Green Room

One more reason to prefer tax reform over taxing the rich

posted at 2:22 pm on October 19, 2012 by

For over a century, liberals have wanted tax increases on the wealthy to force them to pay their “fair share.” Never mind that taxes such as the individual income tax and the Alternative Minimum Tax (AMT) went from hitting only the wealthy to hitting many middle-class earners, or that the top one percent pay 1,500 times the taxes of the bottom 20% of earners.

In Tuesday night’s Presidential debate, President Obama made this argument yet again. From a clip on The Washington Post’s website:

If we are serious about reducing the deficit, if this is genuinely a moral obligation to the next generation, then in addition to some tough spending cuts we’ve also got to make sure that the wealthy do a little bit more.

There are a number of ways to refute this class warfare by the President. However, data from the IRS shows a new one that once again proves that it is not higher rates that will help reduce the deficit most effectively – but instead, tax reform that simplifies the tax code and makes it both more economically fair and efficient.

In January 2012, the IRS released a study showing (in 2006 dollars) that $385 billion in tax dollars were lost to noncompliance, equivalent to 14.5% of lawfully required 2006 tax dollars. Perhaps the most devastating part of this study? According t one analysis, out this week, this noncompliance was equivalent to an extra tax of $3,846 on all households in 2006 alone.

So what does this all mean? Well, clearly we must balance the budget, and many people are purposely avoiding taxes they are legally required to pay. Liberals argue the difference should be made up by higher taxes, even though plans such as the Buffett Rule would only bring in $47 billion over a decade, according to the Joint Committee on Taxation and we’ll borrow that much before midnight on Halloween. Even taking every dollar from every American earning at least one million dollars annually in 2009 would only bring in $235 billion, barely more than one-fifth of the Fiscal Year 2012 deficit. Clearly, with spending going up dramatically every year since 2007 and not expected to slow for many years to come, taxing the rich is going to be inadequate to substantially shrink the deficit, never mind balance the budget.

The IRS’ study provides us the path to the tax side of the deficit question. Rather than raise rates and risk harm to the economy, why not simply shoot for more compliance with the tax code? Considering that tax regulations take 14,000 pages to spell out, and are thus incredibly complex, simplifying the tax code to prevent illegal navigation of the code would bring in far more revenue than the Buffett Rule, and do so without raising rates for any taxpayers. Thus, we could kill three birds with one stone: elimination of potentially criminal activity, increase economic efficiency and growth, and diminish the deficit.

Of course, that would require liberals to admit they prefer practicality over ideology…

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