Wow, the US economy is once again under attack as part of the 2008 elections.
Historically, the sitting congress attempts to spoil the economy for the opposition president's party in the spring of the election year. Then both sides try to ride in on their white horses to save the day. 1992... Its the economy stupid defeats Bush senior, as defense contracts all over the country are cancelled and unemployment soars... 2000...Its the economy stupid, as gas prices sky rocket and the Bush/Chenney team rides in to control big oil... 2008... the housing industry is in collapse, recession looms... and both sides are beating their white steeds to a pulp for a quick stimulus tax give away.
Enough.
The problem with the U.S. economy stems from a series of poor decisions arising out of the great society programs in the 1960s. Do you believe LBJ actually passed the welfare state entitlements claiming they would never exceed 1 % as individual rates or 3 % in total?
Well, roll the clock forward and we are somewhere around 35+ %. Poorer Americans fica,suta,futa contributations and their employer matching contributions far exceed their income tax obligations.
The point to be made is not that the totality of taxes is too high, but that the way the tax is collected is harmfull to the economy and to the very workers paying it. In a capitalist economy, it you want to limit the usage of a resource, you tax it. In the U.S. we tax our own labor, ship our raw materials and designs over seas, and then we buy the goods produced using credit? Why because the cost of goods sold, for products manufactured in the US is too high.
Wow, if I was actually proposing this to most Americans, they'd throw me out on my ear.
To make matters worse, the cap on these taxes keeps rising (for both the employee and the employeer) and employers adjust their budgets by reducing increases in payroll. Simultaneously, employers are forced to layoff blue collar manufacturing workers and we find ourselves with a two tier work force.
Stop the madness. It takes nothing but a pen. I have read so many tax reform plans, that my head begins to spin. Most are either extremely high risk or miss the problem entirely. The "Fair" tax proposes to eiliminate the income tax and replace it with a sales tax. Are they nuts, think of the risk to Americans invested in tax preferred assets such as houses, 401k plans, etc. Others want to simplify the income tax. One could argue that a fairer income tax can be devised, but this is a second order error. The solution proposed here does not modify the current income tax, only the labor based payroll taxes (FICA, FUTA, SUTA, etc).
Problem:
We are shipping our jobs, wealth and manufacturing base over seas as part of the payroll tax fiasco. The side benefits are salary compression and increasing trade deficits.
Solution:
Eliminate all payroll taxes immediately and replace them with a national sales tax. This will be applied uniformly to goods produced over seas or in America. Goods produced in America and sold overseas will carry no tax, making them effective competitors both in domestic and foreign markets. Manufacturing in the U.S. and its associated blue collar jobs will make a come back. We'll find ourselves needing 30 million guest workers. They will pay income tax and sales tax but not "entitlement" taxes. Funding the baby boomers may not be impossible after all.
Step one to fixing America, starts with stopping the madness with respect to how we tax. Lets deal with the first order problem, the payroll taxes. Income tax fairness can be resolved later after we deal with the problems brought on by an economic boom and sales tax surplus. Should make rework of income taxes somewhat simpler.
George
