The Income Tax: “Happy Birthday to you!”

 

 The Income Tax turned one hundred this year!  However, Hoopla over this milestone, as one writer recently put it, was not expected!

            When it comes to paying taxes, few are eager. Still, we all—even if grudgingly— recognize that taxes are the price of government (I mailed my contribution earlier this week). Some people do look forward to tax time, those who work in the Tax Return preparation industry. Consider that: we need an industry to comply with and complete this contribution towards supporting government, each and every year. That in itself sounds a bit incriminating of our system of paying if not the amounts we pay.

But the absurdity of this annual compulsory tax-tithing is that it’s never enough—hasn’t been for decades. Since 1960 we have had exactly 5 years out of 53 when government tax receipts exceeded its spending, during which both Democrats and Republicans have been at the helm. What this says, like it or not, is that government is either collecting too little in taxes or else it’s spending way too much in governance (Anyone have a third alternative to suggest?). And the gap between receipts and expenditures—borrowing—is getting unbelievably large, and expensive, year after year!

True, we have recently experienced what most would describe as unusual circumstances; a need to ramp-up domestic security due to the threat of terrorism, wasteful foreign excursions where, in hindsight, our national self-interest was highly questionable and a potentially devastating economic down-turn that has left segments of American society worse-off than they might otherwise have been. All this has cost a bundle, no doubt about it. But some would contend, myself among them, that this mentality of spending like a proverbial  drunken sailor, no matter the rational, is becoming institutionalized; that we may never get back to what most would call fiscal responsibility.  Yes, almost everyone claims to favor reduced government spending, but that’s in the abstract. Try actually cutting back; no one is inclined to accept it when it affects them directly (or indirectly).

Is this really a perilous situation?  From my admittedly lay perspective, I would say so. It may today be hard for most to detect its effects, near term. But, given time, it will in all probability result in lower standards of living, and over-all social and political satisfaction.  Why? Because how we are spending as well as what we are spending seems too often for projects and programs questionably in the interest of at least most of the people even most of the time; our national interest.

The fiscal and political cost of the global game of “King of the Hill” is in the longer term unsustainable. The image of an American Exceptionalism is distorted in this pursuit. America may well be “exceptional”—and I believe it is—but that doesn’t mean we’re invincible, always right, or rich enough to bankroll the game under present rules. This assumption of an American destiny isn’t new. You can chart its course ever since “Teddy” strode around the White House in his hunting boots. Well, that American Century is over. We’ve changed; the world has changed. Spending levels to provide both guns and lots of butter is excessive on our current taxing-level of national income, and our need for constantly increasing government borrowings is clear evidence of this. Which is it, comfortably and sustainably, to be?

This is not a call for isolationism or protectionism or walking out of the UN. It is a call to suggest we badly need a reconsideration of our national priorities. How much do we taxpayers agree to contribute to national governance and, broadly, how it should be spent? What should capitalism’s contribution be? This is a political determination with broad economic and social ramifications. We simply can’t assume we can go on forever, fiscally, in the manner we are.  It’s not a matter of any fiscal “cliff”, but rather a slow continuing slide into social and economic malaise. That tends to breed political instability

Taxes, how much and how collected, do enter into this scene. Taxes in all probability will have to go up in the near years to come, and government spending needs to come down until the two are closer to a balance. Who’s taxes, and by how much? What government spending, and how much? Those are political issues that shouldn’t be forever kicked down the road. The buck here needs to stop, and pretty damn soon. It won’t be easy; it won’t be painless, but it can be accomplished, and fairly so. We need to reconsider both the how much and the how collected as one. Why? Well, just consider the conclusions of at least two recent government commissions (1996 & 2005) regarding the income tax:

The income tax system is impossibly complex, outrageously expensive,

overly intrusive, economically destructive, and manifestly unfair.

        That certainly sounds at odds with what we might describe as a sound system of taxation (the basic principles of sound taxation are simplicity, neutrality—not distort the economy—and fairness). Nonetheless, as is the case with the present hyper-partisan state of our political parties, that conclusion wouldn’t be news to most Americans.  In the view of some, including yours truly, we need to seriously consider a workable (simple, neutral, fair) and progressive consumption tax to largely replace the income tax. It’s an approach that treats all taxpayers equally, still looks to the better-off among us to supplement this at the (way) upper ends of income, and continues to respect the principle of ability to pay for everyone.

And, finally, how much should Americans pay in taxes? Well, considering a bottom-up approach—a taxpayer’s perspective—25% of income seems to be a figure, again not too long ago, considered “fair” when asked. We can start there.

We need a change.

            BOOM!

                                                                                                                Thomas Richard Harry

April 2013

 

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