So, What Should We Be Paying in Taxes?

Grover Norquist of Americans for Tax Reform, Curtis Dubay of the Heritage Foundation, and Daniel Mitchell of the Cato Institute preview their thoughts on tax reform ahead of Tax Day.  (Read their views, and then click here to go to Facebook and vote on who best represents your views.) You can find out more from PJTV’s in-depth, three-part discussion series hosted by Bill Whittle on how the Federal Government steals from you -- watch the first part of the video series here.

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Grover Norquist, President of Americans for Tax Reform

The goal of tax reform is to move to a system that taxes consumed income one time at one rate as quickly as politically possible.

All steps in that direction are progress. “Compromise” means moving towards this goal more slowly than one would like. But moving away from these three goals -- taxing consumed income, taxing consumed income only once, and taxing consumed income at one rate -- is not compromising, it is losing.

Why one rate? Because if everyone pays the same rate the government must speak to and face all voters/taxpayers at once. If we are all going to pay, we are all listening and paying attention. Clinton and Obama said they would only tax the richest one or two percent to divide the electorate so that it could be mugged one at a time. High income tax rates on the rich, then gas and energy taxes on the middle class, and sin taxes on the smokers, drinkers, and plastic bag users.

Why consumed income? Because taxing savings and investment causes your income to be taxed repeatedly: when you earn it; when you invest it in a company that pays corporate income taxes; when you get a dividend or interest payment or capital gains; and again if you are stupid enough to die.

Why one time? To avoid the one rate from being applied again and again on the same dollar.

This form of taxation is the most transparent, least intrusive, the most difficult to raise, and the least destructive of economic growth and human liberty. And whatever rate you finally decide on is too damn high and should be reduced.

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Daniel Mitchell, Senior Fellow, Cato Institute

Proponents of tax reform explain that there are many reasons to junk the internal revenue code and adopt a flat tax, such as:

  • Improved growth – The low marginal tax rate, the absence of double taxation, and the elimination of distortions combine to create a system that minimizes the penalties on productive behavior.
  • Boosted competitiveness – In a competitive global economy, it is easy for jobs and investment to cross national borders. The right kind of tax reform can make America a magnet for money from all over the world.
  • Reduced corruption – Tax preferences and penalties are bad for growth, but they are also one of the main sources of political corruption in Washington. Tax reform takes away the dumpster, which means fewer rats and cockroaches.
  • Promoting simplicity – Good policy has a very nice side effect in that the tax system becomes incredibly simple. Instead of the hundreds of forms required by the current system, both households and businesses would need only a single postcard-sized form.
  • Increased privacy – By getting rid of double taxation and taxing saving, investment, and profit at the business level, there no longer is any need for people to tell the government what assets they own and how much they’re worth.
  • Protecting civil liberties – A simple and fair tax system eliminates almost all sources of conflict between taxpayers and the IRS.

All of these benefits also accrue if the internal revenue code is abolished and replaced with some form of national sales tax, because the flat tax and sales tax are basically different sides of the same coin. Under a flat tax, income is taxed one time at one low rate when it is earned. Under a sales tax, income is taxed one time at one low rate when it is spent.

Neither system has double taxation. Neither system has corrupt loopholes. And neither system requires the nightmarish Internal Revenue Service that exists to enforce the current system.

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Curtis Dubay, Research Fellow, The Heritage Foundation

Discussions about tax reform often start with what kind of plan the U.S. should implement in place of the current system. Starting at that point presupposes that the audience agrees we need tax reform and understands why we do.

In the past -- such as the last time Washington overhauled the code (1986) -- the public craved reform because filing taxes had become monstrously difficult. But given how simple it is to file these days for most Americans, with programs such as TurboTax making filing take only a couple hours, complexity is no longer the motivator it once was. So fewer people may understand why tax reform is necessary.

Today, the core purpose of tax reform is to revive the stagnant economy by permanently raising its potential. The current code, with high rates on working, saving and investing, stifles growth and suppresses opportunity. By lowering tax rates on individuals and businesses (the U.S. has the highest corporate tax rate in the world) and making other changes to lower the hefty burden on investment, the economy’s potential would greatly expand, and along with it greater wages and opportunities for American families.

After making that case, of course people still want to know what type of plan reform would implement because they want to know how their personal situation would change. The best tax reform plan would establish a consumption tax. Many think consumption tax means a retail sales tax along the lines of what most states impose. However, a consumption tax is any system that taxes production once and does not tax savings and investment.

Several variations of consumption tax fit the bill, the flat tax being the most common. The flat tax would likely be the easiest to implement because it would fit within the structure of the current system. But if Congress implemented any type of consumption tax, the economy and the financial situation of all American families would be substantially better off than they are today.

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Want more? Watch Norquist, Dubay and Mitchell in PJTV’s in-depth, three part discussion series on how the Government steals from you, hosted by Bill Whittle. You can watch the first part of the video series here.