Income Taxes, The Vampire of Civilization - Part 4

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0><script type="text/javascript" src="http://hb.lycos.com/hb.js"></script> <script type="text/javascript" src="http://ratings.lycos.com/ratings/lycosRating.js.php"></script> <script type="text/javascript"><![CDATA[//><!]]></script> <script type="text/javascript" src="http://scripts.lycos.com/catman/init.js"></script> <script type="text/javascript" src="http://members.tripod.com/adm/ad/code-start.js"></script> <script type="text/javascript" src="http://members.tripod.com/adm/ad/code-middle.js"></script> <script type="text/javascript" src="http://members.tripod.com/adm/ad/code-end.js"></script> <noscript> <img src="http://members.tripod.com/adm/img/common/ot_noscript.gif?rand=390093" alt="" width="1" height="1" />  <iframe frameborder="0" marginwidth="0" marginheight="0" scrolling="no" width="728" height="90" src="http://ad.yieldmanager.com/st?ad_type=iframe&ad_size=728x90&section=209094"></iframe>  </noscript> <table cellpadding=0 cellspacing=0 border=0 height="100%"><tr> <td valign="top" width=165 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <A HREF="id17.htm" TARGET="_top" TITLE="Income Taxes, The Vampire of Civilizatio"><U>Income Taxes, The Vampire of Civilization - Part 1</U></A></div> <div> <A HREF="id21.htm" TARGET="_top" TITLE="Income Taxes, The Vampire of Civilizatio"><U>Income Taxes, The Vampire of Civilization - Prt 2</U></A></div> <div> <A HREF="id22.htm" TARGET="_top" TITLE="Income Taxes, The Vampire of Civilizatio"><U>Income Taxes, The Vampire of Civilization - Part 3</U></A></div> <div> <B>Income Taxes, The Vampire of Civilization - Part 4</b></div> <div> <A HREF="id24.htm" TARGET="_top" TITLE="Income Taxes, The Vampire of Civilizatio"><U>Income Taxes, The Vampire of Civilization - Part 5</U></A></div> <div> <A HREF="id25.htm" TARGET="_top" TITLE="Income Taxes, The Vampire of Civilizatio"><U>Income Taxes, The Vampire of Civilization - Bibliography and Footnotes</U></A></div> <div> <A HREF="id18.htm" TARGET="_top" TITLE="The Real Reason for Violence in America"><U>The Real Reason for Violence in America</U></A></div> <div> <A HREF="id29.htm" TARGET="_top" TITLE="Random Thoughts"><U>Random Thoughts</U></A></div> <div> <A HREF="http://www.hillracing.com" TARGET="_top" TITLE="http://www.hillracing.com"><U><B>Back toTom Hill,</b></U></A></div> <div> <A HREF="http://www.hillracing.com" TARGET="_top" TITLE="http://www.hillracing.com"><U><B>E.A. Inc.</b></U></A></div> <bR> <div> <B><IMG SRC="10983610.gif" border=0 width="131" height="97" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></b></div> </td> <td valign="top" BGCOLOR="#FFFFFF" TEXT="#080000"> <bR> <div> <B>The Mesmerizing of the Mind</b></div> <div> <B>Some Possible Solutions</b></div> <bR> <div>      <I>He knelt beside the thin man and bit him in the neck...  (His) Adam's apple bobbed.</I></div> <bR> <div> <I>     After a while, the Mongol lifted his head.  His canines had shortened again, but his lips were dark with blood.  "This is what I do," he said.  "I'm not a human being.  I belong to the... race you... call vampires, and to me your breed is nothing more than food.  Now, do you still want me for an ally?"</I><FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" ><I>81</I></FONT></div> <bR> <div>      There is much agreement that a change is necessary in the tax system used in the United States.  The Chrysler Corporation conducted a survey by mail of almost 300,000 people and 81% said "the economy would benefit in the long run if tax laws were changed..."<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >82</FONT>    Steven Hayes, in an address to the Ways and Means Committee which investigated possible replacements for the income tax system, stated that in the January 8, 1995 issue of <U>Parade</U> magazine, readers were invited to give their opinion about abolishing the income tax.  Over 40,000 letters were received and <B><U>96</U></b>% of them were in favor of such an action.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >83</FONT>  <U>The Los Angeles Times</U>, in an article about Republican leaders' goals, reported that, "The incoming Ways and Means chairman said a longer-term goal is the 'complete replacement' of the current system of income taxation..."<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >84</FONT>   The question is, to what system do we change?  Will we just go from the frying pan into the fire?  We need a method of financing the government that is not really a wolf in sheep's clothing.  The <I>beast</I> comes in many disguises.  We need to take a careful look and be sure we are not enlisting another vampire to replace the old one.  We must be picky about our allies in this case.</div> <bR> <div> <IMG SRC="06609bf0.jpg" border=0 width="265" height="191" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"><IMG SRC="068e8ba0.jpg" border=0 width="232" height="186" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"><IMG SRC="06a02b90.jpg" border=0 width="258" height="185" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></div> <bR> <div>      At first glance, the most obvious solution would seem to be a flat income tax.  This appears to be a very simple way to tax.  One just reports his income and pays a flat percentage on that income.  The percentage should be low enough to be confrontable and show an obvious advantage over the current graduated income tax system.  This would seem simple enough.  Everyone would pay the same low percentage and no one would get to write off anything to lower his tax to zero; everyone contributes.  If this flat tax system would truly work that way then the only complications would come from people who either didn't file returns or under-reported income (as we have now).  However, some political minds have come up with a few twists to make it complicated.</div> <bR> <div>      Rep. Richard K. Armey of Texas is promoting the most current version of a flat income tax.  His plan (an off-shoot of Hall and Rabushka's proposal) is to charge a flat rate (19% according to L.A. Times writer, James Flanigan)<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >85</FONT> to everybody.  This is fine.  However, Roland W. Fink, CPA, says Armey also wants us all "to file a 'postcard' tax return every month, with an annual return still due April 15; so now everyone will have to file 13 returns per year."<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >86</FONT>  This works out to a minimum of 1.5 billion tax returns per year.  That's a lot of paper for the IRS to handle.  They will need more employees to handle this mountain of paper and will most likely be granted more power to enforce the filing of these monthly returns as many people will not file their monthly returns on time.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >87</FONT>  Mr. Fink goes on to remind us that Armey's proposal is still an income tax.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >88</FONT>  In this case, the plan is more of an <I><U>income</U></I><I> </I>tax than our current system as only people who work will pay taxes.  Interest, dividend, and capital gain income will not be taxed, as they are now.  As we've seen, an income tax system generates low production, low morale and dishonesty.  This flat tax system would not solve the problem of the tax dodger or tax cheat.  These people would still have plenty of opportunity to evade and lie on their tax returns.  (Yes, the truly inventive can find a way to cheat almost any system, but as I will discuss later there are methods that are a little bit harder to fool.)  Furthermore, this flat tax still leaves open the possibility of graduated rates.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >89</FONT>  (If the system were kept simple, with no special deductions that only the rich could take advantage of - as we now have - then such a system might be fairer to the lower income taxpayers.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >90</FONT>  The qualifier here is, what will the tax rate be?  If it's too low then the government suffers, if it's too high then the lower income taxpayers suffer.)<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >91</FONT>  A flat tax still requires us to continue to employ the services (using the term 'services'  lightly) of the Internal Revenue Service, a government bureaucracy that has grown into a ravenous monster.</div> <bR> <div>      There are other variations of the flat tax, the differences mainly being the percentage charged and what is taxed.  Senate Majority Leader, Robert Dole, House Speaker, Newt Gingrich, presidential candidate, Arlen Specter (R-Pa.), and House Minority Leader, Richard A. Gephardt are all reported to be working on their own variations of a flat <I>income</I> tax.  According to economic columnist, Paul Starobin, "The political attraction [of a flat tax] is the promise of low rates and relief that [the flat tax] promises from the inane complexities of the current tax code."<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >92</FONT>  The good news is that the push is on for politicians to come up with an answer and they are looking into the possibilities.  The bad news is that they may not look far enough.</div> <bR> <div>      Another proposal is commonly know as the USA tax.  This <U>U</U>nlimited <U>S</U>avings <U>A</U>llowance tax (also known as the Nunn-Domenici plan, after Senators Nunn of Georgia and Domenici of New Mexico) would tax all income, including a portion of municipal interest.  Economic columnist James Flanigan says, "It would exempt from tax all income that is saved or invested."<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >93</FONT>  Businesses would be taxed at a flat 11 per cent.  The top tax rate for individuals would be 40 per cent with deductions for spending on higher education, mortgage interest, charitable donations, additions to some savings, and reinvested capital gains.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >94</FONT>  Again, complication rears its ugly head.  The USA tax would create more volumes of tax code<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >95</FONT> and more headaches for the taxpayers.  This system favors those with the ability to save, while the working man whose every dime goes to paying for the groceries and the rent would be taxed on all he makes.  This proposal is only a bandaid on the puncture holes made by the vampire's bite.</div> <bR> <div>      A favorite of many is the VAT - <U>V</U>alue <U>A</U>dded <U>T</U>ax.  This is a system used widely in Europe.  The basic concept of the VAT is to tax the difference "between what a company sells and what it buys"<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >96</FONT>  Diogenes (the IRS auditor) explains the VAT thus;</div> <bR> <div>      ...let's suppose you've got a company that earns its living by manufacturing clock springs.  You buy your spring steel in bulk.  A certain type of spring requires, let's say, 25¢ worth of metal.  After you've formed this metal into a spring, you sell it to a clock manufacturer for 75¢.  You have therefore added 50¢ to the value of the product, and you pay a tax on that amount.  The clock manufacturer, in turn, puts your spring together with other components so as to make an alarm clock...  Your spring, now embodied in a useful product, is deemed to have increased in value to $1.25, another increment of 50¢.  The clockmaker pays a tax on that 50¢ and he is similarly taxed on other components that have increased in value as they passed through his plant.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >97</FONT></div> <bR> <div> Consequently, the only ones getting taxed are the producers of products.  It's kind of a hidden sales tax (kind of like looking for vampires in a mirror - vampires don't reflect light and so you can't see them in a mirror but that doesn't mean that one isn't sneaking up on you to bite your neck).  Diogenes goes on to state that the French have been using this tax since 1948 and it accounts for one-third of their national income<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >98</FONT>.  As of 1988, according to Alan A. Tait, Deputy Director of the Fiscal Affairs Department of the International Monetary Fund (an organization established in 1944 to help achieve a freer system of world trade) , there were 50 countries using a variation of the VAT.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >99</FONT>  He doesn't paint a pretty picture of Vat in his chapter on "Effects on the Economy".  Of the eleven countries sampled only one, Norway, continued to show a surplus in GDP (gross domestic product) after initiating a VAT but the GDP was lower than before doing so.  The other ten countries were losing ground on their GDP at a higher rate than before they started using a VAT.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >100</FONT>  At first it might seem that it is significant that these countries are not abandoning a VAT if they are continuing to lose by doing so, but don't forget that the United States is continuing to build up quite a deficit while hanging on to the income tax system.  Once the vampire begins to stalk you it is difficult to avoid his fangs.</div> <bR> <div>      Because the VAT is used quite widely, does that mean that we should also adopt it?  Not necessarily.  There are many problems with such a system.  First is the problem of administering the tax.  An agency (read bureaucracy) would have to be formed (or use the existing IRS - yikes!!) to watch over the taxpayers.  Someone would have to determine what gets taxed and what doesn't (special interest groups, here we come!) and for how much.  Someone would have to very closely monitor each manufacturer to be sure he wasn't cheating on his reporting and that he was paying the correct amount.  Secondly, due to the increased tax on goods the price of such goods would increase and so there would be fewer goods sold (as the eleven previously mentioned countries found out).  This would adversely affect the low income buyers and families.  Even if certain goods such as food and clothing were exempt such a tax would still cut down on the buying power of the low income group.  A national sales tax would have a similar effect but there would be a big difference.  The VAT is hidden from the consumer and easily raised by the politician, whereas a sales tax is quite visible and so the buyer can be more discerning for whom he votes.  As Valenti and Trotter explain;</div> <bR> <div>      Take a look at Europe.  The VAT was born when Europeans simply refused to comply with burdensome income taxes.  Too many cheated; too many didn't pay.  But rather than lower the rate, or find a workable system, European governments <I>added</I> the VAT.  These taxes, on each stage of production, effectively bypass the uncooperative consumer.</div> <bR> <div>      To the delight of legislators, deals are made to exempt one business or the other, with the general public never really knowing who cut what deals with whom.<FONT SIZE="1" COLOR="#000000" FACE="Times New Roman" >101</FONT></div> <bR> <div>      The crux of the matter, really is who decides what the tax should be.  In many property tax issues and some other local tax issues the taxpayers get a chance to vote directly on whether to raise the tax or not.  When was the last time you had an opportunity to vote directly on whether or not your income tax was raised or lowered?  Never, as I recall.  The question regarding the flat tax, the USA, or the VAT remains, "Do you still want me for an ally?"  None of the aforementioned proposals will truly destroy the vampire.  The questions that should be answered are, "Is there a solution to this life-draining income tax?  And, if so, how do we implement it?"</div> <bR> <bR> <div> Copyright © 1995, 2000 by Tom Hill - All rights reserved.</div> </td> </tr></table></body>