June 3, 2006

Bob Nelson is the latest nice guy who is wrong about taxes. An economist and professor in the School of Public Policy of the University of Maryland, Bob makes an interesting case (Washington Post, June 1st) that the Alternative Minimum Tax (AMT) is about to become the much sought after ‘flat tax.’

Actually, he’s not wrong about the AMT becoming The Tax That Ate the American Middle Class, in that it long ago lost its value as a minimum tax on the rich. Without noticing, we have mostly become rich, at least by 1960s standards. The numbers, if not the actual relative wealth, have crept up and now a huge swath of the middle class is AMT eligible.

Instead of swatting this down as an unintended consequence of an outdated piece of legislation, murky forces within the legislature are welcoming it as another way to get what they want.

A flat tax.

Flat tax aficionados, feel such a tax is more equitable, getting rid of a large number of loopholes and evasions that often benefit narrow interest groups (read that ‘mostly’ rich).

This is tax "pork," according to Nelson, and Congress is as addicted to it as to the ordinary spending kind. Well, he’s certainly right there.

The power to tax is the power to destroy and, as founder and president James Madison reminds us "taxes are the known instruments for bringing the many under the domination of the few."

Bob goes on to say that in parts of the world that are experimenting with various tax structures (he points out Eastern Europe), much is being made of the flat tax. But flat rhymes with VAT and the European model of flat taxation is usually tied to the value-added-tax or VAT.

The trouble with VAT is it’s charged at every single point along the way from raw materials to finished product, producing a staggering amount of layered and ‘hidden’ tax burden.

The trouble with ‘flat’ is that it’s an uneven weight that still allows gerrymandering by the great givers and takers of tax in Washington—our elected representation. Their messing about is what got us where we are from a fairly straightforward early incarnation of the income tax.

The fact is, politicians can’t be trusted to tax.

This misplaced responsibility needs to be taken from them. Waiting for the AMT to morph into a flat-tax is the coward’s way out of a dilemma requiring courage. Or, if not courage, intelligence. Failing intelligence, just plain anger at the injustice of it all will do.

Nelson points out

“The recently enacted tax bill raises the special AMT "standard exemption" to $62,550 for a couple filing jointly and to $42,500 for a single filer. At these levels, some 5 million taxpayers will be subject to the AMT for their 2006 taxes. But these changes are for one year, and absent new congressional action, the exemption will fall back to $45,000 for couples and $33,750 for individuals in the 2007 tax year. If that happens, as many as 25 million taxpayers might be affected by the AMT.”

Can you follow that? Can anybody?

Which is the best example I can think of why the 40,000 pages of the Tax Code are beyond repair. If that and unless this, depending on who and under what circumstances—until the next chance Congress gets to mess with our heads (and pocketbooks).

Those who know my writing will know that I am a big fan of throwing the whole thing into the ash can. Driving a stake through its heart, if a heart can be found.

Many wonderful people are employed by the Internal Revenue Service, people who could be gainfully and conscientiously employed doing something that was actually valuable to mankind.

They should be encouraged to do that and, with the removal of the IRS from the American scene, a huge number of jobs will appear to employ these gallant souls. Businesses will come home from their off-shore expat addresses, capital will flow into instead of out of the country, good jobs at what was once called 'industrial wages' will fill the want-ads of local papers.

Whole areas of our whacked-out, abandoned, derelict, beautiful and jobless towns and cities in the midwest and west-central states will become actual places to live and raise kids once again.

There's no reason to huddle in overcrowded cities, or abandon the beautiful small towns that are currently the homes to joblessness. It would be nice for a change to see a reverse-migration—back to the future—and that’s not only possible, it’s a certainty. What it will take is the opposite of what Bob espouses when he says

“Tax revolutions are few and far between. Taxes are so important to the economy that major changes in tax law are best achieved incrementally, giving notice well in advance and avoiding potentially large disruptions from big surprises.”

That's been the dominant thinking. And he’s certainly correct that tax revolutions are few (none) and far between (none again).

But this is not a country that is unused to the bold experiment. Throwing out the Tax Code is nothing to be taken lightly or done inadvisably, but the research that has been done didn't come from under some politician’s bed. It came from research grants provided to Harvard, MIT and Stanford University, among others.

Go online and dial up http://www.fairtax.org to begin to think differently about America’s future. It’s a grand thing to feel good again about this great country.

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