Taxing Times

Laib, Steve A41 at MDBE.COM
Thu Jul 6 14:26:00 MDT 1995


                    Taxing Times - July 6, 1995
                            Commentary
                   (c) By Steven D. Laib JDMS
 
 
     On Wednesday, June 30, Senator Connie Mack (R-FL) in an address to the
National Committee on Economic Growth and Tax Reform made some major points
regarding the state of affairs under our present income tax system.  Senator
Mack s goal was to draw attention to the effects of the present system, and
to what ongoing developments in the economy may bring about.
     While this column will not attempt to analyze everything the Senator
addressed, it will hit on four important points which should be of interest
to anyone who has an interest in meaningful changes to the national tax
system.
     The first major point recommended by the Senator was to achieve the
lowest marginal tax rate for the population as a whole.  This approach
should be the centerpiece of any tax system enacted as a result of new
legislation.  Our current level of tax payments, not to mention the costs of
compliance, have had a chilling effect on the progress of commerce, reduced
the number of potential jobs available to an increasing population, and
prevented productive investment for both present and future growth.
     Keynesian logic has dictated in the past that taxation is  forced
saving  and that government use is equally as good as, if not better than,
private savings and investment.  This may have been the case if a frugal
government spent tax revenues primarily on infrastructure, and other
community resources.  Today, however, the level of transfer payments from
productive to non-productive sectors of society along with the level of
interest payments on previously accumulated debt makes a farce of the
Keynesian concept.
 
     A second point was the role of consumption and spending in encouraging
savings and investment.  In an economy where people have sufficient capital
to spend on consumption, the economy has a built in incentive to save or
invest.  The reward of savings is the return brought about by those who
consume the products created by today s investment.  Without the knowledge
that there would be sufficient prosperity to support new products, there
will be no incentive to invest.  The relationship between spending and
investing cannot be broken simply by the desire to ignore it.  Senator Mack
is correct here that we must make sure that the public has the funds in
their own pockets to both spend today, and save for tomorrow.
 
     A third point was directed to the concept that America was a society in
which class mobility was the norm.  A son or daughter could expect to do
better then their parents.  Education and hard work could bring about wealth
and advancement.  Our present situation discourages this.  Certainly, some
individuals can make the jump today, but not as many as would in a society
which recognized the merit in achievement, rather than punishing those who
are successful.
     Senator Mack would like to make it possible for people to return to the
mobility of social class which was the drawing card for so many people who
came to America to follow the dream of a better life for themselves and for
their children.  Today s dream is not based on the same premise that hard
work will pay off.  Instead, there are so many who come with their hands
out, asking for government assistance.  (One of my associates does
immigration law work - each week I get an earful of stories).  Certainly
reform of the welfare system will help with this, however, allowing people
to keep what they earn will bring about substantial benefits as well.
     A final point which the Senator addressed should also be considered
carefully.  This was his contention that economic scarcity was becoming
irrelevant due to the effects of electronic transfer of information.  In
this, Senator Mack is wrong.  Until we have an inexhaustible supply of
costless energy, and the ability to fabricate everything which every person
needs or wants, then the concept of scarcity will still apply.
 Restructuring the tax code on this basis will not work.  Perhaps the
Senator has been listening to too many futurists, which he cited to
throughout his address.  Perhaps, he is simply ahead of his time.  What ever
the case, he has given the legislators on the commission much to think
about.
     Today is was announced that a proposal to reduce the tax rates to
achieve the result that even after removing all deductions except home
mortgage interest, 75% of the population would pay a maximum of 10% of their
total income.  This is an idea which we could live with.  It falls in with
the basic ideas Senator Mack has proposed.  What else resides within this
proposal remains to be seen.  Keep watching this column for future analysis.
 
                              -=30=-



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