Adam Michel’s Tuesday op-ed “US economy needs real tax reform” is misdirected. Why? His facts are wrong and solutions wrong-headed.
“The design of the income tax makes investment more costly.” False. In truth, investors pay lower taxes and receive tax deductions for buying technology that result in job loss. The 15.3 percent payroll tax makes investment more costly. We should end the payroll tax and replace it with a sales tax, creating jobs without increasing business costs.
“The chief tax ... (problem) is America’s unusually high corporate income tax rate.” False. Tax rates mean nothing. Actual taxes paid are everything. America’s corporate tax burden is competitive because of tax deductions. Regardless, lowering rates is misdirected. Corporations should pay no income tax. We should replace corporate taxes with a simple individual income tax for earnings above $125,000.
Since the wealthy largely pay the corporate tax, if we replace it with a predictable, simple rate, America will pay lower consumer prices, attract foreign investment and grow the economy.
“Government deficits are driven by too much spending, not by too little taxation.” Half true. The deficit is driven by both. Decreasing rates would increase the deficit. We don’t, however, need to increase rates, either. We need to collect from nonpayers.
How? We should replace the income tax with a sales tax. More payers equals more revenue without increasing taxes on current payers.
What is good tax reform? 1. Totally eliminate the payroll tax, corporate tax, and current income tax system; 2. set a 15 percent sales tax on the GDP; 3. set a flat 15 percent income tax on earnings above $125,000 with deductions for charity. This will lower taxes for working and middle-class Americans by 3 percent to 10 percent, and increase revenue, lower prices, increase profits, stimulate the economy and create jobs.
“The largest drivers of federal deficits and debt are the health entitlements ... and Social Security.” Half true. The budget simply cannot be balanced on the backs of the elderly and sick. We need reform, yes, but we cannot cut enough entitlements alone to solve the looming bankruptcy crisis in 2035. We must tame the “four horsemen” of spending: defense, entitlements, welfare, and interest on the debt.
What spending cuts would work? 1. We could cut Army spending 30 percent without decreasing readiness by simply following the Army’s own plan for base reductions.
2. If we streamline welfare programs from 14 agencies to 1, we could lift all Americans from poverty with direct cash payments and save $175 billion annually.
3. We should transition Social Security into mandatory IRAs, which would guarantee the same payments, insure the program forever, and over 40 years, add $20 trillion in investments and save $45 trillion.
4. With these reforms, we could balance the budget in a single year, eliminating interest payments. This will buy us the time needed to solve health care, pay down debt, end unneeded programs and begin desperately needed infrastructure investments.
Old partisan solutions will not meet our 21st century needs. See www.childrenofliberty.net for full details.
Sam Harben III
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