Friday, July 13, 2012

The 2012 Tax Battle

Chief Justice Robert’s ruling on the healthcare bill two weeks ago did not expand the government’s tax power – the federal government has already possessed, for far too long, the ability and pernicious will to use the federal tax code to influence behaviors either positively or negatively.

What it DOES do is highlight the increasingly grave necessity for tax reform, and the adoption of a more efficient code that will help eliminate such foolishness.

Few issues are as defining in terms of political alignment than tax policy. So let’s examine the proffered tax plans of the two Presidential candidates;

President Obama, aside from continuing to champion what is possibly the largest regressive tax hike in American history – Obamacare – has repeatedly signaled his intent to raise taxes on the “Rich”; which is synonymous with small business owners and job creators, as what is being discussed is tax on income, not accumulated wealth (which is pillaged at death by inheritance tax, not by income tax while the victim is still breathing).

The problem with Obama’s approach, as demonstrated time and again over several generations, is that it not only does nothing to raise revenues, tending instead only to encourage increased use of tax shelters, but emplaces limits on investment – real investment, not the Administration’s euphemism for racking up the national credit card.

Which brings up the other defining aspect of Barack Obama’s tax policy, which is the obsessive use of obfuscatory language to describe the policy. Referring to the practice of letting someone keep a greater percentage of their own money as “spending”, while dumping millions into boondoggles like Solyndra, and billions into welfare and entitlement programs, as “investment”, may make for a cute election year ploy, but translates into terrible economic policy.

The Democrat’s ubiquitous “tax the rich” incantation is a great Robin Hood-sounding theme to play for the masses; but lost amid the rhetoric is the critical question, the only thing that really matters – is raising taxes on higher income earners sound economic policy?

To his enduring credit, Governor Romney seems to understand that the answer is “No”, insomuch as such a policy results in further constriction of the general economy (which of course hurts the non-rich masses that Obama and company claim such sympathy for) and to actually reduce government revenue, through a combination of reduced employment and increased tax sheltering.

The politically messier answer is that tax relief is more important and economically more effective at the higher rates. Romney appears to get this truism as well, as one of the highlights of his platform is an all-important reduction in the marginal tax rate. This single policy would do far more to stimulate the flagging American economy than anything the current administration has even thought of in the last 3 years.

It is a little unfortunate that the thought is not sufficiently carried through to include a plan for substantive, sweeping tax reform, the sort cried out for by the Roberts Ruling. A simplified code -- where income up to $35,000 is not taxed, and everything above that is taxed at a flat rate of 20%, (or in that vicinity) coupled with a removal of virtually all deductions, credits, and so forth – would not only provide the jump start that the economy needs, but would do away with the threat of further schemes like the Obamacare mandate-penalty-tax that many conservatives rightly fear could slip Constitutional scrutiny by taking advantage of the taxing power of Congress.

In Romney’s defense, with the economy in the condition it is currently, the emphasis needs to be on first aid – freeing energy production, marginal rate cuts, emancipating business from over-regulation – with consideration of a long term treatment regimen of systemic reform set aside for the near future.

The relative treatment of the tax question illustrates the core divergence between the two schools of thought – the liberal one is an emotional appeal to class distinctions and envy, with little, if any, positive effect on revenue, and a measurable adverse impact on economic growth – the conservative one, a harder sell on the surface, but girded by economic truth and producing real, positive impacts on the economy, and ultimately on government revenue.

This requires someone with the acumen, ability, and courage to speak to those crucial points, and frame the argument in a way that is digestible by the American public. This is Romney’s job; to make the sale, and to use all the weapons – including the SCOTUS healthcare ruling -- at his disposal to do effectively.

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