The US Tax Code: An Open Letter to Madam Chairperson Pelosi

The Honorable Nancy Pelosi
United States House of Representatives
235 Cannon House Office Building
Washington, D.C. 20515-4322

February 24, 2007

Dear Congresswoman Pelosi,

As you work to develop our next National Budget, I would like to present a suggestion for a novel way of looking at tax reform.  I am writing to you, as well as other members of Congress, because to date I have not heard mention of any other idea that would be as useful, practical, and informative for United States taxpayers.

In the past, efforts to reform the tax system have failed to recognize or deal with the System’s two primary functions.  The first function, of course, is raising revenue.  That part is straightforward—you have to pay the bills.  That is the function people usually thing of when they hear the word ‘taxes’.  But the second part is bigger.  The second function is the ‘fairness function’.  This is the mechanism where the tax system takes the money from those who earned it, and give it to those who did not earn it.  The tax code currently accomplishes this redistribution of income in many ways, including progressiveness, phase-outs, and the granting of the child tax credits to non-taxed ‘taxpayers’.  I don’t know if you will get this, but isn’t the ‘Earned Income Tax Credit’ a funny oxymoron?  Anyway, efforts by Steven Forbes et al. in the past have fallen ‘flat’ in part because of their failure to adequately address this second function.

I realize that you will initially be against my idea, as the tax system as it stands stymies conservative Republicans in at least two ways.  First, attempts to reduce the size of government cannot win public support if the majority of the voting public pay nothing when government is expanded.  There is no public stake in such a reduction beyond Keynesian economic principles, which will never be appreciated by the majority of the voting public (or by Democrats, for that matter).  Second, under the current system the issue of tax cuts is effectively destroyed by the sound-bite of ‘tax cuts for the rich.’ This claim ironically becomes more believable as the progressiveness of the system increases, because as you know, any tax cut can be criticized as ‘for the rich’ if only the rich pay the taxes!  Brilliantly, progressiveness then increases with each round of tax cuts.  And so yes, the ultimate effect of the current system is great for NPR et al., and you would take some flack from them if things changes.  And yes, you would be tossing a bone to all those idiots who believe in the principle of public stake in government.  But hear me out.  I think that many of the complainers will be satisfied in the end.

The basic essence of my idea is to replace the current tax system with two systems, each designated to address one function of the tax code.  The first system would be radical, but quite straightforward: every adult (and child?) would pay an equal amount to support the spending of the federal government.  I can imagine you rolling your eyes, and this will shock you even more:  I am not suggesting a flat tax based on income, but rather a flat amount per person.  Yes, I know, why should people who don’t work have to chip in?  But believe it or not there are people out there who have this ‘pay your own way’ philosophy, and it might actually end up being a popular idea.  If nothing else, it would make sense to anyone who has ever tried to explain the present progressive system to their 12-year-old daughter using the analogy of a group of friends going out for pizza. 

This system would allow every taxpayer to have a stake in the functions of government.  Each individual would easily be able to determine what a particular program would DIRECTLY cost them. People would know, for example, that in the year 2006 the government cost approximately $10,000 per person over 16 years old.  Breakdowns could be provided for each major area of spending.  For example, people would know that the Department of Defense cost approximately $1400 per person, or that interest on the public debt cost about $1800 per person.  This would benefit the left as well as the right, because the cost of military operations, for example, would be evident in each taxpayer’s annual assessment. On first blush the benefits for conservatives would be greater, because for the first time there would be a real connection between government spending and taxes, which would result in far more public scrutiny of government spending.  But on the other hand, there are people who ‘get off’ on giving their money to you guys—just over half of the population, judging by the last election.  They seem more interested in giving the money than they do in seeing where it goes.  A letter from the government demanding money would presumably give them a bit of a thrill.

The second half of the new system would provide income redistribution to address what you and your friends perceive as ‘social inequalities’.  A proper median income could be determined, and income of any type over that level would be ‘mitigated’ on a percentage basis, and provided in a similar manner to those below the median.  Of course we would have to make some people exempt—the Hollywood folks work darn hard, and so they shouldn’t count.  And people like Kennedy and Soros who have spent so much time proving that you can hide money overseas—especially Kennedy, because it wasn’t his fault that he was born rich. But the great thing about this system is that the business of income redistribution would be out in the open.  ‘The rich’ (you can decide who that should be—cool!) would feel appropriately generous or resentful, and the poor could choose to feel grateful for the distribution, or resentful that it is not larger.  In any case, the social engineering hidden in the present tax code would be out in the open, for all to see.  The public could vote at regular intervals as to the slope of the redistribution curve (or you could just set it if you would rather do it yourself). You could use the median income as the dividing line for who gives and who gets—that would even the score in the debate over ‘tax cuts for the rich’, and then just before election you could move the line a tiny bit up or down to get just the result that is needed to get the right people to Washington. I worry a little bit that if income redistribution is presented in such an open manner, it would be rejected as unfair even by some of the same people who argue for tax rebates for non-taxpayers.  But a touch of ‘shame, shame’ will likely keep that under control.  This second system could be known as the IRS, or Income Redistribution System.  Over time, perhaps another acronym would be more appropriate, such as the Funding for Under Compensated Money Earners, or FUCME.

While the concept of two Internal Revenue Services does little to excite the average person, the separation of the business of funding the Federal Government from the business of income redistribution would dramatically change the way people view government programs.  The result would be a system that any 12-year-old daughter would understand.  We wouldn’t even need those stupid laws that make education accountable.

Anyway, just a thought--

Sincerely,

One of the Good Guys.