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Resources:
Tax Commentary:
Why the United States
Will Never Dump Its Income Tax Code
Every owner of commercial real
estate gets an interest free loan from the U.S. government.
Homeowners with the same income and housing costs as renters pay
less taxes. People who make the same amount income from
investments pay lower taxes than their wage earning brethren.
Real estate investors can rollover gains on multiple properties
as frequently as desired; homeowners cannot. Many small
business owners have the option of lowering their employment
taxes by using S corporations or limited liability companies,
techniques which are not available to wage earners. Many
businesses can defer income by carefully choosing their method
of accounting; wage earners are not permitted to choose an
accounting method. Corporations can make lots of money and
distribute it to shareholders tax free. Businesses can deduct
interest; individuals cannot. Businesses can deduct bad debts;
individuals cannot. Businesses can deduct many more types of
losses than individuals. Virtually every resource
industry has special code provisions to protect it from the
normal tax code provisions that apply to you and me. And, of
course, corporations never run out of accounting gimmicks to
under report income or defer income recognition for as long as
possible. FASB has never been much help to individual tax
filers.
The list goes on and on.
It’s true that income tax
rates are progressive. The more income you make, the higher tax
rates you pay. But the progressive nature of income taxation has been
under attack for decades. In 1963, the highest marginal rate
for married couples was 87%. In 1980, it was 70%. In 1986, it
was 50%. Today, in 2006, it is 39.6%.
But the progressive nature of
income taxes is about the only thing in the U.S. income tax code
that is tilted against business or wealth. Almost every
industry, every business, every form of wealth has favored
income tax treatment in the Internal Revenue Code, treatment
that is unavailable to the typical wage earner.
There are two kinds of welfare
in this country. There is the welfare that normally comes to
mind, like food stamps, Medicare, and Social Security benefits.
Then there is the other kind of welfare. Business welfare.
Wealth welfare. This form of welfare is structured
fundamentally different. Instead of money going from the
government to the welfare beneficiary, the money is simply not
paid to the government in the first place. This form of
welfare is found in the Internal Revenue Code. And the very
complexity of the tax code makes this type of welfare
invisible. The average guy on the street has no clue about the
extent, nature, and operation of this form of welfare, which is
exactly how the big boys want it.
Dump the income tax code for
something truly simple, like a national sales tax or value-added
tax, and this form of welfare for business and wealth disappears
overnight. It will no longer be able to hide in the fog of
complexity.
And tax
simplification is not going to
happen. The symbiotic relationship between business/family wealth and
our political culture insures that any threat to this form of
welfare is absolutely dead-on-arrival. The vested
interests are
so diverse, so engrained, so big, and so pervasive that it would
be political suicide for a politician to give anything more than
lip service to the idea of dumping the income tax code.
I’m so sure of this that I bet
my career on it.
Copyright
2006 John L. Hoffer, Esq. All rights reserved.
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