Guest post by Devon Phelan:
As of late, I’ve been asking one question to many people; “How ‘bout that economy?” It seems to be the best topic for small talk nowadays apart from “Did you see that last episode of {insert popular tv show here}?”
This sparks a lot of emotions, many of fear and some of rage. It’s amazing how personable people get about their investments after the market has tanked. It’s sad that so many people have lost so much. I know over a dozen people that have lost between $30,000 and $130,000 over the past month, and it looks like the worst is yet to come.
But this article isn’t about the state of the global markets; it’s about the problem of taxes. More specifically, it’s about tax reform.
There are, and will be, many opinions surrounding these painful yet necessary expenses. Some will be more intelligent than others, and others will be more practical than intelligent. This leads into the question of exactly how the tax structure will change, and for that I must say that you can write entire books on such a matter. Even websites and blogs have been devoted to only this topic of tax structures, and seeing how I must intelligently submit this in so many words or less, I can only begin to scratch the surface of how the structure itself will be reformatted.
One thing we can all agree on though is that the tax system of the United States must be overhauled. It’s not so easy because you’re talking about a complex issue that has become a major problem, and fixing it will require radical adjustments, sensibility, and time. This issue extends beyond tax reformation, but I do not have time to explore those issues here. One such issue I can address is the problem of operating a budget deficit.
If a person earns 30,000 dollars a year, and spends 40,000 that year, that person will run into financial trouble. The same is true with Government. It will not, and does not, matter how the tax system is structured if the bureaucrats and politicians continue to spend more than they have. You can make all the money in the world, but if you spend all of it, and then some, it doesn’t matter. So the problem doesn’t necessarily lie with the tax system at all, but rather the frivolous and irresponsible spending habits of those in power.
On some level it’s understandable, there’s so much money being pumped into the system that it can be hard to divvy it all up to where it’s needed most. We forget though, or at least the brass forgets, that the less of something you have, the more effective you will use the resources available. In business this is known as manufactured scarcity for resource management.
So if we in fact have less tax dollars available for our disposal, then the frivolous spending will be cut. The money will only be divided among programs absolutely vital to the stability of the nation. No one really likes this idea because it would mean a lot of programs would suffer, or cease to exist.
Military spending for example would be downsized; the wars overseas would have to be withdrawn. On top of that, entitlement programs like welfare, disability, workman’s comp, etc would be cut to the bone. (Sorry they’re not mandatory for the country’s well being) Finally, the bankrupt programs of Social Security, Medicare, and Medicaid would be removed.
This would also mean that official positions and incentives would be cut as well, as they are not necessary either, and paid for by the taxpayer. That means the president, court justices, politicians, and every public office representative will have to accept a considerable reduction in their benefits and salaries. Sorry, but it’s paid for by the taxpayer, and this is capitalism…you can’t rely on others for your financial well being.
This is just a start, and in no way represents the totality of measures required for the tax system. Hopefully this will be enough to get your head spinning though.
Okay, now we must remember the principle we talked about in the beginning of this article. It doesn’t matter how much tax money is available if we’re spending all of it and then some. So proper bookkeeping must become mandatory. If we cannot pay for something because we don’t have money, then we don’t pay for it! Done…Simple… Period.
People and businesses run this way, so the government should follow suit…especially since it’s our money they’re using. Remember that anytime your state or the federal government pays for something, that you foot the bill. That’s why the “stimulus” was complete nonsense!
So to summarize what we’ve covered so far…major cuts in spending must be made, and disciplined, responsible bookkeeping must be mandated. A budget surplus must be become a priority, and the business of writing checks that will be paid for by unborn generations must stop.
Now, we must come back to the question of how exactly the tax structure should be reformatted. There are certainly many answers to this question, and it will be hard to come up with the best one. One thing I’m sure of is that the tax rates should not, and do not have to be raised. This is capitalism after all, and inspired by Jeffersonian democratic ideology.
The tax rate could very well be a flat tax system of say 20% gross income. That would mean ALL income whether it’s earned, portfolio, or passive. 10% goes to the state government, and 10% goes to the federal government. Charitable deductions would be the only exemption and it would be no more than 50% of the charitable contribution. The mess of bylaws surrounding the system would be eliminated. No more Earned Income Credit, no Minimum Alternative Tax, Child Tax Credit, Marriage Tax Penalty, Employer Plan Covered restrictions, and other pointless regulations that make the system a complete mess. For the sake of ease, I won’t go into further detail, but simplicity and fairness is the mission here.
Like I said, this is one possibility of many others, and this is barely introducing the problems, complications, and corrective actions required to overcome these major issues. This is a problem that has more variables than the ones I’ve covered, and will require hard choices that have not been discussed here as well.
Like the title says, it’s a long, rocky, and ugly road to recovery. With the right mindset, responsibility, courage, and strategy, we can implement the changes we need to stabilize and revitalize our system.
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Devon Phelan is a social critic and a small business consultant. He currently writes for a small group of entrepreneurs at dudeman.biz and contributes to other outlets about personal branding, finance, and marketing.
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This guest post was submitted in response to my query about how the best way to deal with the current economic situation. This post does not necessarily reflect my thoughts and feelings nor do they represent any views held by Forbes.
Your comments and reactions are, of course, appreciated. Just play nice. I have standards. And I don’t want to have to delete you.