Taxes Based On Principles Not Politics

Summary: Five basic tax principles that would enhance the nation’s long-term health are presented. Present taxes were established based on short-term political expediency. An understandable principles-based paradigm shift is needed to facilitate solutions to today’s jobs, spending, deficits, and debt problems. Principles-based taxation will expedite solutions to today’s problems, reduce future problems, and help unite a divided citizenry.

Political rhetoric about creating jobs, reducing deficits and debt, and fair taxes has focus on fixing problems by tweaking existing tax rates and deductions. These Band-Aid fixes on failing systems do not address root causes or long-term solutions to our problems. Effective solutions require spending, job, and economic growth policies that include taxes based on long-term principles. 

Present tax systems have evolved over time based on short-term political expediency, i.e., who and what can be taxed now that will gain or retain political support, and fix or “kick down the road” existing problems. Results of these tax policies are now evident. For example:

  • Ever-increasing entitlements and other politically driven “free money” commitments have resulted in unsustainable deficits and debt.
  • High taxes and other government related costs have driven U.S businesses to move functions, jobs, and investments offshore thereby decreasing opportunities for U.S. citizens.
  • Political rhetoric and confusion over tax rates verses total taxes paid has convinced many citizens that unfair wage and capital gains income taxes are root causes for our problems.
  • The widening poor-wealthy gap, and super wealthy not paying their fare share concerns of the “99%” Wall Street demonstrators are getting worse.
  • Debasing (through printing) of money to save the economy ultimately reduces our dollar‘s value and causes inflation further exasperating the poor-wealthy gap and loss of the middle class.

Continuing taxation “business as usual” by tweaking tax rates and deductions, and adding new taxes are unlikely to be successful, and will do little to unite a divided nation. An understandable principles-based paradigm shift, not Band-Aid fixes, is needed to reverse trends. 

Five basic principles form a foundation on which to build tax structures:

1.    Fairness — Who pays and how much must be based on our nation’s long-term best interests, not reelection strategies. Examples include:

  a.  The tax on each dollar earned, i.e., tax rates, are poorly understood and divisively exploited by politicians.
  b.  Ben Franklin’s “instability factor” is now in effect. Franklin stated: “When the people find that they can vote themselves money, that will herald the end of the republic.” More than one-half of potential voters pay no income taxes or are public employees who together can dictate the taxes the rest must pay. Two human characteristics indicate why this “instability” must be addressed:

        i.  Responsibility — if you do not own a piece of something (“have skin in the game”), why would you feel responsible for it?

       ii.     Greed — if you can get something for nothing, why not?

 c.  Many government checks are not considered taxable income. Taxing all sources of income including, annual inflation adjusted government checks assures policies that require spending increases impact all taxpayers thereby improving responsibility and accountability.

2.  Simplicity — Understandable, simple formulas are required that eliminate favoritism, and expensive tax preparation “busy work.”

3.   Stability—Uncertainty minimization is required to encourage individual and business risk taking, and reduce speculation. Speculative investments make a few wealthy but add little if anything to our nation’s GDP.

4.  Invest in U.S. — All citizens, independent of income, and corporations must be encouraged to invest in their and the nation’s future.

5.  Minimize political manipulation — Changes must be linked to national indicators, i.e., average wages, GDP, inflation, and spending to avoid “tax creep” and class warfare arguments. For example, progressive taxation is a political divisive tool and “cash cow” since history shows average incomes raise 50% per decade thereby automatically increasing taxes.

Assumptions applied with these principles are:

  • Existing exemptions in ~80,000 pages of tax codes are eliminated.
  • New or reinstated exemptions are justified by a Five Principles based cost/benefit analysis.
  • Increases in spending and taxes are distributed (owned) across all taxpayers.
  • Income from any source including governments is considered income.
  • Most adult citizens “own” a piece of the U.S. by paying taxes and owning investments.

Long-term principles-based taxation systems are needed for our nation. Career politicians, who focus on short-term politics, must now consider the long-term best interest of the nation. We citizen must force our “leaders” to get to work on our future, not theirs.

Three companion articles based on the Five Principles are proposed to replace existing tax systems:

  1. New Business Taxes = U.S. Jobs and Economic Growth — Drives investments and jobs to the U.S., and keeps U.S. businesses globally competitive.
  2. The Case For A Wealth Tax — Decreases the rich-poor gap, reduces burdens on job creating small businesses, fairer and simpler way to raise deficit reduction revenues, and is in the nation’s long-term best interest.
  3. A Principles-Based Income Tax System — Expedites solutions to today’s problems, reduces future problems, and helps unite a divided citizenry by simplifying the process and improving perceptions of fairness.
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Dr. Cleland’s Ph.D. is from Purdue University where he specialized in complex systems theory. His technical training and experiences includes analyses of many types of systems, involvement with numerous federal, state, and local agencies, and management of a broad set of set of professionals, services, and trades people. He has managed scientists, engineers, policemen, firefighters, environment, health, safety and emergency planning experts, building trades and maintenance crafts personnel, and others.

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February 2013
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