Exclusive to the Trib: A better way to tax
The recent scandal involving the IRS illustrates the out-of-control growth of the federal bureaucracy. Instead of limited powers of the federal government and reservation of all powers to the states not specifically granted to the federal government, spelled out in the Bill of Rights, the first 10 amendments to the U.S. Constitution, the reverse now is true.
The states are not only dependent fiscally on the federal government but it is they who have limited powers. It's the powers of the IRS that should be limited and the predominance of the states must be reasserted.
The IRS should administer only an income tax on wages and salaries. Since most wages and salaries are taxed at the source, corporations and other employers would pay to the IRS nearly all of the wage taxes collected.
Income recipients would have only a simple return to file, dealing mostly with allowances for dependents. Most would have to file no return at all. The billions now spent by the IRS in administering a tax code of many thousands of pages would be reduced 95 percent.
Taxes on interest, capital gains and corporate income would be replaced by a form of a tax on wealth — a tax on the capitalized value of all business enterprises. Given the total value of business enterprises, a very small rate of perhaps 3 percent — together with the tax on wages and salaries — would yield more than the current yield of the personal and corporate income taxes.
States would be responsible for all taxes on real estate. It would, like the tax on businesses, be based on the capitalized value of houses, apartment buildings, office buildings, farms and other rural land, and other real estate as each state can determine. It could be integrated with current real estate taxes or not, as the states decide. All of the taxes collected would be reserved to the states. The states would be in competition with one another.
Half of the total revenue collected by the federal agencies charged with administering the taxes on wages and salaries and businesses would be paid to the states. To support federal expenditures above the amount yielded by the wages and salary tax and the tax on businesses, the Congress of the United States would have to request additional money from the states.
Many Americans believe that the United States is on the path to inevitable decline. But what is the alternative? The entire world is hellbent on fascism, whose economic definition is government-owned and government-dominated and -regulated private enterprises. China is a prime example — but increasingly the Japanese and eurozone countries are following suit.
America has always been the innovator. The Constitution is a unique document. But beginning with FDR's New Deal and attack on the courts, America has deteriorated to the point where, while it is the leading innovator of new products, most of the products are outsourced and produced abroad.
This is the result of the enormous growth of the federal government. The IRS scandal is only the most recent evidence. It is either the end of the IRS as we know it or the end of the greatest experiment in representative democracy, government, the United States of America.
Raymond L. Richman, professor emeritus of public and international affairs at the University of Pittsburgh, is president of Ideal Taxes Association. He lives in Shadyside.