Unleashing the Economy

By Stanley Kimmel Kesselman

There is no better means of ensuring a prosperous economy than ending 100 years of bad tax policy. Balancing the budget now will further propserity and national confidence.

We must change. In a hyper-competitive world economy, businesses and jobs can go overseas in search of an edge. Until now, we've watched the exit and done nothing. The answer is to give America the biggest edge of all: the planet's most dynamic tax code featuring the lowest rates in the industrialized world. Businesses and the world's best talent will flock to the United States. The American economy will soar, creating jobs, wealth and increased federal revenues. How do we do this?

A. Clean Up The Personal Income Tax Code

I propose a graduated flat tax. "Flat" means no, repeat no deductions, credits, write-offs, schedules, exceptions, or loopholes of any kind. None. No more `dodge the tax' games. "Graduated" means that tax rates justly rise with increased income. We can fire our accountants and file a simple post-card tax return. Here are the new, lower couples' rates:

$0 to $15,000 0 $15,001 to $50,000 5% $50,001 to $250,000 10% $250,001 to $2 million 15% Over $2 million 25%

How does this pencil out? Three examples cover 98% of tax filers:

Earnings Income Tax $50,000 $ 1,750 $100,000 6,750 $300,000 29,250

Today's system is so rife with alleged freebies for favored groups that an alternative minimum tax was imposed to limit the giveaways. So we really have two bad systems; regular and alternative. Let's be honest - nothing is free. If you can deduct or write-off something, someone else must pay more, and all the tax rates are higher. The multitude of credits, deductions, exemptions, and write-offs are a losing shell game. Someone has to pay because Uncle Sam has no money + he only takes yours one way or the other.

To fool taxpayers into thinking they're getting a discount, current income tax rates are set artificially high, like a car dealer's Suggested Retail Price. To then get a "discount", an expensive accountant crawls through an incomprehensible tax maze sniffing out deductions. At the end you may think you've beaten the house. But America and each of us loses in this devious game because instead of citizens making the best family and business decisions, we often bow to "tax considerations." How many times have we shifted gears because of "tax implications"? Moreover, the results are unfair; the game playing fosters huge inequalities among taxpayers. Even worse are the economic inefficiencies of tax driven behavior which raise the price of everything. Wisdom, not taxes, ought to rule. That will happen when we have all-the-time low rates for all.

Do you still prefer the nightmarish present system? Then my proposal would allow you the option of filing under today's code. But good luck. The new system will win easily as we experience:

(1) a significant reduction in personal income taxes; (2) freedom from burdensome recordkeeping because receipts, schedules, and similar documents will no longer be necessary; (3) no more accounting fees; only the ease of a postcard filing; (4) life based on real needs rather than "tax considerations".

B. End Corporate Income Taxes + Use A Gross Receipts Tax

Wouldn't it be wonderful to unleash business so that it soared? It is possible. I propose we do it.

Today, the corporate income tax code is a rotting failure. Virtually every loophole, credit, deduction, subsidy, and write-off was a special interest favor bought during a century of political favor buying. The result is a 7,000,000 word tax and regulation nightmare, so bizarre that tax compliance costs equal the amount of tax revenue raised. So much income evaporates through the tax code's black holes that corporate tax collections have shrunk to a record low of 7% of federal tax revenues. Corporate America beggars Uncle Sam by annually spending tens of billions of dollars in this costly and addictive tax avoidance process. Even worse, it's a monstrous drag on productivity.

The corporate income tax needs to be dumped because:

1. it is incomprehensible
2. it is riddled with favors and subsidies
3. it is hugely expensive to maintain, audit and verify
4. it collects relatively little revenue
5. it punishes well run companies while subsidizing the losers
6. it forces "tax decisions" rather than business decisions
7. it promotes dishonesty
8. it hurts America's international competitiveness
9. it supports thousands of lobbyists corrupting our public servants
10. it contains a vast sea of corporate welfare
11. it saps a great national strength: creativity
12. it double taxes shareholders' income

Our society is the most flexible in the world. Let's really flex the productivity and production envelope:

(a) dump the income tax + every word of it; (b) replace it with a low gross receipts tax

I propose these rates:

Corporate Sales Tax Rate

$1 to $1,000,000 0 $1,000,001 to $100,000,000 1% $100,000,001 to $1 billion 2% Over $1 billion 3%

There would be no schedules, write-offs, deductions, depreciations, credits, breaks, loopholes, or subsidies. None, because there would be no income tax code. Instead, companies would pay a small percentage of their sales as a gross receipts tax.

Companies with sales below $1 million would pay no taxes at all. Large companies would save billions in compliance costs and hugely increased productivity. This is a revolution for efficiency and dynamism. General Electric, Microsoft, and Momma's Market could all file postcard tax returns. Imagine that. And imagine all business decisions being made strictly upon business considerations. The economy would fly into high gear creating jobs, wealth, and a happy Uncle Sam.

Something else. The stock market would soar. Today, the majority of shareholders receive small or no stock dividends. This is a function of double taxation which first taxes corporate income and then taxes the same money again as personal income when it's distributed as dividends to the company's shareholders. Ending the corporate income tax would result in a tidal wave of dividend payments. Shareholders would again feel like owners as corporate profits flowed directly to them. Stock prices would increase dramatically, setting the stage for a new age of creativity and prosperity. And perhaps most importantly, a strong and dynamic economy will enable us to confidently meet our national commitments and control our destiny.

Revolutionary changes in personal and corporate taxation will be met with predictions of doom, bare knuckle lobbying, and political hyper-ventilating. The uproar will be 24/7. But after the shouting has run its course, an aroused citizenry can prevail over the special interests. America belongs to its very good people. Congress must relearn that truth or be fired.

Balance The Budget and Reduce Debt

Enormous budget deficits have swollen into an $ 8.5 trillion national debt. It is a clear and present danger to our nation. Your family's share is $135,000. Much of the debt is held by foreign nations who would do us harm. When the right disastrous occasion arises, they will seek to do us incalculable harm.

I say no more deficits. Look, if necessary, every American family and every American business could manage to get along this year on the same budget as last year. Only government insists that the schools will close or the police will be laid off unless the budget is increased. Waste, pork projects, politics, bureaucratic mismanagement, and the thrilling rush of freely spending other people's money produce unnecessary deficits. Even Republicans have become addicted to Washington excess.

I favor a freeze on spending for three years. The budget will be balanced after year two years and surpluses for debt reduction will follow in year three. Congress should publicly admonish any cabinet officer or high level administrator unable to deliver equal services under the frozen budgets. Every business has gone through this process. Every family has balanced its budget or cut back. Washington can too.

A cycle of virtuous budgeting will be well rewarded: (1) interest rates will fall; (2) citizens will feel empowered and confident; (3) the budget will be in surplus; (4) the national debt reduced; (5) inflation will go down; (6) America will prosper.

Congressmen who say we can't balance the budget should be fired.