WHY WE NEED TAX REFORM

To contact us Click HERE

WhenI talk about the need for tax reform, as I have been doing for years now, I do notmean only as a way to reduce the deficit. 
Thecurrent US Tax Code is a mucking fess.  Idoubt anyone really disagrees with this assessment.  It needs to be rewritten.  And it would need to be rewritten evenif we had a surplus.
Aswe rewrite the Tax Code we should certainly take into consideration the need toreduce the deficit, but creating more income via taxes is not more important thanreducing unnecessary and wasteful spending.
TheTax Code needs to be made much, much simpler and much more fair. 
Thepurpose of the Tax Code is to raise the income necessary to run the government. It should not be used to solve allthe financial and social problems of the country.  It should not be used as a methodof distributing social welfare program benefits.  It should not be used as a means of“redistributing” income among the “classes”. The Tax Code is not Robin Hood.
Whilewe need to look at current “tax expenditures” and “tax loopholes” closely andkeep only those that are absolutely necessary and appropriate, taking such “expenditures”out of the Tax Code does not necessarily mean doing away with them altogether.
Obviouslythere are many “tax expenditures” that are neither appropriate nor necessary inany context.  For example, we do not really“need” a Schedule A deduction for real estate taxes and mortgage interest on personaluse vacation homes, home equity interest on money borrowed for purposes other thanpersonal residence capital improvement, or for mortgage insurance premiums.  But there are certain benefits currently distributedthrough the Tax Code that have true merit as a government expense.
Letus take for example the various tax benefits for post-secondary education, suchas the American Opportunity Credit.  Itis appropriate for the government to encourage such education.  The $4,000 available via the AOC should becontinued, but distributed through the “normal” method of providing studentfinancial aid as part of the budget of the Department of Education.  If a student qualifies for all or part ofthis $4,000 benefit it should be distributed directly to the appropriatecorresponding educational institution as a grant or scholarship. 
AsI have said before, doing it this way is much “more better” for thestudent.  The aid is provided “up front”,when it is needed to pay for tuition and fees. The student, or his/her parents, does not need to borrow additionalmoney and then wait a year or so until the tax refund is issued to get thebenefit.
Andit is also “more better” for the government, as the qualification of therecipient can be verified in the normal process of approving student financialaid, greatly reducing potential fraud.
Thesame argument can be used for the current Earned Income Credit – perhaps thelargest federal welfare program and certainly on top of the list of sources oftax fraud.
Andthis logic can also be applied to energy credits, with the appropriate creditbeing used as a point-of-purchase “discount”, like what was done rathersuccessfully a couple of years ago with the “Cash for Clunkers” program.  And so on.      Removingcertain “tax expenditures” from the Code will not necessarily increase netgovernment income.  It will just move theexpenditure to a more appropriate “location”.
Atax deduction or credit should either be allowed or not allowed.  There should be no phase-outs or limitationsbased on income.  If a tax deduction orcredit is appropriate, it is appropriate for all taxpayers.  Limiting deduction or credits based on incomeis not a substitute for increased tax rates (and, FYI, I personally do not believein progressive tax rates).
When,or rather if, the idiots in Washington actually begin to seriously tackle taxreform, deficit reduction should be only a secondary consideration and not themain thrust.
TTFN