AMERICAN TAXATION

Audio-book Review
By Chet Yarbrough

(Blog:awalkingdelight)
Website: chetyarbrough.blog

A Fine Mess (A Global Quest for A Simpler, Fairer, and More Efficient Tax System

By: T. R. Reid

Narrated by T. R. Reid

Reid’s travels around the world investigating other countries tax systems are the basis for his theory for cleaning up America’s “…Fine Mess”. Sadly, Reid has a futile unrealistic attitude that the British characterized as pissing in the wind.

Reid suggests a tax overhaul is due in America.  The last major revision was over 30 years ago.  He argues a mess has been created by incremental tax changes that have greatly exacerbated the wealth gap in America.  Reid illustrates the many ways in which the American tax system is a mess.  An often-quoted factoid is “Warren Buffet is taxed at a lower rate than his secretary”.

Reid argues the U.S. has the highest corporate tax rate in the world but the lowest corporate taxes collected.  Having the high rate and collecting it are two different things. 

Reid notes corporations like Caterpillar, Apple, Microsoft and others spent millions of dollars to set up legal tax shelters that reduce corporate tax to single digits; to as low as zero for some. 

Reid goes on to explain how billions of dollars are kept in corporate accounts outside of America to avoid taxation, and how that money is not repatriated to the U.S. because of current tax law. 

Reid persuasively argues that a tax overhaul should be made based on the principle of BBLR, a “Broad Based Low Rate” tax.  The purpose of a tax overhaul would be to eliminate loopholes, broaden and reduce tax rates while equalizing citizen’ tax burden.  Schemes for creating tax shelters would be eliminated.   

As is widely known, millions of dollars are spent by American citizens and corporations to file tax returns.

Preparing and paying taxes is laborious and confusing task for many Americans.  Even basic tax return filings are difficult for many American citizens to complete.  How many do not file because of that difficulty?  Some buy software to file taxes.  Add to software purchases and there is only growing tax-preparation costs to file for others. Those costs are borne by individual tax payers. The expense of our inefficient, and inequitable tax system multiplies geometrically when you add corporation efforts to avoid taxes.

America’s taxing inequity is glaring.  Millions of dollars are spent to avoid taxation through creation of tax shelters.  The formation of these shelters costs millions in lawyer, tax consultant, and auditing fees but save billions of dollars for corporations and the super-wealthy who legally (sometimes illegally) reduce taxable income.

“Occupying Wall Street” is not a hippie “sit in” but a plea for reform of American “moneycracy” just as Thomas Paine’s “Rights of Man” was a plea for reform of Aristocratic inheritance.

Reid’s point is that America’s “…Fine Mess” can be made simpler, fairer, and more efficient by creating a completely new tax system.  He suggests the corporate tax might be eliminated and replaced by a flat rate with no loopholes.

After collection, this tax would be distributed between States, and cities, as well as the Federal Government.  The purpose of these taxes would be for maintenance of local services (like education, public safety, public works, and administration), and Federally mandated services (like national defense, health, education, and public welfare).

Reid’s argument is that VAT’ enforcement would require less supervision by the government because a VAT applies at each stage of the production of goods.  Each stage of production is rebated for taxes paid by the handler that adds value. The VAT is a combination of taxes at each stage of production which is reported to the government for reimbursement.  The reimbursements must add up to the final tax charged to the consumer.  If the numbers are not the same, the IRS will be able to tell which manufacturer failed to pay their tax.

A simple computer program would be able to monitor the collection of the tax because it must balance to all reimbursements of added value.  In theory, a VAT eliminates much of the need for a massive Internal Revenue Service which Reid suggests is unable to adequately monitor the present taxation system.  Reid notes that it is impossible for the IRS to closely monitor today’s taxing system because of the complicated nature of its Congressionally legislated structure.   

This transaction tax would be less than a penny per dollar but capable of raising billions of dollars based on the many financial transactions that occur in the U.S. 

Reid offers the example of Hedge Funds that specialize in massive trades for short periods of time.  These Hedge Fund trades move the stock market by fractions that reap millions for traders.  With a tax on financial transactions revenue would be created for Federal Government programs that serve the health, education, and welfare of the nation.

Another concern, inadequately addressed by Reid, is the impact on Hedge Fund traders business if they lose the advantage of small changes in quick trades. Will Hedge Fund transactions disappear?

Finally, how would America deal with the lost jobs for tax lawyers, tax preparers, software developers, and corporations that benefit from tax preparation and tax avoidance schemes?

One may agree with Reid’s assessment of America’s tax system.  It is a “A Fine Mess”.  The question is–Do our elected representatives have the political will to clean it up; or at least make it fairer? 

Incremental change of the tax code only makes it less intelligible. In Reid’s opinion, it is all or nothing.  Reid implies “go big” or “go home” because nothing will change if the entire tax code is not replaced.