Weekend June 20, 2015

Blow Up the Tax Code

The time consumption is further burdensome to individual tax filers. Considering 8 hours each for 169 million returns, Americans spent over 1.35 billion hours filing individual taxes.

All said, Americans spent over 3.24 billion hours, which is about 369,858 years, preparing and filing tax returns in 2012. Considering individual, business and employment taxes, this costs $37 billion annually in compliance cost for federal taxes alone.

Tax Foundation, se details at

 http://taxfoundation.org/blog/cost-tax-compliance

Rand Paul is probably in the second tier of Republican Presidential candidates. But his idea to blow up the tax code is strictly first tier. Given their penchant for income re-distribution, I doubt we will see this from Democrats. And the other Republicans have not come around either.

Your business columnist is also Texas a Certified Public Accountant.   I would really enjoy seeing those opposed to blowing up the tax code defend what we have now.

Commerce Clearing House sells various tax publications. Their largest series, the Federal Tax Reporter, now runs over 70,000 pages. The reason of course is that it allows Congress to dispense various ‘tax favors’ to well heeled lobbyists, in exchange for campaign money. Steve Forbes was the last to run with this idea of a flat tax, and was speared by the same lobbyists still patrolling K Street in DC seeking favors. Let’s take a look at the proposal.

Rand Paul’s plan, fashioned with the Heritage Foundation, Steve Forbes, and Arthur Laffer, would repeal the entire Code, as it exists. In its place he would have a flat tax of 14.5%. Mortgage deductions for interest and charitable giving deductions would remain.

The plan would eliminate the payroll tax on workers (an immediate 6%+ pay raise), and several federal taxes including gift and estate, telephone taxes, and all duties and tariffs.

The 40% highest tax for small business and the 35% highest rate on corporations would be replaced with a 14.5% rate. Income less normal expenses would be taxes. All capital expenditures would be immediately expensed, eliminating the MACRS depreciation schedules.

So what would the effect be? The non-partisan Tax Foundation, quoted in our opening, suggests that in ten years domestic GDP would increase 10%. At least 1.4 million new jobs would be created. (I find that statistic elusive but it would certainly create rather than destroy jobs.)

I don’t know that the graphic of pages of tax law over time will run with this column, but I put the link in the opening. Please go there and behold the horror of a massive privacy invasion. The number of tax code pages has doubled just since 1990. This is an unsustainable parabolic trend!

Ah you say, but as a CPA how can I advocate for such a thing?  Frankly I would much rather have CPAs working with managerial accounting tools to help clients make more money, and pay more 14.5% in tax!  I doubt individuals or corporations would object to that rate. The point here is that when rates raise to such levels the individuals and corporations feel they are robbed the tax avoidance game goes into high gear. Lower rates generate a sense of fairness resulting in less tax avoidance and more work towards actually generating income.

Just this past week, General Electric announced a move out of high tax Connecticut, its corporate headquarters.  Thursday’s Wall Street Journal reports Texas’ Engine Keeps Revving’ on page A3. Toyota is moving here from California. Fed Ex and Liberty Mutual are building in the same area. Low taxes drive economic growth.

The challenge as Paul admits will be to overcome the special interest groups that feed on the corporate welfare of special tax dispensations.   I suspect the bigger challenge would be getting Congress to abandon this vote-buying scheme of the tax code and then to abide by the new rules, i.e., no changing the game again.

This is a bold idea, whose time has come. Let those opposed to such change defend all 70,000 pages of the existing tax swamp of regulation.

Are there 60 Senators and 218 representatives, not to mention a new President with the courage to do this?

Dennis Elam PhD CPA teaches accounting at Texas A & M University San Antonio.

Thursday June 18, 2015

Rand Paul is surely one of the second tier Republican candidates in a crowded field. But his

proposal to blow up the tax code and replace it with a 14.5% flat tax is one all the Republicans should get behind.  I hope this link to the WSJ article works. 

Paul does not mention the huge planning advantage, business would know what the tax rate would be!

And he makes no mention of the huge productivity saving by avoiding all the time spent studying and learning tax changes as well as preparing complex tax forms. Accountants might actually begin spending time showing clients how to be more productive rather than jumping thru various tax hoops. 

And surely it is past time to demand that someone defend the overly complex system i place now.