SOME BACKGROUND ON A COMMENT

I just published a comment to today’s post on “Mitt’s Tax Plan” from tax professional Tom Kaminski (aka “Knobby”).  Here is what Tom said –

“All this talk about taxes makes my gut tell me that one, we probably will end up with having a VAT in America before 2017. And two, the tax code is going to end up being a complete mess, only because I don't see the mentality in Con-gress at the moment to fix it properly.

If they all really want a simple tax system they can go back some 25+ yrs. to when Hall-Rabushka first proposed their 19% flat tax system. They laid everything out including forms.”

Here is the word on the “Hall-Rabuska” flat tax proposal that Tom references (which was new to me) from the Tax Policy Center’s library, preceded by a description of “consumption tax”.

“Background

Consumption is income less savings. Thus, the only difference in principle between a consumption tax and an income tax is the treatment of the savings. An income tax taxes savings both when the money is earned and again when the savings earn interest. A consumption tax taxes saving only once: either when the funds are withdrawn and used for consumption or when the funds are first earned. Although this difference appears simple, consumption taxes come in many forms.

The Hall-Rabushka flat tax

In the early 1980s, Robert Hall and Alvin Rabushka of the Hoover Institution developed a consumption tax system that achieves some of the administrative advantages of a value-added tax (VAT) relative to a sales tax, while also partially addressing concerns that consumption taxes impose a relatively heavier tax burden on lower-income taxpayers.

The Hall-Rabushka system is often called the "flat tax": It assesses a 19 percent tax on all businesses (corporate or otherwise)—identical to the VAT, except that wages, pension contributions, materials costs, and capital investments are deducted from the tax base. Individuals (or households) are assessed a 19 percent flat-rate tax on wages and pension benefits above an exemption of $25,500 for a family of four. No other income is taxable, and no other deductions are allowed.”

Sounds like a plan worth investigating further.

BTW – I certainly agree with Tom when he says - “I don't see the mentality in Con-gress at the moment to fix it properly “.  As I continue to say - the current members of Congress are idiots.