Tags: denis | kleinfeld | US | Consumption | Tax | System

US Could Switch to Consumption Tax System

By    |   Tuesday, 18 January 2011 08:04 AM

The Treasury Department announced on Jan. 13 that it will start a new system to allow low- and moderate-income taxpayers to get tax refunds via direct deposits on pre-paid debit cards. Called the "MyAccountCard" program, the Treasury says it would slash costs for consumers burdened with fee-laden loans for refund anticipation or checks.

Remarkably, this may be just the step that can be expanded to get the United States off the income-tax system and onto a consumption-tax system. With all the discussion as to the disaster that the current tax system has become, and the need to change to a consumption-tax system, the question that remained unanswered was, how could it be done?

Does anyone doubt that the income-tax system is one of the main factors that is undermining the United States? Just ask Congressman Charles Rangel. Or any one of the other members of Congress, the Judiciary, or anybody in the administration, including the Secretary of the Treasury.

Not too long ago, the Treasury Assistant Secretary for Tax Policy made public her report to then Treasury Secretary Paul O'Neil as to why the current system must be changed. In the view of the Treasury, the Report found the following:

• The system is needlessly complex, making it susceptible to abusive tax-avoidance schemes;

• It penalizes hard work, discourages savings and investment, and hinders the international competitiveness of U.S. firms;

• Instead of being fair, it is out of line with our basic values and undermines our sense of fairness;

• It is highly unpredictable and uncertain.

So how does Congress go about meeting the realities of tax politics and other political considerations and yet change the income-tax system from what we have today to something that is simple, efficient, fair and predictable? Well, the answer appears at hand.

The government only likes to get paid in cash and, when it does pay its bill then it does so in cash. Realizing that, it would be logical that the system be based on cash and not on trying to figure out "income" or "profits" and then have all the complex provisions that go along with a non-cash income-tax system rather than a consumption- or cash based system.

But it has to be fair and meet current political realities. And right now, to be fair and political, then some 50 percent of the low- or moderate-income potential taxpayers will have to be kept out of the tax system so only the "rich" actually pay tax.

And, since there are some 110,000 or more tax employees at the IRS who are all members of their union, any system will need to keep all of them employed.

It seems that the United States Treasury has come up with the solution. By having the government issue debit cards to cover the sales tax for the 50 percent of the taxpayers who are actually not paying income tax and are off the tax rolls essentially, only the rich will be left paying tax just as they are now.

As for government employees, it would seem logical to have probably three-quarters of them employed in issuing the debit cards to the various people who qualify to not pay tax. The remaining one-quarter would then be employed in dealing with all the fraud and machinations that will unquestionably occur in the issuance of the debit cards.

Every tax system has problems. But the current income-tax system is unlivable. Going to a consumption-tax system, one that is based on cash, will give the United States a 21st century tax system and, without question, investment money will flow into the Unites States from every place in the world. All now made possible by the simple adoption of the Treasury to use debit cards to cut its costs.

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The Treasury Department announced on Jan. 13 that it will start a new system to allow low- and moderate-income taxpayers to get tax refunds via direct deposits on pre-paid debit cards.Called the MyAccountCard program, the Treasury says it would slash costs for consumers...
Tuesday, 18 January 2011 08:04 AM
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