The Moral and Economic Necessity of Tax Reform

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Bill Beach, director of The Heritage Foundations' Center for Data Analysis, argues that a flat income tax or a consumption tax would resolve the unfairness and economic distortion of the current tax …

Bill Beach, director of The Heritage Foundations' Center for Data Analysis, argues that a flat income tax or a consumption tax would resolve the unfairness and economic distortion of the current tax code. He delivered this presentation on October 22, 2009 at a meeting sponsored by the Naples Committee for Heritage.

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  • 1. The Moral and Economic Necessity of Tax Reform Presentation Before the Naples Committee of The Heritage Foundation By William Beach October 22, 2009
  • 2. Morally Challenged Tax Policy Affects All Important National Problems
    • The broken code affects:
      • The recession and the pace of economic recovery
      • The place of the US in global trade
      • The pace of outsourcing
      • Our health care system from top to bottom
      • And many more policies
    • In too many instances, big public policy problems point back to the tax code.
  • 3. Current Tax Policy Strikes Deeply in American Life
    • US government asserts sweeping authority to shape many important aspects of private and business life.
      • The code encourages Congress to engage in social and economic engineering.
      • The IRS is empowered to examine, regulate and shape significantly personal and economic choices.
      • Indeed, the US heavily taxes economic virtue through estate taxes and loads powerful disincentives for achievement on those people who are most important to economic life.
    • Many in Congress want to pass a VAT, which could double tax collections.
  • 4.
  • 5.
  • 6. Tax Reform Unlocks Many of Our Major Economic Problems
    • Pricing advantage of imports over exports
    • Health care: employer based instead of customer/patient based
    • Too much investment in owner occupied housing
    • Slower economic growth than we could have
  • 7. Tax Reform Needed for “Tax Justice”
  • 8. Is this just? The marginal tax rates of a family of four as income rises. (Graph courtesy of Dr. Kevin Hassett of the American Enterprise Institute)
  • 9. What Should We Do? Hit the Reset Button
    • Reset the Tax Base
    • Tax consumption
    • Tax = Income – Savings
    • or
    • Tax income only once, less family allowance
    • Tax = Income – Family Allowance
  • 10. What Should We Do? Hit the Reset Button
    • Reset Multiple Taxation and Tax Rates
    • No double taxation: Tax income or consumption only once and at its source.
    • Enact a tax code that raises revenues, not enables social & economic engineering.
    • Enact a single rate and keep it low.
  • 11. Benefits of a Flat Tax or a Retail Sales Tax
    • Greater economic growth rates
      • Higher salaries and wages
      • Better investment returns
      • Less government distortion of the economy
    • Fairer, tax payments rise with income or with consumption.
      • Low income families protected
    • Fewer lobbyists!!
  • 12. What Not to Do
    • Incremental tax reform doesn’t work
      • Congress add complexity when it takes baby steps.
    • Don’t enact a VAT (value added tax )
      • Hidden tax
      • Guaranteed increase in tax burden, maybe double it.
      • VAT actually taxes wages, capital and consumption.
      • Congress probably would add it to the income tax.