Everyone hates the tax system and yet every time there is an attempt to reform the tax code it seems to get even more complicated and more unfair. The reason there is tens of thousands of pages to the law and almost 200 pages just for the instructions, is that thousands of special interests have carved out exceptions and loop holes to the law.
Taxes are so complex that Americans spend nearly $300 billion every year just to pay people to figure out their taxes for them. Simplifying the tax code would be equivalent to a 20% cut in taxes. Another $300 billion is lost because people cheat on their taxes. This year tax help will be even harder to get, and even more revenue will be lost through tax cheats because budget cuts to the IRS resulted in 5000 fewer agents.
Almost everyone agrees that the tax system is a mess and that the entire thing should be thrown out and we should start again with a clean slate, so why can't Congress work on comprehensive tax reform? One reason is that the special interests don't want to loose all of their special loopholes. The other reason is that Democrats and Republicans are diametrically opposed in how to change the system. Democrats think the system should be fair and progressive and that the rich and the corporations should pay their fair share. They think that additional revenue should be raised to balance the budget and pay off the debt.
90% of the Republicans have signed a pledge never to raise taxes for any reason, and think that the rich and the corporations should pay even less taxes than they do now. They insist that any changes to the tax code be revenue neutral, which means that they refuse to raise any additional revenue to balance the budget or pay off the debt.
Seventy percent of the public think tax cuts to the oil companies should be removed but Republicans filibustered the bill that would do that. 72% of the people favored the Buffet Rule which would force millionaires to pay at least 30% in taxes, but Republicans wouldn't even allow debate. Republican obstructionism will insure that there will be no tax reform as long as lawmakers are influenced more by special interests than by the majority of people.
This year because of a perfect storm of many impending issues, Democrats may for the first time be able to force the Republicans to do something about tax reform.
The government could be shut down again because the $16 trillion debt ceiling will be passed again somewhere around October. On December 31st 2012 the Bush Tax cuts are going to expire. The payroll tax cut will also expire, and the Alternative Minimum tax will automatically increase. The Doc Fix will also expire which means that Medicare doctors will be paid at nearly 30% lower rates. On January 2nd Sequestration will mean that $1.2 billion in budget cuts will go into effect. Half of the cuts will be to domestic programs and half will be to the military.
The President and the Democrats should demand comprehensive tax reform and put that in their platform and they actually have some leverage because if nothing is done all of these terrible things will automatically happen. If the Democrats don't like the tax reform legislation they can filibuster it or the President could veto it and blame the failure on the Republicans.
A good tax system should have four components. It should be simple, it should be fair and progressive, it should discourage harmful behavior and encourage behavior that is good for the nation, and it should tax phantom wealth instead of real wealth. http://www.yesmagazine.org/blogs/david-k...
Most people understand the first three points but are probably confused about Real Wealth vs. Phantom Wealth. Real wealth is that which has intrinsic value, wages, food, fuel etc. Phantom wealth is the wealth made up by the banks, hedge fund managers, and derivative traders that have no intrinsic value in the real world. For example the top five banks still hold $230 trillion worth of derivatives on their books. The GDP of the entire world is only about $60 trillion so this is obviously phantom wealth. It is a bubble of this phantom wealth that almost destroyed the economy of the world and sent us into the worst recession (almost depression) since the great depression. http://www.zerohedge.com/news/tbtf-get-t...
They create this wealth by leveraging their real funds 20-30 times, by speculating on foreign currency ($3-4 trillion/day) and by using algorithmic super computers that trade stocks at several hundreds of times a second to stay ahead of regular traders. These activities harm the nation and should be discouraged. A transaction tax would tax the phantom (leveraged) funds. The institutions that helped destroy the economy should help fix it.
An automated transaction tax of 0.6% automatically removed across the board to all people, every time money changes hands, would provide the same revenue as all federal income tax, corporate tax, excise taxes, State taxes and sales taxes. It is as simple as you can get, with no forms, no need to file, and no cheating. http://www.apttax.com/
Republicans would prefer a flat tax of 20-30% because that would shift the tax burden further to the poor and middle class while the rich would get huge tax breaks.
Consumer taxes are preferable to income taxes which tax labor because they discourage consumption and encourage hard work. The most popular taxes are the so called "Sin Taxes" like the taxes on Tobacco and alcohol. These taxes do double or triple duty. They discourage the use of these harmful drugs, they reduce health care costs, and part of the revenue goes to drug and anti smoking programs. This type of tax should be expanded to include carbon taxes to prevent global warming. The higher prices for fossil fuels would encourage alternatives and part of the revenue could go to consumers to offset higher prices. It should include toxic chemicals and pesticides that get into our water and food and it should include radioactive material to help pay for the disposal.
Having a simple tax system that doesn't contain loopholes for special interests will make it easy for businesses to plan ahead. They will save millions by not having to hire tax consultants and there will be little incentive to move operations off shore. This would boost the economy.
This may be our only opportunity to get a fair and simple revenue system and it should be used to balance the budget and start reducing our national debt. With the proper revenue system we wouldn't need the draconian cuts demanded by the sequestration and we can invest in the future, provide jobs and get the economy going again.