John McCain was close on taxes when he outlined his plans in a speech Tuesday, and if he didn't get the cigar, he could smell the unburnt tobacco.
A lot of people are sympathetic to the idea of a flat tax when someone brings it up, as the Republican presidential candidate did with his idea of an optional flat tax instead of the standard time-wasting 1040 form. No question that we need to simplify the tax code. You don't need to be a liberal or a conservative for that one -- a conservative could put the time saved to good use and a liberal could use the taxes generated by that savings to fund programs!
Individuals and companies just take too much time worrying about taxes. Me, I think I spend probably half my time just compiling all the information. W-2s and 1099s come in the mail, and I'll put them in one pile, my wife will put them in another and the housekeeper will scatter them if not throwing some of them away entirely. By the time all the organizations I've done business with have sent their year-end tax information, I have to search the house and nearby landfills for everything I need.
Then, just filling in the boxes and doing the math is easy -- assuming I have a calculator handy. The trouble is what's behind all those boxes. Before you fill in Line 27 of form 1040 (just taking a number out of the air as an example), you have to complete the worksheet in the instruction booklet just to see if Line 27 even applies to you.
By the time you get to state taxes, you can plug in some numbers from the federal forms, but then you have to make adjustments to conform with state law. And where on the federal taxes you have to multiply certain findings by percentages, on the state taxes you have to do so again in order to make sure you get a lower result for your credits. And there's even more worksheets.
I hate the worksheets because you plow through them only to find out that not only was it not necessary, but it wasn't even close to being necessary. But et it wrong and you go to prison for five years.
That's just for me, with a wife, some children, a house and a minor investment portfolio. I can't imagine what it must be like for someone with a more complicated financial picture. Yeah, you can pay someone to do your taxes, and I did the previous two years, but that's money out the window long before you get your refund back.
Imagine what it's like for General Electric, which reportedly filed a tax return of 28,000 pages. Does the government even bother to check the math for 28,000 pages?
But I digress. For the reasons I state above, a flat tax is an idea for which we taxpayers have sympathy. Yet it hasn't caught fire, or Steve Forbes would be completing his second term in the White House.
People simply don't want a flat tax, as it's been presented thus far. As always, the devil is in the details. The flat tax hasn't flown so far because of progressivity and deductions.
First, people in general that those with more means should pay a higher percentage of their income to the government. Some go in for class warfare and want to stick it to the rich, but that's only a few. The moderate position is that those who have more should give a little bit more but not as punishment.
Second, tax deductions have been used for decades as a way to encourage activities that society has deemed beneficial: bearing children, owning property and giving to charity. Children and charitable giving are fully deductible. Property taxes and interest on loans are deductible. Medical payments above a certain percentage of your income are also deductible, providing help in case of serious illness or injury. There is no way we want to give up those deductions.
So we'll need a modified flat tax, which includes progressivity -- say 15 percent and 20 percent -- and deductions. Perhaps the rates should go to 17 percent and 21 percent to make up for it. The healthy, childless, renting scrooges will just have to take responsibility for their life choices and pay the full share.
If McCain is able to work the adjustments into his platform, then he might have an issue that works in November.
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By the way, McCain is right to support the continuation of the Bush tax cuts while at the same time criticizing the way the super rich took advantage of them to get us into the current financial meltdown. The whole idea of the tax cuts was to put more money in the pockets of normal people and stimulate an economy recovering from a small recession and 9/11. It worked, but the eggheads on Wall Street screwed it up for all of us.
McCain is also right to call for reduction in corporate taxes. As it is, our taxes on business are the second highest in the developed world. GE, which is big in trying to develop green energy, would be better off spending it's time researching and developing environmentally friendly products than killing enough trees for a 28,000-page tax statement.
