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May 06, 2005
Change the tax system
Our tax system is no longer competitive when compared with those of our trading partners. While our economy continues to benefit from efficient capital markets and the entrepreneurialism that has long made America stand out in the world, this is not a time to grow complacent. The system we employ for taxing personal income in unnecessarily burdensome to both taxpayers and the government that must administer collection. Likewise, our corporate tax is inefficient in that it renders our country a less friendly place to do business. Change can and should be made.
A recent piece in The Economist lays out the case for a flat tax in a convincing and informative manner. Administratively, a flat tax would be a godsend to the IRS. It would impose one rate, on every dollar earned from the first to the last. As the article goes on to explain:
in principle, the taxman could simply withhold 20% of a company's payroll, without needing to know who was paid what. Add a second rate of tax, however, or a personal exemption, and the tax collector must find out how much money is going into each pay packet before he can be sure of collecting the right amount from the right person. In America, for example, the tax collector needs to tax the wage packets of 130m or more employees, rather than simply taxing the payrolls of 8m or so enterprises.
This system, which Estonia has enjoyed since 1994, could help us remove considerable inefficiencies from our economy.
Legal Affairs believes that the corporate tax will not long survive in the U.S. (see article here). I look forward to its demise. As author Maya MacGuineas observes: “the Congressional Budget Office has estimated that because of the many inefficiencies the corporate tax creates, it drains as much from the economy as it actually collects.” Additionally, an uncompetitive tax structure in this age of globalization makes the United States a less attractive place to locate facilities, and hence imposes significant opportunity costs on our society.
Hopefully our President and Congress will soon find the will to stop tinkering with a broken tax system and fulfill the hope of William Simon, Treasury Secretary under Richard Nixon, who longed for a tax system that looked “like someone designed it on purpose”
Posted by Audi Partem Alteram at May 6, 2005 09:48 AM
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