Friday Rant: The Fiscal Cliff, U.S. Tax Code & Class Warfare

Indeed, spend matters immensely and must be cut to reduce the U.S. deficit. But as uncertainty grows around exactly how the U.S. executive branch and legislature will soften the scheduled fall off the fiscal cliff at year's end, a few statistics to enable some out-of-the-box thinking warrant attention. It takes the CCH Standard Tax Reporter, "the most comprehensive and current federal income tax law authority in the industry," 73,608 pages to fully document the U.S. tax code -- the Internal Revenue Code (IRC), enacted by Congress in Title 26 of the United States Code (26 U.S.C.) -- as it stands in 2012. We're not talking Twitter-like reading here -- the whole thing is up from 504 pages in 1939, 40,500 pages in 1995 and now, hold your breath, 67,506 pages in 2008!

Total U.S. Personal Income in 2011 was approximately $13 trillion and according to the NYT, "The top 10 percent earn a larger share of overall income than they have since the 1930s. The earnings of the top 1 percent took a knock during the recession, but have bounced back. In contrast, the average working family's income has continued to decline through the anemic recovery." A hallmark of President Obama's winning campaign for re-election focused upon not raising taxes on the middle class -- with which Mr. Romney concurred -- and increasing taxes on the most wealthy "to pay their fair share" -- which of course Mr. Romney did not agree. Numerous polls indicate that approximately 75% of U.S. citizens agree with this concept. Of course they do.

But missing from this argument -- and interesting from the press angle -- is a definition of what constitutes being middle class in the U.S. Let's assume, for sake of argument, since the median household income is slightly south of $50K per year, that income level constitutes the middle class. Let's also look at how "increasing taxes on the wealthiest Americans" is essentially a modern [anti] Plutocratic (from the Greek ploutos, meaning "wealth") argument defined by Wikipedia as:

The word plutocracy is almost always used as a pejorative to describe or warn against an undesirable condition, and throughout history political thinkers such as Winston Churchill, 19th-century French sociologist and historian Alexis de Tocqueville and 19th-century Spanish monarchist Juan Donoso Cortés have condemned those they characterize as plutocrats for ignoring their social responsibilities to the poor, using their power to serve their own purposes and thereby increasing poverty and nurturing class conflict, and corrupting their societies with greed and hedonism.

The United States is and remains a capitalist economy that has, for far too long, abdicated its infrastructure responsibility to provide a world class public education and healthcare system for it's citizens to everyone's detriment. That does not mean that we need to degenerate our capitalist system to a state of class warfare or the dreaded concept of "socialism" to remedy our problems. It's high time we abandon arcane "tax the rich to save the poor", "trickle down economics" and other specious arguments and establish fiscal and social policies in which all U.S. citizens are vested.

The U.S. tax code is an incomprehensible train wreck. The time is now for our elected representatives to eschew and abolish the PACS that support their campaigns, represent their citizen constituents and trash the current tax code in favor of either a flat tax, or better yet, a value added (national sales / VAT) tax, and stop enabling poor vs. middle class vs. wealthy class warfare. Under one of these models, those who spend the most, would pay the most, giving everyone responsibility for supporting our society and individual control over how much they pay in taxes. It's also interesting that we procurement wonks know that the state of technology fully enables successful VAT implementation and management. No doubt such a move would also be a boondoggle for e-invoicing and supplier network providers, but I digress.

Of course the corporate tax code would also need to be simplified and lowered, but if the U.S. would get smart and become the most attractive tax climate for corporations, the sheer volume of corporate entities registered in the U.S. would more than make-up for the reduction in direct tax revenues and would very likely, and significantly, improve on shore employment opportunities.

I fully realize that this would not be simple. The nation's foremost taxation specialists and consultants have agreed for quite some time that transition to a U.S. VAT is not a question of "if" but "when". Why not now? And what would we do with all the tax accountants and lawyers? Such an evolution would necessitate ample need for transitional strategy consultants. Perhaps some may choose to teach -- a noble field. One more closing Friday thought -- perhaps others might immerse themselves in sorely needed cost accounting for medical care, a field that remains in its infancy and needs brainpower to reduce the cost of care and improve patient outcomes for all.

Share on Procurious

Voices (4)

  1. Pierre Mitchell:

    Eric is right. The approach also creates a huge incentive for ‘grey’ market services which are paid for in cash to escape VAT. Also: it is quite vulnerable to fraud, requires a rather lot of paperwork for smaller businesses to file VAT returns and has its own set of exemptions e,g, the government excludes some products from VAT (UK list includes: some foods, insurance, education, charities, betting, energy saving materials,….) which defeats the idea of a ‘simple’ tax.

  2. CanuckinKL:

    VAT and GST used in the rest of the world effectively. Allows governments to put more money in the pockets of the employed while taxing those who consume more the most. Take a bus, pay no VAT, drive your Rolls pay the VAT. Is this socialism? The US needs to modernize many things, and tax reform with a modern, broad based VAT is one step on the path to redemption. They don’t need to blindly adopt an EU VAT, they can instead look to places with modern functioning and effective systems like Canada or NZ.

  3. bitter and twisted:

    Billy, leave politics to the grown ups.

  4. Eric Strovink:

    VAT is a regressive tax, at least as it is implemented in the UK — where its proponents, using the same arguments as Bill, argue that it is progressive or at worst mildly regressive. To see why, visit:

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.