Zakaria: America needs a 2-page tax code

If tax complexity equals corruption, perhaps the US is one of the most corrupt nations in the world and we just don’t know it.

The U.S. tax system is not simply corrupt, it is corrupt in a deceptive manner that has degraded the entire system of American government. Congress is able to funnel vast sums of money in perpetuity to its favored funders through the tax code without anyone realizing it.

Zakaria:  America needs a 2-page tax code

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32 thoughts on “Zakaria: America needs a 2-page tax code

  1. @OMG, Thanks for posting this.

    It would be interesting to have Zakaria comment on what we’re saying. He, at least, has a better understanding of the wide, wide world outside of the continental USA.

  2. There is another very interesting way to get rid of the US income tax, which most will agree is so corrupt and complex that it is beyond repair.

    http://www.fairtax.org/site/PageServer.

    This alternative, supported by Gov. Huckabee in his unsuccessful campign for the Republican presidential nomination in the last election, would totally replace the income tax with a national sales tax. The IRS would be shut down. It woud eliminate hundreds of billions that are currently spent supporting the IRS and would totally eliminate the tens of millions of hours and billions in busness overhead costs currently expended in trying to be compliant with the 74,000 pages of the US tax code which nobody understands and which is so full of loopholes that corporations spend billions to exploit them. This is a totally non-productive waste of funds and human resources that just keeps the US economy treading water.

    The FairTax would also totally eliminate the double taxation of US citizens living outside of the US, since it would only apply to retail sales transactions on new products only consumated in the United States. Unlike VAT, which many countries have adopted to increase tax revenues without increasing income tax levels, this tax would be applied only once on the final sale. One of its most interesting featues is that incentivates production and hard work rather than punishing success, which a prime characteristic of any income tax system.

    The House Ways and Means Committee conducted hearings on this tax, I think in June of 2011. But there are so many whose bread and butter and very existence depends on the current corrupt tax system, that the likelyhood of being seriously considered is very low.

  3. @omghesstillanamerican- I totally agree with Mr. Zakaria. A national sales tax would be the cheapest and most equitable way to reform the U.S. tax system. Whether or not a sales tax is inherently regressive is open to debate, as you will see from this article:

    http://voices.yahoo.com/a-sales-tax-regressive-right-11101134.html?cat=17

    Also even if it were proven to be regressive that regressivity could be easily handled with a rebate to anyone with incomes that are no greater than a certain multiple of the national poverty level. Of course those people who thought that they qualified would have to submit a tax return but those who didn’t qualify would be eliminated from the tax filing lineup.

    A value added tax would also be a good way to eliminate alll payroll taxes- Unemployment, Social Security, etc. People shouldn’t be punished for working nor should employers be punished for hiring. This would put labour in a more competitive position with technology.

    Imagine what the U.S. would be like with a smaller IRS? Imagine what Washington would be like if there weren’t anymore tax favours to hand out?

  4. Corruption is the right word. I think Fareed really hit the nail on the head.

    @recalcitrantexpat:

    Instead of a national sales tax rebate for the poor, it would probably be easier to simply exempt certain basic necessities such as fruits, vegetables, rice, milk etc.

    They could also make the national sales tax in a progressive manner with higher rates for items such as alcohol and tobacco.

    The current system of punishing people for working is just plain stupid to begin with. And making it progressive was even dumber. I think it was actually Marx who first advocated such a scheme in the “Communist Manifesto.”

  5. Yes, thanks for posting that, and it is a good opportunity for comments. He is exactly right and has the Progressives ears / eyes watching his program that need to hear this…

  6. @Everyone

    One thing to remember is most Americans including pretty smart ones don’t even know how VAT/GST works. Taxing goods at everyone point of sale right from customs clearance to the store counter but rebating all business “inputs”. In NZ for example almost no tax lawyers specialize in NZ GST because the tax is so simple even large businesses don’t need tax lawyers to handle it. In Canada its a little more complex but still simpler than income tax. In NZ basic necessities ARE taxed with a big low income rebate whereas in Canada “basic” groceries aren’t taxed and there is a smaller low income rebate.

  7. I love this site. I love foreigners lecturing US Congress on how to tax and how to handle its finances. Even better when the foreigners are former Americans.

    An “I told you so” from overseas is the best kind.

    Reminds me of a Communist Romania joke. How does a smart Romanian talk to a dumb one? By phone, from Paris.

  8. Haha, this is water cooler, break room, coffee break kind of stuff because the US is never going to change. You stand a better chance of winning the lottery.

  9. @M
    So we are American citizens enough to be required to submit tax forms and possibly pay tax, but we are “foreigners” when we try to comment on the system that claims the power to tax us?

    Many of us are not “former Americans” yet. If the US wasn’t demanding “tax compliance” from me, I wouldn’t care what sort of system they had.

  10. @M, define ‘former’?

    And, sometimes the clearer view is from the outside. We also have something to compare it with – having experienced different countries and different points of view. Something sorely lacking from within….

  11. @M, define ‘foreigner’ too.

    In a democracy, decisions should be transparent and be able to withstand scrutiny – from without and within. Congress isn’t a private club. The US holds itself up as a standard for the world – and wields great power – and that comes with obligations it can’t duck. The biggest patriot is one who holds her/his country to the highest possible standard of ethics and social justice. Otherwise the US constitution is just a piece of paper. The US also has obligations to the rest of the world. It doesn’t operate in a vacuum.

  12. @tim- I think that the argument that nothing should be excluded from the sales tax is stronger than the argument for exclusion of certain items. As counter intuitive as it may seem to be I believe that the criticism against protecting certain sales transactions from the sales tax, which is that the exclusion unfairly favours those who are able to pay the tax, is actually valid.
    By relieving the wealthy of paying the sales tax on food because you want to protect the poor means that the government will have to lose billions in tax revenue and this means that the actual sales tax rate has to be set higher than it otherwise would have to be.
    Rebating based on income is the smarter way to go.

  13. @recalcitrantexpat

    I totally agree with you. I believe for example in Canada excluding basic groceries from GST costs the federal government about 8 Billion a year but 3 billion of that is to the benefit of upper income Canadians. I personally find Andrea Horwath one of the most annoying politicians Ontario constantly harping about removing home heating from the HST base. I know its popular in Northern Ontario and I would support targeted aid for those who really can’t afford home heating but I don’t support letting high income people in the GTA(Greater Toronto Area) not having to pay HST on home heating.

    The GST Credit in Canada, Australia, NZ etc is actually one the reasons why these countries would have a hard time going to a citizenship based tax system as all tax “residents” who qualify on income grounds are entitled to the credit. However, who would want to pay the money for GST Credits to Canadian citizens living abroad who don’t pay GST in return for citizenship equity (or whatever defenders of citizenship based taxation call it). While I am not a Thomas Mulcair fan I do enjoy the fact the NDP is now stuck with someone who strongly defended the GST and Quebec harmonized TVQ/QST in the past under Robert Bourassa (Mulcair was a high level Quebec provincial Liberal) as their new leader.

  14. @Everyone

    I will also comment that your typical Canadian McDonalds restaurant manager(as a GST registrant) understands the GST and the principles of value added taxation better than most US economists and tax scholars.

    I have to admit I get a tingly feeling when I go to a vending machine like I did earlier today knowing that I am paying GST even on 1 CAD bottle of Pepsi and the Canada Revenue Agency has specific audit and collection guidelines for collecting GST/HST on vending machines.

  15. @canuckdoc and @badger

    I agree with you, but your complaints are falling on deaf ears in Washington DC. The US is a very xenophobic society and government. If you don’t vote in the US or live in the US, you don’t exist politically, economically etc. (according to US Congress).

    Heck, might as well ask China what they think of various proposed laws. Congress does not care, and China knows to keep quiet.

    As far as taxes are concerned, I think you should let your conscience be your guide. Does Congress and Obama need your money? Do they deserve it?

    Most Americans living in the US cheat on their taxes. If they were to move out, with income not reported to the IRS, Halleluiah! 100% cheating.

    I don’t think you are Americans if you don’t cheat on your taxes. I think you are something else, Canadians, Europeans, Japanese, etc.

  16. @M

    My personal hunch has always been many Americans want to stick with a system based on taxation of income instead of a GST because they can’t scam the GST(People try in Canada but to the CRA its like holding up a convenience store with a toy gun). What is really ironic is American “progressives” who want the government to spend a lot of money go along with such a system instead of something like the GST because the income tax is “progressive” unlike the “regressive” GST.

  17. @canuckdoc- the American hypocrisy on its expats is so bad that an expat’s campaign donations cannot be accepted if it bears a foreign address. All political donations must have a U.S. adddress, if they are to be accepted. If they were to allow a donation with a foreign address to be accepted then the political process would see itself as being corrupted by none national interests.
    Talk about hiding the truth.

  18. @ Tim

    I am not sure how GST works, but sales tax cheating is also big here. That is why Amazon is so successful. It ships from a different state so it does not charge sales tax in the state you live in.

    You are supposed to report that tax yourself and add it to your state income tax, believe it or not (it is called a “use” tax now). But about as many people pay that as expats pay US taxes.

    I think the US needs fewer tax laws, not more. They are already beyond incomprehensible.

    I think the bureaucracy is so large and the special interests so ingrained, that change is almost impossible.

  19. The law in the US is that a state is not legally able to collect sales tax on merchandise purchased and shipped to you from a different state than your own, unless the company making the sale also as a business presence (i.e a sales, service, etc.) presence in the state to which the merchandise is shpped, in which case the seller is required by law to collect the sales tax and remit it to the destination state. Amazon has built a tremendous Internet business because its only corporate presence is in the state where it is located. Congress has on and off pressed to have this law changed not only by the governments of the states into which large quantits of merchandise are shipped, but also by the merchants in those states whose competetiveness is hampered because customers who buy from them must pay sales tax whereas those who buy from Amazon on the internet, or by mailorder from any out of state merchant are not subject to this tax. Some states have a USE tax statutue on their books, but dorn’t really try to enforce it. Most customers in those states are not only not aware of this use tax, but don’t have the slightest idea how to pay it even when they know it exists.

    The one important exception to this is in the case of motor vehicles, new and used, which are purchased out of state. When you register that vehicle to obtain a state-issued title and the license plates to operate it, you are requried to show proof that you paid the stales tax in the state where it is being registered. If you purchased it outide of the state, even though you may have paid sales tax in the state where it was purchased, you are required to pay sales tax, even if it is the second time, in order to register it and obtain a valid title in the state where it is registered. If you move to a new state and bring your automobile you have owned for a long time with you, you must pay sales tax in your new state of residence based on its assessed value, determined by the tax collector, when you make this move. If you move your residence from one state to another you are requred to register your vehicle in the new state. Usually the laws of the different states require that this be done within 30 days of making the move.

    Many years ago when my oldest daughter went to another state to attend a university, we helped her buy a used Volkswagen from a local dealer in that state. I was able to persuade that dealer show her out-of-state address on the sales document so the purchase was not subject to sales tax in the state where it was purchased, but in our home state where I immediately had it registered. She was ablte to drive it for those few interim days with the dealer plates. In order to register in in our home state I had to present a certificate signed by a law officer who had personally examined the vehicle number and certified that it was correct.

    As an out-of-state student, not a permanent resident, she was able to use this vehicle away at school and then bring it back home when she fiished her university studies.

  20. @canuckdok, with regard to political contributions, what is even more rediculous is that although you are a foreign citizen resident in the US with a Green Permanent Redident status, even though you are not permitted to vote you are permitted to make political contributions to a candidate running for election. Don’t ask me why. But its the law.

  21. @recalcitrantexpat, Are you absolutely sure that US political contributions cannot be made by a US citizen whose address is outside of the US? I have been searching the internet and have been unable to find any prohibition against US political candidates not being able to accept political contributions from US citizens abroad, even if they are dual citizens of another country. They cannot, hosever, accept contributions from non-resident foreign citizens.

    I am told by one of my US friends who is a director of ACA resident in Geneva, Sitzerland that US citizens there do make US political contributions and that both Republicans Abroad and Democrates abroad solicit contributions from their consititutents living abroad.

    If you or another US citizen you know of has had a political contribution rejected becase of a non-US address, or if you are are aware of a statute prohibiting such contributions, please post what you know in this regard. Many thanks!

  22. @M

    This is why the U.S. needs a federal sales tax in the form of a VAT. You ought to research this a bit. Canada did not have a VAT until 1991. The Canadian VAT or GST was a new tax – it was in addition to provincial sales taxes (that are analagous) to U.S. state sales taxes. Now, a couple of Canadian provinces have rolled their provincial sales taxes into the Federal VAT (now called HST). It is a much more efficient and fair system of taxation.

    The problem with U.S. taxation is that it is overwhelmingly based on income tax and too few people pay income tax. How can a tax system be fair if it means that large numbers of people simply don’t contribute?

    I have always felt that the best argument for sales taxes is that they ensure that everybody pays tax (or that tax is paid on behalf of them).

    Research how a VAT works. Basically, a business collects the full taxes and remits what is left after deducting the amount of the VAT that it had to pay to produce the product that was sold.

  23. @Roger Conklin, I could be wrong, but I believe Americans with foreign addresses can contribute to PACs, which usually seem to be the fundraising vehicles for foreign fund-raising events.

    In order to contribute directly to a candidate’s election campaign in the 2008 elections, I had to use my parents home address (which is where I am registered to vote) and could not use my UK address. ISTR that the candidates’ web sites were adamant about US addresses.

  24. @rogerconklin- In my statement I was relying on the story that I believe was told by Victoria. She stated that she had sent in a contribution to but that it was rejected due to the foreign address. In the end her contribution only got accepted once she supplied a U.S. address.
    It could be that maybe it was that candidate’s policy, in which case i would be wrong.
    As for non-U.S. citizens who are resident in the U.S. and not able to vote, being able to make political contributions I think that their are two simple explanations:

    1. Money is all that politicians need so they aren’t going to turn it down, unless they have too.

    2. It would be hard to prohibit such a contribution unless you made all contributors show proof of citizenship but that is a lot of paperwork for a campaign to go through.

  25. @recalcitrantexpat, I have been able to confirm that contributions from US citizens with foreign addresses that are accompanyed by proof of US citizenship such as a copy of their passport data page, are accepted with gratitude. The concern in receiving a contribution from a foreign address is that it might be from a non-citizen unless there is also confirmation of citizenship. Also, it was the Supreme Court that ruled that non-citizen residents of the US are permitted to make such contributions.

  26. @renounce

    It is not just a matter of how to tax, it is also whether to tax (who needs the money and why), and who is going to collect it (the IRS, the States, etc.)

    The theory of taxation is just a theory. When you realize the money is wasted or is going to a politician’s wallet, the economic theory no longer matters.

    Second, would you trust Congress to remove one of the taxes? No, they’ll have two taxes, because that means more money for them.

    Third, would you trust the IRS or any US or State govt agency to administer it? Keep in mind govt employees are the most incompetent of all, and govt regulations the most ridiculous of all.

    Something funny: the new health insurance/health care law. Who has Congress chosen to administer it? The IRS. Why? Because the IRS has the best records on US citizens and believe it or not, is considered the most competent amongst the incompetent.

    Who handles health care in Canada? Canada Revenue?

  27. @M

    In Canada, although we have a ‘national’ medicare program, the Federal Government remits ‘health care’ dollars to each Province and Territory and the provinces/territories administer those dollars. As an example, some provinces charge the individual a ‘health care premium’ other provinces the residents do not pay a ‘health care premium. Some provinces provide ‘free drugs’ to seniors, other provinces the amount someone pays is based on their income.

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