This editorial first appeared in the Dallas Morning News. Guest posts do not necessarily reflect the views of Denton Record-Chronicle.
The headline is startling, but the policy response is startlingly naive.
According to documents ProPublica received, Jeff Bezos, Elon Musk, Warren Buffett, and other overbearing Americans pay almost no taxes, a revelation that led Progressives to renew claims for a property tax.
Most of the law does not tax capital gains until assets are sold or transferred. Unlike Americans with modest means, billionaires don’t rely on a weekly income to pay for student loans, mortgages, and the rest of their lives.
Billionaires are easy targets, but punishing wealth is not what this nation is about. And there is an even better argument against a profit tax – it ignores the nuanced intersection of wealth, income and sustainable economic growth.
Other nations have embarked on property taxes before turning around, according to the Tax Foundation’s review of the Organization for Economic Cooperation and Development’s tax records. In 1965, eight nations raised income from the net worth of individuals. By 1996 the number had grown to 12, but gradually decreased to five by 2019 after the measures were lifted or overturned by courts.
The wealth tax did not generate the expected income and may have been a drag on risk-taking, entrepreneurship, innovation and long-term growth.
Then there is this vague question of tax equity. In 2018, the first year of Trump-era tax cuts, the Tax Foundation reported that the top 50% of all taxpayers paid 97.1% of all individual income taxes that year. The bottom 50% paid the remaining 2.9%.
But the current federal tax law is also crammed with a potpourri of special perks, some worthy and some dubious, for virtually any income level, not just the rich. Millions of middle-class Americans are using home mortgage interest deductions and child tax credits to reduce tax liabilities and would protest if Congress tried to reduce or eliminate these preferences.
It is misleading to interpret tax inequalities as giving high net worth individuals special, excessive perks at the expense of the rest. The real problem is the complexity of the Code, partly fueled by the myriad of exclusions, deductions, deferrals, credits and tax rates that benefit certain activities or categories of taxpayers.
Good tax policies can stimulate economic growth, bad tax policies can stifle it. The litmus test for tax policy should be its transparency, fairness and impact on economic growth. A prosperous economy will generally generate higher individual incomes, additional government revenues through dynamic economic growth and opportunities.
An equally serious problem can be the Internal Revenue Service’s limited ability to enforce existing tax laws.
After nearly three decades of lawmakers slashing the IRS’s enforcement budget, statutory taxes owed but not collected amount to approximately $ 600 billion annually, according to a New York Times report written by five former Treasury officials. who worked for Democratic and Republican presidents. That’s roughly two-thirds of discretionary non-defense spending, and it could climb to $ 7 trillion in the next decade, they say.
It’s also a blinking green light for tax evaders who know that the IRS has fewer auditors than ever since World War II and is unable to conduct the large, complex audits that are most likely to uncover serious irregularities.
This crippling of tax collection has far-reaching implications for our intrinsic sense of fairness, trust in our political system and our ability to prepare this country for the future. Undrawn revenues are not available for critical national investments or to reduce the dizzying deficits and debt that threaten prosperity and global competitiveness.
A simpler tax structure will make tax evasion more difficult, and a properly funded IRS will enforce tax laws and restore the credibility of a broken tax system.