How To Create A Fairer Tax Environment

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  • Source: FAIRtax
  • 04/09/2021
Can lawmakers who don't have the courage or intelligence to outlaw texting while driving really be expected to create a saner tax structure? Hmmm.
Developing a fairer tax environment is much less an economics problem than it is a political dilemma and, as many have observed, it is unlikely that anything "tax" will be improved upon until there is some serious facial (and cultural) change in Washington.
Politicians focus on one issue at a time, and pretend to have problems dealing with inter-related programs. Tenured politicians have a vested interest in resisting any change that involves their spheres of influence. Both parties are embarrassingly mired in twentieth century class warfare that stifles all forms of productive debate.
From an investment manager's point of view, tax cuts don't just benefit the rich. In fact, they provide the opportunity for everyone to attain greater wealth. Demand directs resources far better than punitive taxation. Money in consumers' hands will fuel social and environmentally friendly change.
"You cannot eliminate revenue from one program without replacing it from another, equally complicated, one", career politicians will say philosophically.
The fact is that career politicians, their staffs and the D.C. lobbyists have little to gain from simplifying the tax collection system --- yet it is obvious that a whole new approach would solve most of the economic woes plaguing us today, domestic and international.
So what would become of all the CPAs, tax attorneys, and offshore money laundries--- new jobs as consultants, auditors, and regulators perhaps?  Instead of spending time on saving taxes, their attention would be more effectively directed to helping companies and people operate more efficiently and profitably.
Recent survey responses outlined constructive and manageable solutions to our multiple tax problems. If they could only be dealt with as a whole "New Deal" (catchy phrase), a fairer tax structure would be in reach.  We need a tax collection system that does just that—collects taxes in the least harmful and simplest way.
Several basic concepts need to be accepted: (a) don't tax the job creators, (b) tax consumption instead of income, and (c) regulate shareholder abuse in the form of obscene executive pay. Then, enforce compliance with the intent of a simplified tax code. 
A smarter tax system would allow more people to become wealthy honestly; smarter regulation of thieves in high places would improve the image of big business (and big government) significantly.
There are 77,000 pages in the Internal Revenue Code (IRC) and its related parts, 10 million words, incomprehensible at best. Obviously, there is a lot more to be said about each of the ideas that follow. Here are the top investment friendly ideas; the first two were discussed in previous results articles as consumer spending enhancers and job creators, respectively. 
Here are the steps that are needed:
One: The FAIRtax. Adopt the plan that has been negligently ignored by Congress for decades. It replaces all federal corporate and personal income taxes, the estate and gift tax and the Social Security levies on payroll with a Federal Sales Tax of 23% on purchases of new goods and services. (If we replace Social Security within the insurance industry, a number between 15% and 16% would probably work.)
The FAIRtax is easy to understand, eliminates the lobbyist gifts and bonuses that current IRC loopholes produce, taxes the underground economy, and provides a prebate to ensure that all purchases up to the poverty level are excluded from the FAIRtax.  The FAIRtax would be collected by the states and all businesses would be audited to assure collection compliance.
Instead of having to make purchases from your income after subtracting income and Social Security taxes, under the FAIRtax you will keep 100% of your income.  Most of us don’t really look at the cost of purchases now.  To spend $50 at the doctor’s office, you will need to make at least $75 in gross income before your taxes are deducted.  So that $50 purchase actually takes $75 of your total earnings.
The FAIRtax would increase jobs and spending, while reducing tax fraud and credit abuse. Any number of approaches could be used to assist the lowest wage earners and those incapable of working. 
Compensation creativity such as stock options, country club dues, and first class airfare, need to be dealt with to protect shareholders and employees from their leaders--- new jobs for those displaced tax-code-created professionals.
Competition will monitor employers to assure that their tax and tax compliance savings are translated into new job opportunities, higher wages, and/or lower prices.
Two: Social Security Reform. Instead of being based on the earnings of a declining number of workers, Social Security will be made solvent because a portion of every FAIRtax dollar collected will be paid into the Social Security system.  Although not part of the proposed FAIRtax bill, the next step should be to replace the current Social Security system with a plain vanilla, individually, and flexibly funded fixed pension program. Every person will have his or her own personal pension plan for both mandatory and limited voluntary contributions --- limited to a maximum percent of income.
Three: Border Adjustable Taxes. The FAIRtax eliminates income and Social Security taxes and all other nuisance fees and charges that increase corporate expenses and lead to higher prices--- a "Free Trade Zone" only policy. This allows our exporters to compete more effectively and eliminates the competitive advantage now given to imports—exporters to the U.S. are refunded their country’s taxes before they are exported and, therefore, have a large advantage over U.S. goods. 
Four:  Cap total compensation (all "perks" included) at mid seven figures. Allow one year-end bonus split among all employees and shareholders. Invade every boardroom with well-paid and expert compensation auditors.
Five: Property Taxes.  States and localities should reduce them each year for all persons receiving Social Security benefits. Retirees would pay no property taxes after ten years.
Six: Tolls, Licenses, & Fees. Government entities should eliminate all collections and charges for government provided public transportation (roads, bridges, tunnels) and recreational facilities (parks, museums).
Steve Selengut, MBA, is an investment portfolio manager, and the CEO of Sanco Services Inc.  In addition to publishing hundreds of investment and tax reform articles, he is the author of three investment books, including his latest book, The Brainwashing Of the American Investor, which can be found by clicking here.  He invented the Working Capital Model, developed the Investment Grade Value Stock Index (IGVSI), and has introduced many new investment concepts, including Market Cycle Investment Management and others.
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