blah, blah, blah and a once every month, one size fits all, welfare check (gee I wonder where that money comes from) to every family in America from the all knowing central government bureaucracy (A government check to every household in America every month, does that sound like something from Hillary or what?) when, because it's never been tried in the way they prescribe, and because their pitch is based on conjecture not fact, not one of the self anointed sales tax soothsayers knows what would happen.

Don't even get me started on the phony 23% (first year only) dangling carrot teaser rate "to be determined" in the successive years by Social Security Bureaucrats...Does the phrase "to save Social Security" come to mind?

There's more but I won't bore you with facts.

[pray4liberty]

No sarcasm tags, the only way to change the tax code is to destroy the US economy. No thanks!

John, the tax code by itself is destroying the U.S. economy.

[Taxman]

Thanks for posting Lindsey's speech. He is an intelligent and thoughtful man, and we would be remiss in not heeding his thoughts, even though they are 5 years old.

HST, he is sharing with us the those who rely on government for their livelihood by "Thinking inside the Evil Beltway box." The three factors he cites as important, Distribution, Labor vs Captial and Transfers are artificial arguments, ginned up by those who are opposed to fundamental tax reform.

The real issues, and the means by which we will win this war are, IMHO, FReedom, economic growth and equality of treatment under the law. These concepts are not talked or written about very much by the EITBW crowd -- they recognize the damage generalized acceptance of such ideas would do to their all-important careers and 6-7 figure incomes.

When a critical mass of the American people come to understand that they have been lied to and flummoxed by this bunch of fast talking sharpies whose political world view is shaped by the Marxist argument "From each according to their abilities, to each according to their needs," (not Lindsey's, I hasten to add!), then the jig will be up, and a fair, flat National Retail Sales Tax will replace the income tax.

In the meantime, we have a lot of educating to do!

Start here: http://www.salestax.org and here: http://www.votr.org.