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#1600CapitolHill: The Tax Plan

Posted on January 12, 2018September 17, 2019 by Gene


The Republican controlled House and Senate, as well as the Republican controlled Executive Branch made sweeping changes to the existing Internal Revenue Code, and replaces the Tax Reform Act of 1986. The Executive and Legislative branches want the American Tax payer to recognize the existing Internal Revenue Code as broken and in need of significant repair.

There are four questions the American Taxpayer should demand answered before any changes to the Internal Revenue Code, or replacement of the Tax Reform Act of 1986 are made:

  1. Does the Federal government make efficient use of the existing Tax revenue already generated by taxes collected under the Internal Revenue Code?
  2. Are all tax payers paying their fair share of taxes in accordance with the existing Internal Revenue Code?
  3. Does the existing Internal Revenue Code place and undue burden on the individual tax payer?
  4. What, if any, changes have been made to the Republican party’s core ethos around tax and tax reform since 1986 such that the Internal Revenue Code requires an overhaul, and not minor adjustments?

If you find that the answers to the above questions are in the negative, then a sweeping overhaul of the IRS Tax Code was/is unnecessary. What is necessary is better public eduction about how taxes are collected, and better oversight of how tax revenue is apportioned.

With regard to question #1 and efficient revenue use, most professionals supporting the Executive and Legislative branch of the federal government would point to examples of government fraud, waste or abuse in agencies and across both branches of government. Anecdotally, most Americans have come to understand government fraud, waste and abuse as an everyday fact of life in a bureaucratic democracy. If the general, documented, and often litigated reality is that “Washington DC” mismanages it’s revenue, then it should be generally accepted that the answer to the first question is NO. The Federal government does not make efficient use of the tax revenue generated by the existing Internal Revenue Code and the Tax Reform Act of 1986. Therefore, an overhaul to the Internal Revenue Code will not make the government spend with greater fiduciary responsibility.

To question #2 and fair share, anecdotally,  each citizen believes that his fellow countrymen don’t pay their fair share of taxes. Since there is no way to support this quantitative argument, I will stick to this fact, according to the IRS, “Overall, compliance is highest where there is third-party reporting and/or withholding.  For example, most wages, salaries and tip compensation are reported by employers to the IRS through Form W-2. Preliminary findings from the [National Research Program] indicate that less than 1.5 percent of this type of income is misreported on individual returns.” Understanding the Tax Gap

What this means is that because income taxes are reported twice, once by the corporation, and once by the income tax payer, compliance is accomplished through redundancy. Furthermore, corporate tax audits, combined with individual tax audits have ensured that taxpayers do pay their fair share of tax. Whether through direct income tax payments, charitable giving, or corporate incentives designed to spur economic growth, all Americans pay their fair share of tax.

To question #3 and undue burden; the wealthiest among us are burdened in accordance with their good fortune, while those that fall in the categories of Lower- and Middle Class experience a better than fair discount on their Tax obligation.

In 2013, households in the top, middle, and bottom income quintiles received 53, 14, and 5 percent, respectively, of the nation’s before-tax income; and paid 69, 9, and 1 percent, respectively, of federal taxes.  Source: CBO

The Translation is this: Top earners pay at a much higher tax rate than the middle or bottom earners; and that middle and bottom earners (Those earning less than $60k/year) account for only 10% of Federal tax revenue.  In short, Americans (tax paying citizens of the US) are burdened more than equitably by the tax code with regard to how they pay taxes, according to their income bracket.

Lastly, to question #4 and changes to the GOP policies around tax and tax reform, There have been no significant changes in the two core tax policies between the 1980 GOP Policy Platform and the 2016 RNC Policy Platform. Both platforms demand simpler tax code, and ask for across-the-board reduced taxation. If there is no significant change in the ethos, there should not be a desire to overhaul the tax code.

Based on the answer to the four proposed questions, I offer this sentiment. Should their be minor tweaks to the tax code necessary for changes in the US economic reality of the 21st century? Yes. But not an overhaul. An overhaul would disrupt a perfectly healthy economy, engender more resentment between income classes and widened the income gap that disproportionately  disadvantage the working poor.

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