Reform the tax code instead of looking for new taxes

Reform the tax code instead of looking for new taxes
by James Simpson

Potomac News
Friday, August 29, 2003

Governor Warner is going to propose his tax reform plan … after the November election. It is widely believed that he is waiting to release his plan after the election because doing so before the election would significantly cripple the campaigns of Democratic candidates.

It is ludicrous for him to consider that such a significant change in the tax code could be evaluated by citizens in time for passage by the General Assembly in 2004. There is bound to be extensive debate, even among legislators in the Republican controlled house and senate. After all, many of those Republicans are moderates (read: big government) and don't have any problem with tax increases.

There are calls for the plan to be "revenue neutral" by those who are truly more fiscally conservative, but this is fraught with danger. On the surface the budget can be crafted in such a way that for the first year or two it appears to be revenue neutral, but in reality Governor Warner's plan will certainly include a tax increase.

There will undoubtedly be calls by Democrats and moderate Republicans to continue transferring the burden of taxes from low and middle wage earners to the higher income bracket. Of course, they are clueless as to the negative consequences that this has on the economy. It seems more politicians favor economic advice from Karl Marx, who proposed "a heavy progressive or graduated income tax" than the common sense offered by Henry Hazlitt in his book "Economics In One Lesson."

When a majority of citizens have no vested interest in making sure that tax money is not wasted (because they pay no income tax) you can be sure that the government will be rife with over spending.

One source of revenue that Governor Warner is drooling to get his hands on are taxes from Internet sales transactions. Besides the fact that we already pay extensive telecommunications taxes, the hearts of many money-hungry politicians palpitate at the possibility of forcing commerce sites to calculate and transfer taxes back to the state from which an order was placed.

It is my opinion that the development and efficiency of the Internet is singly responsible for staving off inflation by counterbalancing the billions in fiat money the Federal Reserves has printed over the past decade.

Politicians overlook the benefits derived from Internet sales, such as the fact that they occur without the normal impact on infrastructure that accompany brick and mortar businesses. For instance, instead of 40 additional cars on the road, traveling to the local mall for shoes, tennis racquets, computers, and the like … one UPS truck travels to 40 homes in a community and drops off purchases. Calculate the number of deliveries attributable to Internet sales that are made in a single day and common sense will tell you that we really don't want that additional traffic on our Northern Virginia roads.

Additionally, folks who are home bound for one reason or another have been able to contribute to the economy like never before. Many have created thriving businesses that would be significantly impacted by the introduction of a burdensome sales tax requirement.

In addition to abandoning the idea of an Internet tax, the following items should be considered when the General Assembly addresses tax code updates:

- Kill the Death Tax. It is a tax on property and/or earnings that were previously taxed and as the Citizens for a Sound Economy website states: "it penalizes individuals for saving, investing, and building successful farms and businesses."

- Eliminate the capital gains tax. By removing the tax on profits derived from capital invested in potentially risky ventures, investors are encouraged to finance new industries and businesses. Additionally, corporations are more likely to fully and clearly disclose their accounting records. If they don't, investors would be able to transfer their money to companies that do, without fear of significant capital loss.

- Place a cap on real estate assessment tax increases. Limiting real property tax increases to a level which allows for growth at the rate of population plus inflation (or 5%, whichever is higher) would protect citizens who are on a fixed income. After all, increased property assessments aren't REALIZED unless you sell your home.

- Allocation of more tax money directly to local jurisdictions. By providing finances directly to the local government, many states have realized increases in the effectiveness of services provided to citizens. Money that goes through a higher level of bureaucracy for problems that ultimately must be addressed locally is wasted through the administration costs of unnecessary layers of government.

- Establish "zero-based" budgeting. This form of budgeting requires each government department to justify its budget for the following year, reducing the typical growth in government budgets incurred by default incremental increases every year.

- Establish performance budgeting. This form of budgeting, also known as "outcome-based" or "budgeting for results," every government program is measured against a pre-determined set of benchmarks to measure progress towards goals.

By combining these two forms of budgeting together, taxpayers can be provided the information necessary to determine whether their tax dollars are being effectively spent and also rest assured that money requested by different government agencies is actually needed and not just automated growth.

- And finally, leave more money in the paychecks of citizens. Individual choice in a free market economy is the single best way to ensure economic growth and individual prosperity.
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James Simpson lives in Lake Ridge. His lives in cyberspace at http://www.jamessimpson.org/