The Budget Debacle: Eliminating Taxation ‘Elites’

by dhovel 8. August 2011 18:20

The current disgusting impasse in the Beltway regarding the long-term resolution of the budget deficit is being treated as a political football, with nonsense and self-aggrandizement on both sides.  I feel compelled to add yet another personal viewpoint to the debate.

There are clear necessities to change significantly the current formulation of entitlement programs, reduce the size of the Department of Defense and discover new sources of primary governmental revenues.   Whether you think the ratio of cuts to revenue increases should be 4 to 1, 3 to 1 or 1 to 10, both sides of the ledger must urgently be addressed.  The current rate of income taxation falls below the historically low levels of the Eisenhower Administration.  The projected growth of the myriad entitlement programs is terrifying to anyone paying attention.

My survey of history shows that a clear sign of the decay of many systems can be traced to the exclusion of groups or elites from tax liability.  Currently, only 50% or so of American families pay any income tax.  The currently low capital gains rates and low income tax brackets allow the richest families in the U.S. to avoid significant tax payments.  Poorer families generally pay no net tax after deductions and credits are applied.  Many major corporations, despite record earnings, end up paying no corporate income tax at all, in spite of our seemingly high corporate tax rate vis-à-vis other industrialized nations.  The limitation or exclusion of these ‘elites’ from taxation must end.

One clear path to renormalizing the tax structure would be to create a base tax rate; that is, a minimum percentage that all taxable entities, personal and corporate, would pay regardless of other applicable deductions or loopholes.   A minimum rate of 5% would reincorporate fully half of American taxpayers into the revenue stream.  This would mean that every individual or corporation would always pay at least 5% of income as tax, regardless of any deductions, exemptions or credits.

It would be hard to argue with such a low percentage of taxation.  Such an approach would reincorporate every significant taxable entity into the federal tax revenue stream.   Along with significant changes to entitlement programs and reduction of America’s defense posture, the path to realistic deficit reduction would be open.