Jack Kemp: Scrap the code (tax code)

TownHall ^ | Aug. 9, 2004 | Jack Kemp

[FairOpinion]

In the last few weeks, talk of President Bush's soon-to-be unveiled second term economic agenda has shifted, for the first time in a long time, to a discussion about fundamental tax reform.

First there was the release of Speaker Hastert's new book in which the Illinois republican explains that taxes account for 23 to 27 percent of the cost of our goods and services, putting our corporations at a competitive disadvantage with our trading partners. Thus, he argues, "For us to return capital and jobs to the United States, we're going to have to change our present tax system and adopt a flat tax, a national sales tax, an ad valorem tax, or VAT." I agree we need to fundamentally reform the tax code, however, I have always worried that a VAT is too easy to increase, which we have witnessed in Europe.

Later in the week, Sen. Sam Brownback, R-Kans., said that President Bush is committed to a growth platform, and that "you'll start hearing him talk about a flat tax, really getting the tax code out of so much impact over peoples' lives."

Alan Murray wrote in the Wall Street Journal that the Bush administration is taking another page from the Gipper's playbook - tax cuts in the first term, tax reform in the second.

If fundamental tax reform becomes the issue, and I believe it to be a huge issue, it is important that we clearly articulate what exactly that means. By 1986, Ronald Reagan succeeded in bringing the top marginal tax rate down from 50 percent to 28 percent. But, the mistake made was increasing the capital gains tax rate to 28 percent and treating capital gains as identical to ordinary income. The result: capital gains tax revenue, which was greater than $165 billion in 1985 dropped precipitously to $116 billion in 1992. The trouble is capital gains is not ordinary income, it is a tax on putting surplus capital at risk. It is a direct tax on wealth creation and risk capital - which only slows growth and reduces revenues.

In 1996, the last time fundamental tax reform received a concerted public hearing was when I chaired the National Commission on Economic Growth and Tax Reform - the Kemp Commission. We ultimately decided the income tax system was "impossibly complex, outrageously expensive, overly intrusive, economically destructive and manifestly unfair" - in short, we concluded the best course of action was to scrap the code altogether and tax all income, but tax it only once - this would radically simplify taxation and create the conditions for long-term robust economic growth.

Since the Kemp Commission, capital gains tax rates have been reduced twice, in 1997, and again with the 2003 tax rate reductions, thanks to President Bush. Individual income tax rates have also declined as a result of the Bush tax cuts, but the current top rate of 35 percent is still well above the 1986 level of 28 percent. What's worse, the pro-growth elements of the 2003 tax cuts are set to expire, with some provisions expiring at the end of this year.

Moreover, we still have a tax code that begins with an overly broad definition of taxable income. As a result, we have been forced to create a number of deductions, credits, exemptions - what John Kerry would deride as loopholes - to try to ameliorate some of the perverse disincentives from such an ill-conceived cradle-to-grave, redistributionist, social-engineering-focused tax system. The system is still impossibly complex, outrageously expensive, overly intrusive, economically destructive and manifestly unfair, and we should still scrap the code.

On the corporate tax front, America is falling farther and farther behind. In 1986, the United States cut the federal corporate tax rate from 46 percent to 34 percent. Since then, the rest of the world has caught up and surpassed the United States in corporate tax competitiveness. Today, the United States has the fourth highest corporate tax rate among Organization of Economic Cooperation Development countries, roughly 10 percent more than the average OECD top corporate rate - further proof that the real problem facing American job creation is not "Benedict Arnold CEOs," as John Kerry maintains, but a confiscatory, confusing and overly complex tax system.

If we cannot scrap the code outright, then we should, at a minimum, make permanent the 2001 and 2003 tax rate reductions; we should continue to reduce the double and triple taxation of savings and investment; we should reform the increasingly destructive alternative minimum tax; we should bring down the individual income tax rates to at least 1986 levels; we should reduce our level of corporate taxation to become competitive internationally; and we should enact National Enterprise Zone legislation to demonstrate the powerful economic impact of fundamental tax reform.

Surely the first objections of deficit hawks in both parties will be that we can ill-afford another round of tax cuts. To them I would say, listen to the sound advise of John F. Kennedy who argued in 1960, "It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget, just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records."

My question is why isn't John F. Kerry listening to or at least reading John F. Kennedy.

[FairOpinion]

"The system is still impossibly complex, outrageously expensive, overly intrusive, economically destructive and manifestly unfair, and we should still scrap the code."

Also, check out the Kennedy quote in the next to the last paragraph. If JF Kennedy were alive today, the Dems would disown him. Goes to show you how far left the Dems have gone.

I hope Bush will scrap the code.

[FairOpinion]

PING

[SevenofNine]

Jack Kemp saying that

I am very surprise he hasn't choke since he is former Buffalo Bill

I got question Fair how they going rid of IRS

Yeah IRS I like to know that

[Kudsman]

I got question Fair how they going rid of IRS

We going do it legislatively. How you going try disrupt it? Judicially? It is hardly unconstitutional to change tax policy.

[lewislynn]

We going do it legislatively. How you going try disrupt it?

S/he won't have to disrupt it, there will be plenty of democrats AND republicans to do that.

[codyjacksmom]

Ping...

[SevenofNine]

I Seee that how it done

YOu think if we do allow this some Demo group want take it court I THINK SO how about Democratic party may do the honor

I think they are so out of it they said you can't get rid of IRS
YEAH I think so

Watch Dubya

[lewislynn]

The last republican Ways and Means Chairman (Archer) who talked of wanting to rip the tax code out by it's roots added over 8,000 pages to it before he left.

Ten yrs. ago the GOP mantra was "middle class tax cut" (we never got it) now it's "scrap the code"...Their definition of scrapping the code is a code word for a huge tax shift from corporations/business to us.

If anyone thinks eliminating taxes on a group of tax payers in a "revenue neutral" tax plan is going to pay for exorbitant GOP spending and a growing SS/medicare/prescription drug scam...they have another think coming.

[Kudsman]

there will be plenty of democrats AND republicans to do that.

And those are the no good jack o'napes that we organize and vote against.

[Kudsman]

Spending accountablity is also a must. How do you achieve it though when a good politician these days is considered to be one that *brings home the bacon*?

The standard of representation should be how little of my treasure is confiscated, skimmed off and then returned as "aid". If Feds have it to give back then they took and use too much to begin with! Others and I can show up and request accountability alot easier locally.

[gipper81]

It is nice to read a supply-side economics and tax article from Jack. Haven't heard from him in years about anything relative to macroeconomics.

[lewislynn]

And those are the no good jack o'napes that we organize and vote against.

If that was the case we wouldn't have any "jack o'napes"(?)...sadly that isn't the case.

[aimhigh]

All this talk of scrapping the tax code means that Congress has extracted all the bribes they can for tax exemptions. Scrapping the current code would allow them to start over, and begin reaping millions as they work to re-create the current code.

[ancient_geezer]

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer for additional information: http://www.fairtax.org & http://www.salestax.org

[n-tres-ted]

Jack Kemp should have focused on the Fair Tax by now. No reason to continue speaking in generalities about flat taxes, etc. But better than nothing.

[ancient_geezer]

All this talk of scrapping the tax code means that Congress has extracted all the bribes they can for tax exemptions. Scrapping the current code would allow them to start over, and begin reaping millions as they work to re-create the current code.

You really ought to give careful considertion to changing your screen name to something more descriptive of your attitude.

Taxes & Government Spending:

• "The income tax in effect makes us vassals to the government – the politicians decide how much income we can keep. No mere “reform” of this slave tax, such as flattening the rate, can correct its fundamental denial of control over our own money. Only the abolition of the income tax itself will restore the basic American principle that our income is both our own money and our own private business - not the government's."

• "Replacing the income tax with a national sales tax would rejuvenate independence and responsibility in our citizens. True economic liberty and moral revival go hand in hand."

• "A national sales tax would also put the American citizen back in control of national fiscal policy. The best way to curtail government spending is to cut taxes, because they can’t spend what they don’t get. But with a sales tax, we could deny funds to a spendthrift government – and give ourselves a tax cut – whenever we make the private choice to alter our spending and saving habits."

"The only thing necessary for the triumph of evil is for good men to do nothing."
--Edmund Burke (1729-1797)

[agincourt1415]

I hope they scrap the code and have a National Retail Sales tax of no higher than 5%.

We're talking great boom ahead.

[ancient_geezer]

how they going rid of IRS

Might try repealing all income and payroll taxes, destroy IRS and its records and replace the current system with with a national retail sales tax, turning the administration of that sales tax system over to the states most of whom have the infrastructure to do so already in place.

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer for additional information: http://www.fairtax.org & http://www.salestax.org

[ancient_geezer]

I hope they scrap the code and have a National Retail Sales tax of no higher than 5%.

Not very likely to happen all in one step I'm afraid.

Let's get the NRST in place and then see what happens as every vote becomes aware of just how much federal government is really costing them.

 

23%........... Effective total federal tax rate with respect to total consumption expenditure

14.91% ..... rate if Social Security and Medicare were eliminated
14% .......... rate if Nat'l Endowment for the Arts were eliminated
11.9%........ rate if Dept. of Education were eliminated
10% .......... rate if welfare were eliminated
9.8%.......... rate if foreign aid were eliminated
etc.

So lets look at what the maximum it would take to fund those functions clearly authorized under Article I Section 8 of the Constitution, in current dollars:

http://w3.access.gpo.gov/usbudget/fy2001/guide02.html#Spending

• $334 Billion --- Defense & Military related expenditure
• $ 31 Billion ---- Administration of Justice
• $ 16 Billion ---- General Government
• $199 Billion ---- Interest on the Debt
  =========================
  $580 Billion ---- Total

Institute an across the board, Flat rate, single stage National Retail Sales Tax, which taxes all imports and domestic products with the same rate.

Replacing all current federal tax law with a retail sales tax would be 23% on new goods and services paid and receipted at the retail register. No hidden tax, no exceptions, exemptions everyone participates.

Such a tax acts in a natural manner to encourage the elimination of excess government functions through visibility of burden among all constituencies of the electorate.

The total federal government budget would move from $2,000 billions towards something less than $580 billions calculated.

The across the board federal tax rate on new goods and services would decline towards less than 6.7%.

As tax rate on sales decreases the economic burden on retail items, the sales volumes and growth in the economy would be tremendous allowing even further reductions in tax rates below that less than 6.7% theoretic level.

That is what I perceive as the ultimate achievements possible under a National Retail Sales Tax structured in the manner of the revenue bill H.R.25. Simple common sense applied to the principal of TANSTAFFEL,( no free lunch, everyone participates in paying their way in proportion to the benefit the extract from their consumption.) encourages the natural change in attitudes required of the electorate as regards the burden of government largess in their lives.

Thomas Hobbes from Leviathan

• It is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income

Hmmmmmm....... It's do able, with time and effort, once the blinders are removed from the electorate.

[agincourt1415]

Cancel the code and start with 5%, you can fill the gap with bonds for "if there is a increase in deficit.

Less tax has always caused growth that grows us out of debt.