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From: Laurie <[email protected]>
To: novelty lifeboat <[email protected]>; chaos
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Sent: Wednesday, 14 November 2012, 21:22
Subject: [novelty-lifeboat] Best Tax Simplification Proposal
http://davidbrin.wordpress.com/2012/11/14/part-of-the-fiscal-cliff-solution-the-best-tax-simplification-proposal/
Part of the “Fiscal Cliff” Solution: the Best Tax Simplification Proposal
With the 2012 elections over and a political landscape remade, the stage is set
for our next U.S. drama, a tussle over how to prevent the budget and economy
from tumbling over a “fiscal cliff.” From the tone of preliminary discussions,
it’s looking hopeful that all parties (save a few Tea Party holdouts) have
taken their “act-like-an-adult” pills. Investment wizard John Mauldin may turn
out to be right, after all – that grownups will act in the nick of time,
transforming the deficit from an all-destroying monster into a mere-worrisome
beast.
That is, if President Obama can get Congress to swiftly do the very first
thing, the immediate top priority: pass legislation guaranteeing tax stability
at current levels for the Middle Class, so that markets won’t panic on January
first. All else can be thrashed out in an “outline” for the next Congress to
finalize by March.
That is, if Speaker Boehner can herd enough Republicans into accepting more
revenue from the rich. And if their masters on-high grumble but accept what the
election’s Super-Pac Collapse showed, that the oligarchic putsch is waning.
With tax rates near their lowest in 70 years and with Federal revenue as a
share of GDP at its lowest since the end of WWII, it’s time to ignore those
imbeciles maniacally preaching hatred of our own government, blaming it for all
things. And time for the uber-rich to accept what the First Estate foolishly
refused in 1789 France – that it’s time to pay a bit for being members of a
civilization.
Oh, but liberals will have to give, as well! This can all happen if the
President delivers sincere counter moves on entitlements: the easiest being
simply to tell Americans the truth. “Hey, you live a lot longer than your
parents did, so you can work just a tad longer… and 70 is the new 50 anyway.”
If he does that, in exchange for an end to Bushite supply-side voodoo largesse
for aristocrats, then our children will be saved at a single stroke.
The rest of the deficit? Well, as I explained elsewhere, half of the causes of
our current mess should dissipate, once the other half come under control, and
now that we are safe from our house being ruined again by the same fools who
bulldozed it over a cliff from 2001 to 2009.
== The Role of the Tax Code in All This ==
Now, Let’s be clear; the deal that emerges may have some twists to it.
Republicans will be seeking a face-saving way to increase inflows from the rich
— an approach validated not only by the electorate but also a report from the
Congressional Research Service declaring that Supply Side mythology is, was,
and always will be hokum. That incantation worked far too long, hypnotizing a
generation on the right, but it’s over and good riddance. (Adam Smith himself
said that most aristocrats do not invest any sudden largesse into innovative
capital. That was a fantasy.)
While admitting the inevitable, GOP politicians are eager not to explicitly
violate their “no new taxes” pledge to Grover Norquist, who still has some
clout despite his star fading, at long last. Desperate for a fig leaf,
Republican legislators tout a semantic distinction between “augmenting
revenues” and “raising tax rates.”
The leading proposal on the table right now appears to be eliminating the
ability of the rich to evade taxes through deductions, a suggestion offered
briefly, during the many policy gyres of GOP presidential nominee Mitt Romney.
By eliminating a wide range of deductions, or else capping all deductions at –
say – $25,000 per person/year, a large flow of revenue could be tapped while
allowing the actual marginal rates of income taxation to remain at Bush Cut
levels. (Not enough, according to Treasury Secretary Geithner, but a good
start.)
Another approach would be to raise – or even eliminate – the regressive cap on
the payroll tax that feeds social security and Medicare. If that were also
applied to capital gains and dividend income, so much new revenue would be
generated that the rate of the payroll tax would have to be reduced, lest
serious damage occur! (That mere fact shows just how skewed our values have
become – that honest work is taxed harsher than what Adam Smith derided as
“rent-seeking” – the lowest form of economic activity, according to Smith.)
Any of these approaches might work. I am partial to the elimination of whole
deductions if only for one reason, that it would contribute to another long
term project, simplifying the Tax Code.
As a matter of fact, there is a way to do that, and minimize the amount of
kicking or screaming or obstruction. It seems worth doing on its own merits!
Some of you have read my proposal before and I’ve been encouraged to keep
pushing by folks who work in this very field. It ought to work.
== The Goal of Simplification ==
Just after being elected in 2008, President Obama said he would seek a reform
of the U.S. tax code, calling the current system is a “10,000-page
monstrosity.” But that promise has been made by others before and every
proposed change ran up against a wall. Every “simplification” would gore
someone’s ox. The more code-trimming you do, the more people will scream.
I know a simple way around this. The sheer bulk of the tax code — its
complexity, in numbers of rules, words or exceptions — could be trimmed without
much political pain or obstructionism! Because the method is designed to be
mostly politically neutral. It does not aim at some utopian fantasy (like the
Flat Taxers rave about.) It gores only a few sacred cows. It would be cheap and
easy to implement. Only accountants should hate it for the effects on their
lucrative business. Yet, to the best of my knowledge, this method has never
been tried, alas.
(Note: an earlier version of this article ran some years ago and is still
available at my web site.)
== How can I promise such a thing? ==
There is nothing on Earth like the U.S. tax code, an extremely complex system
that no one understands well. But unique in that it’s complexity is perfectly
replicated by the MATHEMATICAL MODEL of the system. Because the mathematical
model is the system.
One could put the entire US tax code into a spare computer somewhere, try a
myriad inputs and tweak every parameter to see how outputs change. There are
agencies who already do this, daily, in response to congressional queries.
Alterations of the model must be tested under a wide range of boundary
conditions (sample taxpayers). But if you are thorough, the results of the
model will be the results of the system.
Now. I’m told (by people who know about such things) that it should be easy
enough to create a program that will take the tax code and cybernetically
experiment with zeroing-out dozens, hundreds of provisions while sliding others
upward and then showing, on a spreadsheet, how these simplifications would
affect, say, one-hundred representative types of taxpayers. As I’ve said, this
is done all the time. A member of Congress has some particular tax breaks she
despises and asks the CBO for figures on the effect, should those breaks be
eliminated. Alas, as soon as word gets out, her proposal faces a firestorm from
powerful interests fighting like hell to keep from losing millions.
Hence, although American corn-ahol subsidies propel high food prices and hunger
around the world while doing little for the environment, nothing is done to end
the wasteful program that costs more net energy than it delivers. There are
thousands of other special interest groups that each wish the budget to be
balanced… on someone else’s back. How to get past this?
A key innovation: program in boundary conditions to the experiment, so there
are no losers.
Let the program seek and find the simplest version of a refined tax code that
leaves all 100 taxpayer clades largely unhurt. If one group loses a favorite
tax dodge, the system would seek a rebalancing of others to compensate. No mere
human being could accomplish this, but I have been assured by experts that a
computer could do it in a snap.
Here’s the key point: If such an iterative search finds a new, much simpler tax
structure that leaves none of the 100 groups more than 5% worse off than they
currently are, then who is going to scream?
Oh, well, I suppose a lot of people will. Cheaters will holler of course, and
those who benefit from the cloud of obscurity allowed by an overly complex tax
code. Even if farmers are guaranteed adjustments in other areas, they will
reflexively protest over the end of Roosevelt-era subsidies. In fact, everybody
will complain! But…
…but a lot of the HEAT will be taken out of their complaints, if they see that
their own bottom line is completely unchanged. And that is the secret. To
remove enough heat so that people can calmly re-assess, negotiate, and accept
pragmatic simplification that’s good for all.
== Will “no-losers” really leave everyone unaffected? ==
Nope. One hundred sample-type American taxpayers won’t cover everyone,
especially at the upper end. Some in the aristocracy have tax laws that were
enacted specifically to benefit them! They will hit the roof. But if enough of
the rich are included in “no-losers” they might tip the balance, canceling out
the final obstructors, for the sake of a new simplicity. And a new patriotism.
Will this method solve all tax-related problems? Of course not! Complexity is
not the only thing wrong with the Tax Code. After simplification must come some
genuine tax policy shifts that do advantage some and disadvantage others. Like
all of you, I have my favorite injustices I’d love to see redressed, behaviors
disincentivized, business ventures stimulated… and so on
But, by starting with “no-losers,” you can use politically neutral optimization
routines to find a much simpler system. Industrial concerns like auto companies
already do this sort of thing, trimming and slimming machinery to use the
fewest parts, while achieving similar output. We could similarly refine the
machine that is the Tax Code. Then, and only then, will it make sense to argue
about steering the vehicle in new directions.
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