Restoring economic balance will require greater experimentation, as reported in the previous entry for this series, and better information. Most people equate misinformation as being distortions of information. Others maintain that as long as the information is out there somewhere in some format then “Buyer Beware.” Yet hidden or obscured information is essentially misinformation, afflicting in particular the fiscal policy of government.
Simplifying fiscal policy amounts to both an economic and political issue. A wise democracy requires the ingredients to collect wisdom, such as an informed, decentralized citizenry not being herded like sheep by “the best and the brightest,” interest groups or party loyalty. The way we are misinformed by tax codes and earmarks makes the pursuit of wisdom unachievable for fiscal policy.
Diversity warrants some complexity with taxes. We should not have just one type of tax, say local property tax on real estate, that covers all of society’s expenses. There are good reasons to collect some tax at a local level; there are good reasons to collect some tax at a federal level. Yet our tax code makes informed decisions on how money is being collected and spent available only to a paternal few, who we are then to trust will make wise decisions rather than self-interested decisions.
The tax code should be simplified by omitting deductions. I maximize my own tax deductions, since that is the game we are forced to play, but it’s a game set up for the wealthy to win. I understand the argument for deductions from the sector I used to work for, nonprofits. All I will counter for now is that following this argument to its logical conclusion, besides being self-serving, implies that paternal solutions to problems are best. Meanwhile, deductions open the door for tax avoidance that works better with the more wealth one has, thus shifting the overall burden to the less wealthy. “Fine tuning” the tax code to avoid such a problem is like dousing a fire with kerosene.
Tax brackets should be few, in accordance with two principles. A tax on investment returns should be uniformly applied to all businesses, none of this government suckling of the oil industry through targeted reductions in the capital gains tax. If government has to provide special favors to enable an industry sector to compete that suggests that we would be better off with either: 1) proprietors or 2) government dominating that sector. Also, the lowest tax on investment returns needs to be higher than the highest tax on wage income. To the extent that tax policy provides disincentives, something that laissez faire economists are quick to point out, we do not want to provide a disincentive for actually earning income through labor.
Fiscal policy also needs to be simplified as embedded in our legislation. The spending of money should not be embedded within one thousand pages of a bill intended mainly for other purposes. All spending should be in self-contained legislation, with one bill corresponding to one spending target. One could counter that this would lead to a massive expansion in the number of bills, presenting its own complexity. However, when faced with such expansion in such a transparent manner there will be one of two reactions. The informed public and their representatives will support the government infrastructure necessary to legislate such spending when warranted, or look for more grassroots solutions to some aspects of our fiscal policy.
Not everyone would agree with the solutions I offer so far for economic balance. There is one more suggestion I have that no one would disagree with in principle, yet is even less likely to be implemented than any other I have suggested. More on that next.
