America is strong and will continue to be because of her prior investments in people and infrastructure.
Our current problem is the lack of leadership from the people we elect and from the loss of sunshine on our governments actions. The actions of government are important to the growth of our economy. Here I will outline my six point plan to keeping America strong.
MORTGAGE INTEREST DEDUCTION.
Why is there a mortgage interesting deduction? The mortgage interest deduction is sold as a great way to encourage middle class families to invest in themselves. It is proposed that the equity and savings of this plan is beneficial. I however, would suggest otherwise. The mortgage interest tax deduction was introduced in 1913 along with the income tax and at the time was used to encourage home ownership. The rational is that the homeowner will take better care of his neighborhood. However, what it does in effect is encourage new construction. If you can afford to buy, we will reward you with more money to spend. So, we buy more house that we need and the people least needing a government subsidy get one. Since those of high to moderate income are the ones that can itemize they will be the ones entitled to the deduction. Hence the deduction in effect encourages the well to do to purchase homes and since they can afford more the prices of houses increase. This results in a race by real estate developers to develop housing for the well off and raising the cost of housing for us all. The poor that would arguably need more help from the government is locked out because they cannot purchase. Furthermore, the lost revenue to the system decreases resources needed to do the essential services of government. The fundamental problem with this subsidy is that it distorts the housing market by ultimately encouraging increasing housing prices. This is not beneficial to even the household that benefit from the subsidy.
Employee total compensation includes all monetary benefits provided to the employee both direct and indirect. The employer contribution to health insurance is a apart of total compensation and is a direct benefit. Employers pay the bulk of health insurance costs and that is treated as a tax-deductible business expensive. The employee portion is excluded from income and payroll taxes. The combined exclusion is a significant tax expenditure from the federal government. This expenditure has to be paid for and is currently financed by federal borrowing. The effect of the significant employer contribution is to significantly reduce the cost of health insurance to the employee. As with all goods decreasing cost increases use. The result is that health insurance is over utilized by those who have it. Since the bulk of the insurance cost is paid by the employer the benefit is to the employer not the employee and in larger businesses the effect is a significant subsidy to persons that don’t need it. Also, for individuals with high incomes and generous health insurance the tax benefit is significantly more that it is to those with lower incomes. To further compound the inequality of this subsidy lower income works don’t usually have insurance paid by their employer, so they don’t get a subsidy. In all this skews the market to over use and increased health-care cost, which is not good for either the subsidized or the un-subsidized.
CORPORATE INCOME TAXES
There should be no corporate income taxes. The idea that all individuals should contribute to the general well-being of the community is a valid one. However, a corporation is just a group of individuals working together and as such the corporation should not the treated as an individual. Not treating the corporation as an individual and removing corporate income taxes would allow for significant benefits. These include increased investment in the economy, improved business competitiveness and decreases in political lobbying.
PERSONAL INCOME TAXES
There should be no personal income tax. The personal income tax was introduced in 1913 and as being a great source of revenue to both the federal and state governments. However, the proliferation of deductions as destroyed the original intent of the personal income tax. Currently the personal income tax on the federal level is graded with higher income earners paying a high rate. However, the actual rate paid by most high income earners is significantly lower than the mandated rate and the poor have mostly been excluded from paying. The effect is that of increasing the tax burden of the middle class tax payer, while decreasing government tax revenues. Both conditions are a loss to the country.
NO TAX DEDUCTIONS
Advocates of tax deductions suggest there use as a means to encourage consumption of a commodity. This is a good idea only if the consumption is beneficial to the whole community. A better way would be to remove all subsidy and allow the market to develop free of interference. This would allow for the development of many competing ideas and goods. With competition and increased goods available to the consumer prices would find equilibrium. The effect would be to decrease some prices and increase others with the associated change in consumption of those goods. A good example is the relative high cost of un-subsidized fruits and vegetable as compared to subsidized fast food and the effect on health and health-care costs.
NATIONAL CONSUMPTION TAX
There should be a nation consumption tax. If you buy a good the cost should be complete and include the cost of governmental support in bring that good to you. The costs I mean are road, rail, port infrastructure, the cost of education, of security broadly and other infrastructure the government alone can provide. This will moderate the use of all goods and there will be winners and losers. Where the winners will have to innovate in their products without manipulations of the tax code. This benefits us all and decreases governmental tax expenditures.
All of the above work synergistically to increase personal income and improve the competitiveness of American business. What do you think?