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Tackling the tax code

As I See It

The tax code has risen to a prominent position for political bashing. This dubious honor has been held in past years by utility companies, railroads and banks. I am for ditching the entire tax code and starting over from scratch with a graduated flat tax that allows no deductions whatsoever.

How could anyone oppose the flat tax once they understood the helpless state of our tax system?

Let’s try to discover who these “defenders of the status quo” might be and why they might favor keeping what we have now:

1. Churches, charities and other non-profits of every description will oppose the flat tax. They will argue that the tax deductibility of contributions to their organizations is their life-blood and anyone who would do away with it is the Antichrist. Catholics, Muslims, Baptists, Methodists and Buddhists will unite to fight this common enemy.

Is their position supportable as being for the greater good of society or just feathering their own nest? I think we would be better off to let everyone vote their charitable checkbook without consideration of tax consequences. People will always give both time and money to the charitable organizations of their choice because they have a deep-seated identity with the organization’s mission regardless of income tax implications. Providing tax deductions for those contributions is neither necessary nor advisable and may, in fact, be unconstitutional.

Theoretically, every time a tax deduction is allowed for a charitable contribution, every other taxpayers’ tax burden is increased to make up for the loss of revenue resulting therefrom. So theoretically, mine and your taxes are increased to support organizations that we may strongly oppose. Yes, you Baptists and Methodists out there are indirectly supporting the work of the Buddhists, Muslims and various other non-Christian religions that I can’t even spell.

Here’s the constitutional issue. Doesn’t the governments forcing one group of taxpayers to involuntarily support religious groups to which they are philosophically opposed cross the line of separation of church and state?

2. The banking and real estate industries will strongly oppose elimination of the tax deduction for mortgage interest and real estate taxes. These deductions were put in place to encourage home ownership with the goal being a stable, relatively settled populace.

During my career, I have seen the average life of home mortgages drop from about twelve years to something more akin to six years now. People move, die or refinance long before the original mortgage term is completed. The goal of a stable, settled populace is not being realized in spite of the tax discrimination in favor of home ownership.

Since apartment dwellers and house renters are about as stable as homeowners, the tax bias for deductibility of mortgage interest is unjustified. Why should a citizen who chooses to live in rented quarters rather than buy a home be penalized? I suggest we neutralize the tax implications of home ownership by converting to a flat tax and let everybody live where they want to.

Flat or lumpy?

I want to address this flat tax issue more in the future. This bite is probably enough to digest at one time. Other issues for consideration include whether extra deductions for children should be allowed, whether the flat tax should be applied to corporate gross income or net income after business expenses are deducted.

Regardless of whether our current tax system is fair or not, it is doomed because the majority of Americans think it is unfair. In a free society we depend upon the willingness of the populace to submit themselves voluntarily to taxation. When a sense of unfairness pervades, the system breaks down.

I would like to know your views on the entire subject of flat tax versus the lumpy tax system we now have.

Thought for the Moment

Each man must look to himself to teach him the meaning of life. It is not something discovered; it is something molded.

— Antoine De Saint-Exupery

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail address is cpajones@msbusiness.com.

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