Commentary
The egregiously misnamed
Inflation Reduction Act of 2022 is hardly anti-inflationary by virtue of the hundreds of millions of dollars in “green energy” subsidies it has authorized. However, some of its proponents—adherents of
Modern Monetary Theory—may genuinely believe that the act will reduce inflation.
MMT holds that the way for government to reduce inflation is to take more money out of the private sector via taxation. That’s right folks: The “experts” propose to reduce the inflation that is making life difficult for you by siphoning more money from the private sector to government.
The most ominous provision in the act is the appropriation of $80 billion to hire an additional 87,000 IRS agents. President Joe Biden and his minions have argued that this massive increase in IRS manpower is needed because there aren’t enough agents to properly review the
quarter-billion-plus individual and business tax forms that are filed each year.
The basic problem is simple, as is the solution. The tax laws are too complicated. Simplify the tax code and each IRS employee will be able to review more tax forms. That would eliminate the alleged need for an expensive army of extra IRS agents.
The obvious starting point for simplifying our tax laws would be to abolish the corporate profits tax—don’t “fix” it, end it. The complicated corporate tax laws have a long, depressing history that includes distorting economic decision-making by businesses, imposing enormous compliance costs, incentivizing debt, and the fact that “Corporate taxes are found to be most harmful for economic growth.” That’s the conclusion of a famous
study published in 2008 by the multilateral Organization for Economic Cooperation and Development (hardly an anti-tax bureaucracy).
Besides being economically counterproductive, the U.S. corporate profits tax is ethically problematic. Every year, some highly profitable corporations pay zero or minimal taxes, while other corporations pay higher rates. This basic unfairness is compounded by the periodic tax breaks that Congress writes. The timing of such tax breaks has an arbitrary nature to it. Why, for example, should firms get an accelerated depreciation allowance for internal upgrades this year when their competitors who upgraded last year received no such break?
There’s only one fair rate for taxing corporate income—the only rate that can apply equally to every corporation: zero percent. One clear benefit of abolishing the corporate profits tax: there would be a huge influx of foreign corporations domiciling in the United States and hiring additional American workers, greatly broadening the tax base.
By now, progressives are howling that “rich corporations” should pay their “fair share” of taxes. Overlooking, for the moment, that the left never gets around to specifying what “fair share” means in practice other than “more,” let us remind them of an elementary economic fact: Corporations don’t pay taxes; people do.
Currently, the IRS impresses corporations into service as unpaid tax collectors for Uncle Sam—again, at great cost to private businesses. Two pertinent points here: First, even if the corporate profits tax is abolished, corporations will still pay an array of taxes—excise, payroll, real estate, and franchise taxes among them. Second, corporations aren’t going to hoard the millions they formerly paid in taxes like virtual Silas Marners. Some will hire more workers and pay them higher wages (
both of which happened in response to the Trump tax reforms that reduced the maximum corporate profits tax rate) or they may pay higher dividends. In either case, the IRS will gain additional revenues from those sources. Eliminate the extra, redundant layer of taxation at the corporate level, and just let the money flow to the bottom line on individual income tax statements. That will raise approximately as much revenue as before, but with fewer tax returns to process.
Another way to simplify life for IRS agents would be to adopt a flat-rate tax like the ones
a growing number of states are now embracing. By reducing the current seven tax brackets (the Marxian principle of progressive taxation) to a single flat rate of 10 or 12 percent, we would restore the rule of law and the principle of justice and simultaneously reduce the incentive to cheat. It would also reduce the “tax gap”—the difference between taxes owed and taxes paid. Fewer people will risk criminal prosecution for tax evasion involving 12 percent of their income than they would at today’s higher rates (the top rate being 37 percent). Bottom line: A simple flat tax would reduce discrimination, cheating, and calculation errors. It would make the IRS’s job much easier and require fewer tax agents rather than more.
Now, let’s confront the unspoken 800-pound gorilla that looms over all debates about reforming taxes: What effect would tax changes have on the federal deficit? I won’t make any broad claims that my proposed tax reforms “will pay for themselves” in increased revenues from personal taxes. Initially, at least, they probably wouldn’t. What we’re really dealing with here is an uncomfortable fact that partisans on both sides tend to gloss over: Our deficit isn’t a problem of insufficient tax revenues but of excessive spending. We’re never going to really “fix” the tax problem until we get a handle on the spending problem.
A
chart tracing the history of federal spending and income from 1900 up to the present shows that tax revenues have been soaring for the past half-century. However, as federal spending has gone parabolic, it has become increasingly difficult for revenues to keep up. Spending increases are on an unsustainable trajectory. That’s what we most need to correct. Only then will we be able to have an economically rational, ethically defensible tax code.
Given today’s political alignment, there’s no realistic prospect on the near-term horizon of abolishing the corporate profits tax, adopting a flat-rate personal income tax, or aborting the relentless growth of federal spending. In a sane political world, these are the kind of reforms we would be considering. At present, political madness has obliterated sound economics, basic fairness, and common sense. But millions of Americans already see through this political madness, and millions more are bound to wake up as the painful effects of our political errors become ever more apparent. The darkest hour precedes the dawn, so this isn’t the time to get discouraged. Hang in there, friends.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
