U.S. TAXATION- OUR SYSTEM IS CORRUPT AND BROKEN...BUT WHAT IS A BETTER SYSTEM?

THIS IS THE FIRST OF TWO POSTS DEALING WITH THE U.S. INCOME TAX SITUATION AND SUGGESTIONS TO VASTLY IMPROVE THE WHOLE AREA OF TAXATION. INSTALLMENT 2 WILL BE POSTED BY 2/10/13:

I’m writing about something in which I am an expert. Having been a CPA in practice for over 30 years, I understand more about the US Income Tax system than any person should ever want to. I could literally write a book on this subject, which I am actually working on, dealing not with the minutia of the 70,000 pages of Code and regulations, but more with the “evolution” of the whole system from the seventies through today. The actual provisions of all the tens of thousands of changes in the Code, however, are not the significant point. What is far more interesting than the technical aspects of the Code and its changes can be found when you peel back the skin of the provisions. The point, the deception, and I contend the criminality of the current system, lies not in the “what’s” but in the “who’s” and the “why’s” of the countless absurd, seemingly non sequiturs (items that seem completely out place in the context of a certain Code provision) found in every new change that comes down. But, there’s a great reason for such items. Legislation containing such items was not poorly drafted as a casual reader might think. No indeed! This is, and always has been, Congress’ way of “hiding” legally blessed kickbacks, special gifts to political supporters, and Congress’ way of paying off those special interests to which he or she owes her position.

My first specific and profound identification of this kind of thievery appeared in a very broad, sweeping change in the Code known as TEFRA-1984. In that Act there was imposed a new federal excise tax on the sale of refined petroleum distillate products. In studying the entire bill, I came across a very small provision (only two lines of print) that stated that there was to be a special exemption from this excise tax available ONLY to “that certain gasoline retailer located on the northeast corners of Main Street and Jennings Avenue in Des Moines, Iowa.” (Ed Note: I have changed the street and town names from the bill since that station, should it still exist, might not even be owned by the same owner as in 1984 and I don’t want anybody to cause problems for what could be an innocent subsequent owner). But, folks, I am not making this up. That is precisely what was in the legislation. It was at that point that I first began to question the “honesty” of the whole taxation system being run by the bureaucrats in Washington.

While this is but one example of the corruption associated with any tax legislation…and there are hundreds, if not thousands of others in the Code…this is not the focus of this posting. Instead, the purpose of this writing is to a) shed some light on unfairness of our current taxation system, b) explore the reasons that the system has become so corrupted, and c) to examine other possible replacement systems that would, by definition, represent a more fair imposition and collection of taxes by the federal government.

There’s been a significant amount of talk in recent years about a few alternatives to the existing income tax system and we will look at most of the more popular of them. In brief, these systems fall into one of the following categories:

• Income Taxes
• Production Taxes
• Consumption Taxes
• Wealth Taxes

INCOME TAXES:

Theoretically, a taxation system based upon income can be made to be equitable. As a practical matter, though, when corruptocrat politicians are involved in the equation, that theoretical possibility becomes as impossible as turning cow patties into gold. When elected who are always trying to curry favor with whomever it takes to ensure that they stay in office until they croak, need to “grease the palms” of their big campaign donors, the first, absolutely the first, place they go is to tax legislation. Frankly, given the corrupt, special interest appeasing, that I’ve seen written into tax bills, I would prefer that they just legalize the payment of kickbacks, call them kickbacks…heck, every elected could have a set amount in their office budget every year for “Payment of Kickbacks”…and then at least be required who the recipients of the kickbacks are. But wait, that’s illegal and would be a crime! Yeah, it would currently be illegal, but it is NOT any more criminal than the hidden BS paybacks buried in legislation and hidden from the public. I think it’s pretty easy to conclude, already at this point in the conversation, that the current income tax is rife with corruption and tends to ensure the re-election of the same corruptocrats that passed previous legislation that usually to hurts We the People to the enrichment of the political elite.

Down to brass tacks about “income taxes”. Beyond the obvious giveaways described already, the income tax system, as it exists today, if so subjective as to almost be a license for the politicians to do anything to the people. This flaw is so egregious that it becomes easily detectable at the very most superficial level. For example, citizens pay taxes on their “annual income”. Define for me, if you would, “income”. And therein lies the problem. Lay people would be flabbergasted if they actually knew, under the current Code, how “income” is defined. In short, it is a contrived term that is defined, and only in a transient manner, by the corruptocrats on Capitol Hill. Most Americans are aware that there are many “tax breaks” available to the so-called rich, and most everyone would think they relate solely to “deductions”. Clearly, this is not the case. There are over twenty different definitions if income in the IRC, depending upon what purpose the particular “income” identification takes. This is the single most UNEQUITABLE aspect of our entire system. A brief example. Two taxpayers are equal partners in a partnership that owns rental property. Partnership generates a loss of $100,000 during the year (or $50,000 apiece). Depending upon a set of contrived regulations, depending upon the partners’ individual situations (occupation, other business activities, amount of other income, etc), there are three possible taxation treatments of the two partners, and each partner will be taxed, independent of the other, under only one of the possible scenarios:

• Each (or neither, or both) might get a tax deduction of $50,000
• Each (or neither, or both) might get a tax deduction of $25,000
• Each (or neither, or both) might get a tax deduction of $0 (That is a zero)

Does that seem “fair” to anybody?? Forget “fair”, does that make one bit of sense? I’m pointing this out only to demonstrate the “artificialness” of the laws and regulations associated with the Code. And of one thing you can be completely sure. The origin of this kind of nonsense is found is some big donor giving a large campaign contribution to some high-ranking member of Congress in exchange for favorable treatment of the donor. Folks, let me tell you this, the example above is identical in nature and effect to literally hundreds of aspects of the Code in every arena ranging from the definition of income, to the definition of deductions, to the requirements for tax credits.

By this point, I hope it’s becoming obvious that while an income tax structure can be equitable and work, our  does not. And, because of simple human nature, it never will. Rules and regulation MUST be consistent and must apply to all participants. Otherwise, corrupt politicians will always reserve to themselves the power to tweak all aspects of the system and propose such tweaks that enhance, not the Peoples’ positions and wealth, but merely their own!

Two last points about the idea of taxing citizens’ income under a system that is chock full of “politician overrides”. By maintaining control over the tax system, politicians reserve to themselves the power (remember this, POWER is a very important concept) to pick winners and losers. Certain taxes that are in effect apply only to certain industries; certain “tax breaks” that are in effect are available only to certain industries, and; the same can be said about only certain companies within those industries. Remember the retailer in Des Moines? Politicians’ ability to either let certain interests skate on paying taxes while taxing certain other interests into bankruptcy is the best example of POWER MONGERING I can even imagine. Lastly, most Americans already recognize at least peripherally that the current income tax system is a hugely powerful “social engineering” tool. Just one simple example could be found a few years ago. The bureaucrats decided that in the interest of furthering the Obama Administration’s (doomed to fail) Green Initiative, we had Cash for Clunkers, the tax credits for buying new residential appliances (and ditching our old, but completely satisfactory ones) whereby all American taxpayers paid a portion of the cost of the tens of thousands of new (mostly) General Electric refrigerators. Can you say “Obama’s former best friend, and CEO of GE, Jeff Immel”? While never attacked on a policy level in the past, we are now looking at a new tax cost by reducing or eliminating the tax savings associated with gifts to charities. This provision is practically a certainty in the very near future as Washington attempts to adopt “tax reform”. Marxist ideology seeks to replace the private sector with the public sector and bigger government. By “nudging” individual citizens to reduce their charitable giving this function will fall to the government. This is merely another example of the government thinking that it, not the citizens, know how best to spend the Peoples’ own money. If the charitable deduction is eliminated, mark my words, the federal government will come up with yet another version of “government assistance” to fill the money void that will be created with fewer donations from the public. Yet another huge increase in federal spending at a time when the nation can least afford it.

Much is made of the "Fair Tax" proposals in which every citizen pays a flat rate (normally projected to need to be in 17 to 20 percent range) as a more equitable system than the progressive tax we now have. If I have adequately explained the inherent "unfairness" in the existing Tax Code, it should be fairly obvious that while a Fair Tax sounds good, it does nothing whatsover to overcome the very same problems associated with the current system...it merely makes the "arithmetic" easier. The universal problem, though, remains. Yes, we'll all pay (say) 18% of our income in taxes, but...WHAT REPRESENTS INCOME and more importantly WHO DECIDES WHAT REPRESENTS INCOME?

There are a multitude of other reasons that the current income tax system (or any others administered by mortals) is rampant with inequalities and corruption. At the core of this discussion is the fact that to be equitable, any system of taxation must be applied consistently with only the rarest of exceptions allowed, and the rules must be applied to every citizen. It follows, then, that an equitable system 1) must involve as few rules as possible; 2) must include definitions of whatever terms are involved and those definitions must be identical across the board and must be the same regardless of the specific application, and; lastly, 3) the system must be simple enough and involve as little subsequent modification as possible so that virtually all citizens subject to it understand the rules that EVERYONE is playing under. The current Internal Revenue Code fails at every level on these tests…miserably, I might add.