Monday, December 02, 2013

A World-Class Tax System for the U.S.?

Cyber Monday! You just bought a huge, name brand LED TV for $999!

Would you have paid $1,130? Would you have been happier to pay $1,130 if you got a sizable income tax cut?

Al Hunt –fondly remembered from his Wall Street Journal days – asks you to imagine the highly improbable: "120 million American families no longer have to file income tax returns; the top individual rate is lowered by 20 percent; the top corporate rate is cut by more than half; the government gets the same amount of revenue; and the tax system is slightly more progressive."

How does the government get the same revenue? A 12.9% Value-Added Tax – sort of a national sales tax.

The Competitive Tax Plan is the brainchild of  Michael J. Graetz, Professor Emeritus at Columbia, now lecturing at Yale Law School. Last week Graetz received an award from the National Tax Association.

Everybody knows the federal income tax is a bureaucratic nightmare. As Graetz has observed, the present system is crazy:
In a recent report, National Taxpayer Advocate Nina Olson estimated that individuals and businesses spend 6.1 billion hours per year on tax compliance—the equivalent of full-time work for more than three million people. I am surprised the number is that small. The Form 1040 instruction booklet spans more than a hundred pages, and the form itself has more than ten schedules and twenty worksheets.
The great sticking point for the Competitive Tax Plan is the proposed VAT. The VAT is also the plan's best selling point. Uncle Sam loses untold billions every year – the taxes dodged by everyone from millionaire drug lords to maids and gardeners paid under the table. Evaders of income and payroll taxes would not be able to dodge the VAT.

Graetz has been promoting and fine-tuning his tax plan for over a decade. Al Hunt reports the tax reformer is prepared to stay the course: 

"Graetz, when comparing his idea to the status quo or other options, relishes a political debate over the next several years: 'These things take a long time.'"

Truer words were never spoken.

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