Prior to the 16th Amendment (1913), and by no coincidence the very same year the Federal Reserve Act was thrust upon an unsuspecting population, direct taxes levied upon any individual (by the government) was deemed a violation of the U.S. Constitution unless it was “apportioned” among the States in a manner proportionate to that State’s population to that of the entire national census.
The Nation was formed about a key concept of representative government and this ideal is a common routine thematically reoccurring throughout the Constitution, but most visibly in the apportionment of Members to the Lower House of Congress and the Electoral College System. To be truly “representative” of the People, no State should be privileged above that or to the detriment of another State. Unfortunately, the 16th Amendment did away with the restrictions that prohibited these punitive measures and the burden of unchecked Federal and State debt-funded spending accommodated the exponential growth in Government and the expansion of its key revenue generating scheme; the mind numbing Internal Revenue Code (and the various State’ equivalent.)
I’ve written extensively about the need for legitimate Tax Reform including specific solutions, particularly if a revitalization of the U.S. economy is to occur. I’ve presented solutions for targeting current tax policies that are most confiscatory. Although, at the present time the President’s plan has yet to be formally released (and we will comment appropriately when it is), the components I have seen are not at all equal to the promised structure I’d contributed to and thus hoped for.
There should be a zero-tolerance for policies that are nothing more than distortions of privilege. Already a battle over the treatment of “State and Local Taxes” (SALT) is brewing and the argument for continuing the present allowable deduction is as structurally week as the one used to continue the special treatment of income received by Fund Managers, a.k.a. the “Carried Interest” deduction.
My argument in opposition to this treatment is not at all dissimilar to the original concept of “apportionment”; what justification has been crafted for providing special treatment to one at the expense of another? How do we wrap our brains around “special treatment” to a select group who is among the least economically challenged, and then charge the expense to a much larger group who has no such economic privilege and, in actuality, has need of a tax relief (Special Treatment) the most? What form of rationalization explains burdening the population of the State of Montana (or, for that matter, any other State) with the reckless fiscal policies and practices of the State of California, New Jersey or New York?
Likewise, to be sure, the argument of providing special tax treatment for a Fund Manager’s Income stream s no less specious. Every American has a burden to pay for the costs of Government/Infrastructure however, my approach to revenue generation (Tax Policy) is for a policy that deals with income taxability levels above Base Cost of Living Standards. In other words, it’s ludicrous to have a tax policy that generates tax revenues from dollar-one of an individual/household income, i.e., feed, clothe and house government first and then take care of yourself/family with whatever’s left.
If you approach revenue generation (taxes) from this perspective then you can eliminate all of the deductions and then simply have a single base rate universally applied to and/all types of income over Excludable Base Income ($55k per adult, $35k per Family “Senior” Resident” and $15k per child resident – inflation adjusted annually) and a “capture rate” for incomes above $1.5 Million (inflation adjusted annually). Then you have uniformly applied and apportioned revenue generation based on the census of those with income above these levels.
Lastly, there is much talk about the reduction of the Corporate Tax rate as a tool for seeding economic expansion, yet again, we have a deeply flawed premise. Unless a Corporate Entity, particularly those with an earning capacity and capital resources dwarfing that of a Single Individual, has an implicit burden forced upon them which requires domestic investment in exchange for special tax treatment then what benefit, to the U.S. Economy, should one expect to materialize simply by offering a tax rate reduction?
First, Consider the massive benefits Corporate/Multi-National Interest received from the 1990’s-era Trade Treaties, far greater than the tax reductions currently proposed, and look what these entities did. They consolidated, then relocated and expatriated magnificent amounts of wealth to outside of the U.S. In other words, the answer is this: They will continue to suck whatever life remains in the U.S. economy and they’ll continue paying for the influence required to allow it to continue.
Presently, under the current tax system, Corporate America pays an average tax rate of 18.6% and still the productive capacity remains in a free-fall mode and middle-income levels remain tenuously at 1978 levels. To be truly effective, as both a tool for revitalizing the U.S. economy and developing rational tax policy, the only sacred cow should be the Individual with active (working) income.
For Corporations, and for Pass-thru Business Income above $900k, a tax reduction scheduled, one that pares to measured annual direct-investment in domestic productive capacity, would be the only special treatment a rational mind could support.
Distortion of Privilege, clearly, is an intolerable foundation upon which to rebuild the U.S. Economy or its Tax Policy.
Curtis C. Greco, Founder