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 code. He delivered this presentation on October 22, 2009 at a meeting sponsored by the Naples Committee for Heritage.

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The Moral and Economic Necessity of Tax Reform

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