When it comes to doing business in America, there is overwhelming evidence that “complexity” of the tax code has become a huge burden. Simply put, the current tax code makes the US business uncompetitive. The solution is to broaden the tax base while lowering rates for all Americans. This means getting rid of special breaks – deductions, credits, exclusions and other complexities. Special breaks distort economic incentives and draw money away from other activities. These breaks allow some to pay less which means others have to pay more. By broadening the tax base and eliminating special breaks it is possible to expose more taxpayers to the same rates which can then be lowered for everyone while bringing in the same amount of revenue. The objective is to simplify and balance code structure while being careful not to distort fairness.
Taxes are required to keep America running, but can also hinder opportunity to stimulate economic activity. Policies enacted to redistribute wealth create disincentives for American’s to work. Less work leads to less output and more unemployment. As a rule, government spending increases level debt – every dollar government spends must be matched by an additional private dollar taken. This is why government stimulus has a negative effect on the economy – when a recipient has found a way to get paid without working they get more engaged in “not” working. The problem is, not enough people are doing their math - there is no economic value to spending more money on infrastructure, education, unemployment insurance, food stamps, windmills and bailouts. Government stimulus simply creates lower growth rates.
There are many instances of where the tax code creates disincentives for both employees and employers. For instance, why should employees pay no tax on the value of the health insurance they get from an employer? This simply means that health insurance will be more expensive for people who have to buy it on their own. ObamaCare places this burden on individuals. Since health insurance is a tax break, it is more valuable to high earners than low earners creating an imbalance in the system. When health insurance is a tax free element of pay, employees tend to want more compensation in the form of health insurance which translates into overspending. This in turn creates an imbalance in the healthcare system. Similarly, when tax deductions for mortgage interest disproportionately favor higher earners and it encourages overbuying and over building of homes. There is no way to change this dynamic over night, but since mortgage values are still deeply depressed, change could start now so breaks could phase out over time.
The most serious problem with America’s tax code is that really impacts the middle to upper-middle class. We seek opportunity to eliminate tax avoidance while lowering taxes across the board. As it stands now, tax expenditures for corporations are not nearly as expensive as those for individuals. Any situation where special breaks are created to lower taxes for some, increase taxes for others and distort incentives. The objective to is to create a more fair and balanced system that will enable the America to compete more effectively in world markets.
When it comes to entitlements, the only solution is to implement reforms. It is only a matter of time until social security goes broke. The answer is to act now by bringing in more money in over time by slightly adjusting payroll taxes and changing benefit formulas to reduce benefit growth to the highest-income beneficiaries. This would translate into raising the wage base faster while edging up the retirement age to keep pace with increasing life expectancies. Making social security work as a pay-as-you-go system would create opportunity to subsidize general tax revenue to compensate current and future beneficiaries for the excess social security taxes they paid. When it comes to defense, we need to shift resources in response to changing needs around the planet. There is absolutely no reason why the world’s largest defense budget can’t be more directed towards meeting the nation’s future needs.