One of the reasons I was a Herman Cain backer early on in the 2012 campaign was his wisdom on tax policy. On Monday he wrote a piece reminding us that a number of patchwork, temporary “fixes” to our income tax rates expire at the end of 2012, and could doom what little recovery we might be enjoying if nothing is done.
Of course, there is no foolproof solution, even with Cain’s 9-9-9 plan – soon enough it could be 12-12-12 or even 15-7-21. Pick three divergent numbers and you might be a winner in this Russian roulette-style lottery involving both personal and federal finances. But the same is true for a flat tax as well, and it’s still based on income rather than consumption.
But even when a consumption tax is enacted, the other key is spending the money wisely. Back in 2008 the state of Maryland raised its sales tax from 5% to 6%, ensuring the state another $500 million or so in revenue. The problem was that the money was spent even before it was collected, as a governor who’s never met a government program he didn’t like (or wish he’d dreamed of himself) blew every dime of that (and then some) on new programs.
Given our experience with sales taxes from around the country, I don’t see how the argument that we can’t predict revenue from a consumption tax can be posed. And even so, it’s not like we don’t make adjustments to a budget (that is, when we actually have one) based on the events which occur between the time of passage and the moment that last dime is spent at the stroke of midnight on September 30.
It’s relatively simple to figure out how to get out of these messes we find ourselves in. On a state level, each year the GOP works out a budget that addresses the structural deficit without raising taxes; meanwhile, it’s worthy of note that if we retreated our federal spending to the level of the last Bush budget (FY2009, excluding the stimulus added by President Obama) of $3.1 trillion, a large part of our deficit would be addressed. Yes a deficit $500 billion or so is still absurdly high but it’s better than the $1.4 trillion we’ll likely run in the hole when the fiscal year ends September 30.
Beyond the numbers, though, is the concept of why a consumption-based tax scares those in government: it returns control to the people. The amount of money sent to Washington isn’t necessarily as important as the behavior influence our current labyrinthine tax code provides these faceless, unelected bureaucrats. Examples of carrots include buying a home or certain types of consumer goods deemed better for the environment, while sticks are things like holding stocks for too short of a time or making income outside normal channels (to trigger the alternative minimum tax.) There’s no doubt that H&R Block and others in the tax preparation field are deathly afraid of what a consumption-based tax would do to their business as well.
Moreover, the government isn’t paid first with a consumption-based tax because backup withholding is eliminated. Backup withholding was supposed to be a temporary program, enacted in a time of national crisis. But just like any other “temporary” tax, we’ve been saddled with this enforced deduction ever since, even in peacetime. It’s a little more fair for the self-employed who pay in quarterly installments; still, these numbers are based on a previous tax year and not present income. Some have been led to pay far more than they owe because of income fluctuations, but under a consumption-based tax they can adjust accordingly.
Over my lifetime they have made a sport out of tinkering with the tax code – rates go up, rates come down, and cherished deductions are created and then rescinded. For example, credit card interest could once be deducted, but that was changed. Dare to tinker with the home mortgage interest deduction, though, and you’ll have a lobby full of realtors calling for your head. It’s hard to buck the system that too many have become cozy with inside the Beltway.
And it’s because of that system that we may face taxmageddon in 2013. Unfortunately, it doesn’t look like much will change in the next four years, barring the unlikely event of FairTax proponent Gary Johnson becoming president. Any change will have to be led by Congress and demanded by a tireless, irate minority who are willing to give up some of those deductions they annually take advantage of to restore broader control to themselves. Only then can we begin to take the yoke off our necks and begin to enjoy more economic freedom.