tax reform

Our federal government has ground to a halt. Again. Republicans and Democrats were unable to meet a deadline to fund the government Monday night. While a group of “combative” Republicans are largely bearing responsibility for the impasse in Congress due to their hawkish advocacy to defund the Affordable Care Act, the reality is the factions in Congress are more varied and deeply divided than ever.

Both parties are to blame for this stalemate, and the result may very well be an ever-divided Congress where each party will blame the other for their unwillingness to negotiate. On the one hand, Republicans are claiming they want to reign in spending but are unwilling to compromise when it comes to military budgets and spending on our overseas police power – a capacity that is becoming increasingly disfavored by the public. And, indeed, the Department of Defense is, by far, the largest contingent that will be affected by the shutdown. On the other hand, Democrats spearheaded a bill that is not feasible to fund given the current economic crisis because the government is strictly not generating enough revenue to support such a program short of spending our future away.

Our government’s sole focus right now should be on economic improvement. While the Affordable Care Act promotes a noble purpose, the fact of the matter is that our government cannot afford to pay for it. Our federal programs, such as Social Security, are already failing for lack of funding and mismanagement. There is little support for the idea that the Affordable Care Act would face any more promising future.

Economic improvement will come from taking military spending and re-investing those dollars here on the home front where our infrastructure and education are sorely lacking. Economic improvement will stem from creating a positive climate for small business and entrepreneurship by removing barriers to entry and by encouraging smaller, more flexible entities. These entities will, in turn, create the types of jobs we want in our society – the types based on relationships and accountability. And, finally, at the heart of economic improvement, is the idea that we decrease the stratification of wealth in our society. Simplifying the tax code is essential for leveling the playing field for all people. Complexities in the code create the types of loopholes that allow for corporate exploitation and tax shelters for the wealthy.

There are very certain and definite roles for our federal government. The services Washington D.C. provide through the unification of essential interstate laws and international treaties should be primary but focused. We must be realistic in what we can and cannot sustainably afford at that level. And let’s be honest, Cover Oregon is doing and would do a better job at providing health care for our citizens than any federal program. If our federal government is unable to afford Social Security and Medicare, then what good will the Affordable Care Act do for us when we ultimately cannot afford to pay the doctors?

Will it take a nationwide default to provide the political impetus to reform? That is a possibility. But blaming one party or the other is only fuel for a divisive fire. The stopgap just may be to practice viewing this shutdown from an opposing point of view.

The current tax code has become a convoluted knot of deductions and credits. In Tennessee this week, President Obama hinted at his interest in seeing that code change. The President’s attention to the issue immediately drew a hailstorm of debate in Washington over tax reform.

The biggest problem with our tax code is that it has been used and abused by politicians for political agendas rather than as a simple method for raising the basic revenue for the function of our state. Along this line, politicians are able to solidify their constituency by carving out exemptions for the business interests that support their candidacies. Additional deductions, credits and rebates have added to the size of our nation’s operating costs for reviewing increasingly complex tax returns.

This is one place where our system is broken. President Obama and Congress are offering only more of the same. Conventional attitudes have proposed that any future solution must address income tax reform separately from corporate tax reform. In order to mediate a solution between Democrats and Republicans, tax reform must be dealt with as a whole. Parsing through the code in a piecemeal approach will render a piecemeal solution – not a holistic solution.

Any tax reform solution must occur at the highest level with a complete overhaul of both income and corporate taxes.

Currently, our society has awarded size of institutions rather than innovative, low-impact operations that encourage accountability. Because of the deduction maze, overweight entities can hire a legal tax team to navigate the tax return process, find loopholes, and increase profit margins. These tasks are disproportionately expensive for smaller businesses. The problem with overweight corporations, their ownership over the federal government, and their propensity to promote wealth inequality and waste may be solved through a proper corporate regressive tax.

A corporate progressive tax would tax revenue, not profit, such that the tax would be more akin to an income tax. Moreover, the tax percentage would increase as a corporation expanded revenue. There are a multitude of reasons why corporations deserve a progressive tax.

Corporations are considered by law to be fictitious persons. However, persons cannot balloon to the size of the moon; corporations can. A progressive tax ensures that as corporations expand, their exponential use of resources, amplification of waste, and propensity to marginalize labor comes with a higher price tag to be paid to society. As shareholders in our nation’s resources, we should all be paid when a corporation is able to capitalize clear-cutting a copse that provides us air, shade, food, and a nice view. It should not be allowed to deduct its way out of this cost.

Finally, a corporate progressive tax would be a treatment for the problem of growing wealth inequality in our nation. A large corporation or bank would not have the luxury of paying a windfall to its board and officers, particularly when such an entity is provided an incentive to remain smaller and more nimble.

Income taxes, however, should be flat. Unlike corporations, human beings have a maximum capacity for productivity and waste.

The answer to tax reform is simplicity. Deductions and credits create complicated arrangements where certain industries are rewarded and certain industries are punished – often for little reason other than politics. Simple solutions with simple revenue projections will make the function of our federal government more clear and concise.

And ultimately, to prevent politicians from usurping the tax code once again for their own political gain, Lawrence Lessig and David Segal’s suggestion to convene a modern-era Constitutional Convention would have to occur. Short of that, we would only see more of the same.