We The Government

by John G. Lankford

Just One More Dot!

Washington Post columnist David S. Broder holds a Pulitzer Prize, and a column he published July 17 reflects the level of astuteness that earned it for him. Titled Revenue Shock, it rates a solid 95 on a scale of 100. The missing five percent was a lamentable lapse that kept Broder from bringing his solid facts and well-founded reasoning all the way home.

Perhaps one does not express the conclusions Broder's facts and logic compel at the Post.

Broder recited a by-now-widely-known set of statistics: The upper-income half of taxpayers pays 96 per cent of federal income tax revenues; the highest five per cent of earners alone pay half of those revenues and the highest one per cent pay more than a third of them.

Broder then pointed out that in the past several years, those high-income, high-paying people had been getting a great deal of their taxable income from capital gains generated by soaring stock prices. Stock prices having ceased to soar, to say the least, in the past year, such gains are reduced where they are not reversed. Accordingly, federal tax receipts are falling far short of projections, a shortfall that contributes greatly to the $165 billion federal deficit now looming.

Congress and the Administration should have seen that shortfall coming, Broder wrote, and done something to head it off. Something should be done now, he continued, submitting that the Bush tax cut was probably a bad idea and domestic spending has gotten far out of hand.

Consistently, the same day Broder's column appeared, Alabama's Birmingham News, in its lead editorial, supplied one noxious example of Broder's point, excoriating the farm bill the Congress passed with bipartisan support and the President signed this year.

The bill's spending "shoots up a whopping 77 percent over the cost of continuing existing programs," said the News, adding that "two-thirds of all farm subsidies go to huge farms and agribusinesses," that recipients include "14 members of Congress", and that The Heritage Foundation estimates the bill's total cost at $462 billion, or "about $4,400 per taxpaying household."

But Broder's beginning thesis was the correct observation that we have let our public revenue base become dependent on the unstable and unrealistic securities markets rather than the much more stable and reliable basic economy. The contrast was well illustrated in the market crash of 1987 when Wall Street cried havoc and Main Street responded, "Play your silly little games, you strange people. We decline to have a depression over your follies, ignore-you-very-much." And behold, there was no depression in the general economy; it continued to grow and Wall Street soon resumed its binge.

Something similar is happening right now. And verily, if we are going to have taxation, it ought to depend on the fundamental economy, not the whimsical securities market. Broder, President Bush, and Federal Reserve Chairman Alan Greenspan all agree that the fundamental economy is remarkably sound and resilient, growing steadily despite enormous shocks and this year's return-to-Earth tailspin consisting of securities markets correcting their 1990's moon-shooting and moonbeam-fueled trajectories.

In addition, the market's ecstatic mystery tour was partially boosted by top corporate officers conniving to inflate stated profits in order to make their stock option packages soar in value and position themselves to exercise the options and bail out when they, from unique insiders' vantage points, saw inevitability about to become reality. Since such activity generated big tax bills, government added conspiracy to commit fraud to its ordinary revenue-extracting sins of armed robbery and extortion.

But Broder derailed his argument five percent short of the terminal, pointing vaguely to tax cuts and excessive public spending and letting his essay go at that. The hiatus was so glaring that one wonders whether he did not mean to entice us to fill in the by-then-obvious rest of the story.

Defrauding the Tax Collectors

How do we tie tax revenues to the performance of the real economy and untie it from the fantasy flights of the securities markets, in which people trade paper based on what they'think other people think other other people are going to think about stock and bond price prospects and from fraudulent hotshots with warped incentive packages fudging bookkeeping under the all-unseeing eyes of co-beneficiary government?

By Broder's own facts and logic, the Bush tax cut was actually a tiny step in that direction. Having, as apoplectic leftists noted, its greatest dollar-volume effect among, surprise, the people paying the most taxes, it diminished the connection between government revenue expectations and the way those people got their high-bracket money, that is, cashing in on paper gains before the securities market went on Anabuse, the wagon, or into rehab or therapy, take your pick.

To finish making government revenue receipts a function of economic reality rather than fantasy and fraud, it is only necessary to tie them to the critical point of economic activity, the sale and delivery of goods and services and the collection of money in return.

Put simply, eliminate most if not all of the bizarre taxes on this-and-that-except-when-thus-and-so-unless-one-of-the-following, subtract cube of square root of telephone number and enter on line 1455a on this form and line 996 on that other form, and enact in its stead a simple retail sales tax.

When the economy is doing well, people are buying more goods and services. The economy is doing well because people are buying more goods and services. When the economy is doing well, people can afford to contribute to the government coffers. and do so by voluntarily spending more. When it is not, they can't, but responsible government can then spend more than it takes in, provided it has responsibly saved some when it was getting plenty, and help restore a good economy.

Wealthy and high-income people, doing what makes the effort to become such worthwhile. spend more and pay more sales taxes. They cannot evade payment by means of arcane accounting or tax law loopholes. But since, except for measures to relieve the really poor, everyone pays something, the temptation to foist the entire tax burden off on one, five, or fifty percent of the earning population is curtailed. The economic class war is stilled, perhaps not long before the wealthy win it by strategic withdrawal.

This proposal has been around for quite some time now. The great majority of tax reform proponents favor either a flat, single-rate tax or a national retail sales tax. Only the latter, however, would answer Broder's objections to the current connection between federal revenue collection and the fantasy economy sometimes conjured by the securities markets by linking the former to the real economy generated by buying and selling.

It also has numerous other advantages, particularly the fact that only retailers would file returns (as most of them already do to pay state and local sales taxes). Retailers would in return be relieved of much more onerous income tax filing, and the rest of us would pay our taxes without filing, without telling government our business, or even reminding it we exist. Relieving the really poor of the tax burden under such a system is quite simple.

Recently Tennessee's legislature found mobilized opposition to imposition of an income tax could not be overcome - but those opponents would and did, grudgingly, tolerate a one percent sale tax increase to supply revenue shortcomings.

There the people spoke and the legislators, perforce, heeded. As the logical implications of Broder's essay and the irrefutable merits of the other points of comparison establish, so should We the Government.

John G. Lankford, B.A., M.A., worked in television and newspaper journalism, did a stint in the Army, finished law school(J.D.) and practiced law in and around New Orleans for 20 years. At the end of 1993 he retired fully and finally, resigning from the bar, and moved to Ambergris Caye, Belize to grow bananas and caye limes for the local market, pursue his notion that the law at its best is a selection of philosophical principles people admire enough to try to make mandatory by reading history and philosophy, and practice misdemeanor-level tropical vagrancy. His tentative conclusions are rough-drafted at www.radicalpositivism.org, a name fraught with puns, and he describes writing topical articles as "taking the Provident Ethic out for trial runs".

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