A ‘Goals-Based’ analysis of tax reform proposals

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Make Favoritism Difficult

Goal: Make Favoritism Difficult

As long as income is taxed, the practice of using the tax code to favor big donors over constituents will continue.

A progressive income tax makes tax favoritism so easy that today we have so many tax breaks and exclusions that no single tax accountant can keep up with them all.

Even a flat income tax that contains a corporate income tax component will soon see tax breaks for “favored” businesses. The tax rate could remain technically flat, but certain kinds of income (income that is key to certain favored businesses) would become exempt. Of course, as with all tax breaks, those breaks mean that individuals pay more to make up the difference.

A flat income tax that does not have a corporate tax component fairs much better. However, as long as income is taxed, adding a corporate tax back into the mix is just way too easy. But for our purpose here, we are looking only at the initial effect, so we gave it 4-stars. Just remember that as soon as a corporate tax is added back into such a flat income tax, it will drop back to 1-star.

Since 9-9-9 includes a corporate income tax, its effect will be similar to the flat income tax that retains a corporate tax component. That corporate tax component will be manipulated. As shown above, Congress can keep a corporate income tax flat and still play favorites, by exempting certain types of favored income.

However, the FairTax not only eliminates all tax on income, but it abolishes the government’s tool for doling out favors (the IRS). Furthermore, it requires the repeal of the 16th Amendment within seven years, or the FairTax will revert at that time. Of course, after a few years without fear of the IRS, no favoritism and feeling the result of a strongly boosted economy, relieved taxpayers will adamantly oppose an return to IRS tyranny. Those relieved taxpayers will drive repeal of the 16th Amendment and with the demise of the 16th Amendment will go any chance of tax code favoritism.

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