Thursday, May 05, 2011

Haters Be Hatin'

What is it with conservatives and hating the middle classes?
You'd think the very people who make this country work, the people who buy stuff and pay taxes and do the grunt work so that large corporations can pay those huge salaries to the CEO and huge dividends and bonuses to the boards of directors would be a little bit better appreciated.
That said, he's not entirely without merit. We can raise tax revenues without raising tax rates by getting rid of some questionable offsets. We should take a close look at deductions and tax credits to see what we can trim.
For example, the tax credit for fuel efficient cars made sense when gas was only a buck and a half. We wanted to encourage purchases of hybrids, say, in order to combat carbon emissions and to boost oil conservation.
At $3 a gallon (permanently) and $4 and $5 a gallon in spikes, this credit makes less sense.
And perhaps a deduction for mortgage interest is less appealing after the past three years' debacle in the mortgage markets. Our per capita home ownership percentage in 2007 was the highest its ever been, in part because we relaxed the rules on the deductions for selling a home (it used to be limited to $250K, once a lifetime) and in part because the mortgage interest deduction helped people take out mortgages larger than they could afford.
But I make this counter-proposal: before we start harming the citizens of the country, I propose we raise tax revenues by LOWERING rates.
Nope, I didn't suddenly become a conservative free-mouseketeer. I didn't channel Ayn Rand. Bear with me for a second.
Let's say you have a firm that rakes in a million dollars a year. A good pre-tax return for that company would be somewhere around 6%, or about $60,000. That's after the company deducts costs and expenses, including costs and expenses that if an individual deducted, would get him called onto the carpet at his local IRS office for a scolding and a session of check-writing.
The current net tax rate is about 35% (if that even gets paid, which it does not but should. Remember, this is after all the legitimate deductions have been had). So take that $60,000 and you get $21,000 in tax revenues.
Now, here's the elegance: knowing that this company has an effective tax rate of 21% of revenues, we lower the corporate rate to 20%, but tax gross revenues.
The extra thousand bucks? That's the easy part and in fact may end up making the government a profit over the current system. By forcing companies to wend their revenues thru multiple layers of expenses and write-offs, the IRS spends mucho dinero (Cinco de Mayo, si?) on audit and enforcement. I would bet large money that the percentage spent on code enforcement and evasion investigations exceeds 5% of annual government corporate income tax revenues.
And if it does not, we can adjust the tax rates higher to cover this, but look at what happens: corporate tax liabilities do not increase a dime (they actually get lower), they spend less on CPAs to work out tax avoidance schemes, we get incrementally more revenue, and corporations are now free to spend the remaining 80% of their income in whatever way they see fit: cost of sales, higher salaries, hell, they can buy 80% worth of bubble wrap secure in the knowledge that some IRS agent isn't going to question the validity with respect to how the business operated that year.
In exchange, we drop every stinking subsidy (goodbye corn! So long oil exploration!) and credit the Corporatocracy enjoys, and turn them into true American citizens, with all the rights AND RESPONSIBILITIES of you and me.