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Sunday, June 23, 2024

Look beyond Buffett Rule to fix nation's financial woes

Next November’s elections will feature a fight for Sen. Herb Kohl’s, D-Wis., seat in the United State’s senate. The Democratic candidate will be Rep. Tammy Baldwin, D-Wis., and one of the biggest names on the Republican side is Tommy Thompson, former four-term governor of Wisconsin.

This election will help determine what party has control of the U.S. senate, but it is also a fight for the nation’s tax and deficit policy. Baldwin is  a proponent of the “Buffett Rule,” which would require millionaires to pay at least 30 percent of their income to the federal government, or their “fair share” and lower the deficit. Thompson supports a 15 percent flat tax while giving many exemptions for families making under $100,000. He would also put a cap on government spending at 18.5 percent of gross domestic product. Depending on political ideology, either plan could be considered more fair.

But a fair tax plan will not come from taking more from some Americans or having a single tax bracket. It will come from an overall simpler, more effective tax policy.

The biggest problem with the current tax code is that it is confusing. It is riddled with loopholes that are mostly available to people and corporations able to hire the best accountants and tax lawyers. If passed, the Buffett Rule, which bill takes on the egalitarian name “Pay a Fair Share Act,” will merely make millionaires pay more in hope to lower the deficit. It will do nothing to alleviate the costs the American public bears to comply with federal tax law.

On average, it costs about $200 to have an accountant look at taxes at places like H&R Block and Jackson Hewitt. That is equivalent to five months of the average payroll tax cuts President Obama signed into law recently. The cost for corporations and families that have a more complex tax situation, like after an inheritance or starting a small business, is even higher. These are dollars that could go toward innovation, consumer purchases, investments or savings.

 This is not to say a 15 percent flat tax will solve the nation’s problems either. It will lead to less revenue, which is not ideal when the nation is $15 trillion in the hole. But it is simpler, which is better for individuals and families.

There must be a compromise to create a tax code that will help reduce the deficit and make paying taxes easier. The Pay a Fair Share Act could lead to a little more revenue, but definitely not enough to make up for the fourth straight year of trillion dollar budget deficit. According to the Treasury Department, it will raise $5 billion a year. The flat tax will do even less to help the federal deficit.

The government’s two largest revenue drains are Medicare and Social Security. Even if more revenues are collected, Medicare growth is projected to be 31 percent of the GDP by 2082 by the National Research Council 2010 workshop. Social Security liabilities will grow as more people get in on the system and life expectancies grow with improved health care. Without reforms to the two largest, most protected social programs, any tax reform is useless.

When it comes to the tax system, a few things must change. The tax code doesn’t need a bandage fix, like the Buffett Rule. It needs a major overhaul.

There needs to be fewer deductions and loopholes. People and corporations should not be able to write off as much from their tax liability. Republicans promote this idea, but are reluctant to speak of specifics, while Democrats are only willing to talk about cuts to oil and gas company loopholes. Deductions are meant to promote specific activities like charitable giving or home ownership, but they typically end up helping those connected to the government.

Paying taxes should also be easier. Rep. Paul Ryan, R-Wis., proposes a simple two-tiered system with families making less than $100,000 paying 10 percent in federal taxes and everyone else paying 25 percent. A decent compromise with the Buffett Rule could be to add a third tier for those making over $1,000,00 to pay 28.5 percent, a mid-point between 25 and 30. This system would be simple for all, and it would make the millionaires pay more, hopefully raising more revenue than Ryan’s initial plan.

With fewer deductions, it would be far simpler for individuals and companies to file their taxes, saving on time and money to comply with the Internal Revenue Service. A simpler tax system will make American lives easier, as well as making them less fearful of an IRS audit.

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But to make a dent in the deficit, any new tax rules must go along with fewer deductions, less government spending—especially on foreign wars—and major reforms to the nation’s largest entitlement services, Medicare and Social Security.

The IRS and the tax code is a behemoth that needs to be fixed. And when it comes to the two major proposed changes, the Buffett Rule and a flat tax, there could be a middle ground that helps all Americans. It’s just not out there yet.

Matt Beaty is a junior majoring in math and computer science. Please send all feedback to opinion@dailycardinal.com.

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