The U.S. tax code needs serious reform to meet the challenges of a 21st century globalized world as well as confront the domestic fiscal realities of a changing America.
Our population has aged as our birthrate and immigration remain low and the baby boomers enter their retirement years. Social security and Medicare are unsustainable as life expectancy grows. Income inequality has dramatically increased from globalization as industrial jobs were exported to lower wage countries.
As a result, many American workers fell out of the middle class while American consumers benefited from cheaper and competitive foreign-made goods.
“Big box” stores and online businesses selling these items replaced local retailers, reducing employment and inflationary forces at the same time.
The financial bubble of 2008 gave us the Great Recession, taxpayer bailouts of those responsible and mountains of debt that will have to be addressed by slower future growth or the historically devastating mechanism of inflation — reducing the value of our currency so all debts can be serviced with cheaper dollars.
The unprecedented low interest rates being used by the Federal Reserve to fight unemployment cannot be sustained indefinitely — the time value of money must be respected, or our capitalist economy will continue to be distorted.
With no fixed income interest available as investments, the stock market has soared — becoming the nation’s piggy bank and TV barometer rather than a source of funds for investment reflective of future earnings.
After years of “tax expenditures” — the use of tax deductions and exemptions meet political objectives without having to appropriate money in the federal or state budgets, over 40 percent of Americans pay no tax at all while an increasing number of very wealthy Americans use an array of deductible donations to escape overt taxation and further their artistic, social and political objectives through foundations, tax exempt organizations and political action committees.
Many U.S. states resemble Greece, Iceland and Ireland — technically bankrupt. Many “balance” their budgets by awarding liberal pensions to government workers that can’t possibly be redeemed in the near-term economic environment.
The circus train of tax incentives and disincentives might be tolerable if the code raised enough funds to satisfy all the needs of the nation, but it doesn’t — the red ink grows and the social safety net wears thin.
Our various “wars” are not financed with war bonds or taxes but passed on to future generations via the federal deficit. Our infrastructure needs significant repair.
What is to be done?
These bills have elements of needed reform, such as simplified filing, large standard deductions and reduced corporate taxes that make U.S. businesses more competitive internationally.
Ironically, U.S. companies might be better off with national health-care systems paid by taxation — as other nations’ companies enjoy. Removing the penalty for not signing up for Obamacare will make the Affordable Care Act unaffordable. Provisions for expiring tax cuts provide political cover for addressing the national debt but pass on the problem to future politicians and taxpayers.
Debates over health care and taxation may help clarify our ideological differences.
Should the social programs of the New Deal and the great Society be extended or curtailed in the name of freedom? Is government the solution or the problem? Should government mandate the minimum wage? Should large estates pass to new generations without taxation? Should we bequeath massive debts and the most unequal wealth distributions in our history to future generations?
Until these questions are answered, reform will have to wait for another Christmas.