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100 Million Unnecessary Returns

100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States

With a New Introduction MICHAEL J. GRAETZ
Copyright Date: 2008
Published by: Yale University Press
Pages: 280
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  • Book Info
    100 Million Unnecessary Returns
    Book Description:

    To most Americans, the United States tax code has become a vast and confounding puzzle. In 1940, the instructions to the form 1040 were about four pages long. Today they have ballooned to more than a hundred pages, and the form itself contains more than ten schedules and twenty worksheets. The complete tax code totals about 2.8 million words-about four times the length ofWar and Peace. In this intriguing book, Michael Graetz maintains that our tax code has become a tangle of loopholes, paperwork, and inconsistencies-a massive social program that fails tests of simplicity and fairness. More important, our tax system has failed to keep pace with the changing economy, creating burdens and wastes of resources that weigh our nation down.

    Graetz offers a solution. Imagine a world in which most Americans pay no income tax at all, and those who do enjoy a far simpler tax process-all this without decreasing government revenues or removing key incentives for employer-sponsored health care plans and pensions. As Graetz adeptly and clearly describes, this world is within our grasp.

    eISBN: 978-0-300-15019-3
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Introduction to the Paperback Edition
    (pp. ix-xviii)

    This book is not a mystery novel. In it I review our nation’s tax system and its politics, discuss a variety of tax reform proposals, and detail a new Competitive Tax Plan for the United States. This plan has four key pieces:

    First, enact a value-added tax (VAT)—a broadbased tax on sales of goods and services that is now used by nearly 150 countries worldwide (Chapter 5). The United States is the only country in the Organisation for Economic Co-Operation and Development (OECD) that does not have a VAT or, as it is sometimes called, a goods and services...

  4. Prologue
    (pp. xix-xxiv)

    Inside the Washington beltway, politicians, pundits, and lobbyists all agree that sweeping tax reform is a long shot. Why, then, do I believe it to be inevitable? Because we have no alternative. Consider these facts.

    First, our nation’s basic tax structure came into place in the World War II era, when the United States essentially had all the money there was. Even a horrid tax system—with income tax rates up to 91 percent—could not then stall our economic progress. From 1946 through 1973, when OPEC quadrupled the price of oil, the economy grew by an average of 3.8...

  5. PART I Why We Need Tax Reform

    • (pp. 3-16)

      Except in extraordinary circumstances, the minimal requirement for a tax system should be that it raises sufficient revenue to pay for government expenditures. A good tax system ought to do so fairly, keeping its costs of compliance and administration as low as feasible. It ought to be conducive to economic growth. Finally, it ought to promote freedom by interfering minimally with private decision making. Our nation’s tax system fails on every count.

      It is time we do something about it. At present, our country faces enormous challenges at home and abroad: military conflict in the Middle East, health...

    • II The Broken Politics of Taxation
      (pp. 17-33)

      Despite powerful economic and structural forces pushing us toward tax reform, any responsible attempt to reform our tax system and create one more suitable to the global economy of the twenty-first century will face strong political headwinds. The public prefers tax reductions to tax reform, and politicians often pander to this preference. In addition, lobbyists and their clients will fight hard to retain the tax breaks that tax reformers seek to eliminate. To have any hope of actually implementing the proposal this book lays out, and to grasp why replacing most of the income tax with a tax on goods...

    • III Of Pleaders, Zealots, and the Rest of Us
      (pp. 34-51)

      One of the most important underlying dynamics of tax politics, and a key to understanding the obstacles to fundamental reform, is the variety in levels of intensity that different groups bring to the issue. When the topic is taxes, it is fair to say there are two kinds of people: the high-intensity folks and the rest of us. Of course, this could be said of many political issues, from abortion to immigration to the environment. The difference is that the tax code directly—and as we all know, annually—regulates the financial life of every American individual and corporation, and...

    • IV Until the Second Child Speaks: First Principles of Responsible Reform
      (pp. 52-58)

      The Competitive Tax proposal I put forward here takes as its first principles the traditional goals of tax reform: produce adequate revenue; promote economic growth; increase international competitiveness of U.S. products, workers, and businesses; minimize interference with private decision making; streamline compliance and administration; and, finally, distribute the burden of taxation fairly in accordance with people’s ability to pay.

      Before turning to the details of the proposal itself and demonstrating how it fulfills these principles, I want to take a moment to underline that final principle: the fair distribution of taxation’s burdens.

      In our country today, the gap between the...

  6. PART II Funding a Competitive America

    • V Tax Spending
      (pp. 61-83)

      When it comes to meeting its funding requirements, a government has four basic choices as to what it can tax: income, wages, consumption, or wealth. These are the four tax bases robust enough to produce the revenues a modern government requires that are also connected in some way to people’s ability to pay. Most governments around the world use all four rather than picking among them. But from these four basic categories of revenue, we in the United States have, since World War II, chosen two—income and wages—as our primary forms of funding our federal government. Together, our...

    • VI Shrink the Income Tax
      (pp. 84-107)

      In the modernized tax system that would be ushered in under the Competitive Tax Plan, no family earning less than $100,000 would pay any tax on its income. In one fell swoop we would eliminate more than 100 million tax returns, freeing more than 150 million Americans from the income tax. This would allow the Internal Revenue Service to focus on enforcement where it really makes a difference and remove its much-maligned presence from the life of most Americans. Overall, we would save billions of dollars in compliance costs; reduce the possibility of cheating, thereby making the entire system fairer...

    • VII Reduce the Corporate Income Tax Rate
      (pp. 108-125)

      If the Competitive Tax Plan is going to live up to its name, it has to make good on the promise of creating better conditions for American workers and businesses, domestically and internationally. The United States needs to be an attractive place for both domestic and foreign investments, and U.S. companies need to be positioned to take full advantage of the new global marketplace.

      In order for this to happen, as part of the overall reform of our tax system, we need to lower corporate tax rates considerably. My plan calls for reducing the corporate income tax rate to at...

    • VIII Keep the Wage Tax to Help Fund Social Insurance
      (pp. 126-148)

      Anyone who is serious about coming up with a responsible and realistic way to fund our government must take into account the growing portion of our federal budget taken up by the three core social-insurance programs in this country: Social Security, Medicare, and Medicaid. Though the severity of the crisis facing each of these programs is a matter of debate, as is the time when addressing it will become necessary, no one denies that each faces an eventual funding crunch given the imminent retirement of the baby boom generation, the aging of our population, and the rise in health care...

    • IX Tax Great Wealth but Protect Farmers and Small Businesses
      (pp. 149-160)

      Eliminating the income tax for most Americans and introducing a consumption tax in its place will, as I’ve outlined in previous chapters, have tremendous benefits for businesses large and small and for millions of citizens who will no longer have to file annual returns with the IRS. And my Competitive Tax Plan helps to address our nation’s serious fiscal problems. Unfortunately, some of the other fundamental tax reform proposals being discussed in our nation’s capital today are tax cuts—especially for the rich—in disguise. As we saw in Chapter 2, with the use of Rosie Scenarios, many current...

    • X Protect American Workers from a Tax Increase
      (pp. 161-181)

      Generally speaking, people save more as their income rises. Conversely, low-and moderate-income people consume a greater proportion of their income than high earners do. This means that changing from an income tax to a consumption tax tends to shift taxes down the income scale.¹ Thus any move toward consumption taxation requires attention to how the tax burden will be distributed. Without careful design, a shift to a consumption tax may entail tax cuts for the wealthy and tax increases for low-and moderate-income people.

      To avoid a significant shift in the tax burden away from those at the top down the...

    • XI Bring the States Along
      (pp. 182-196)

      It is all well and fine to set forth master plans for the reform of our federal tax system in the hopes that a future Congress and president will treat the issue in a serious and responsible fashion and give us a system of revenue collection that addresses today’s and tomorrow’s problems rather than yesterday’s. But in our federalist system, in which many traditional government functions are carried out not by the government in Washington but by states and localities, any durable reform of the federal system should take into account its effects on the tax collections and budgets of...

    • XII The Plan in Brief
      (pp. 197-214)

      In the preceding chapters I have described the situation in which we find ourselves when we take a close look at how our government funds itself. We have seen the failings of the current system and the broken politics that have led to them. And I have offered a reasonable, fiscally responsible, equitable, and internationally competitive plan for fundamentally reforming the tax code. Unlike some other ideas that have become prominent in our political debate, the Competitive Tax Plan does not undermine our nation’s longstanding and fundamental commitment to justice—to using progressive taxes as a fair...

  7. Appendix 1: Revenues
    (pp. 215-218)
  8. Appendix 2: Earned-Income Credit Forms and Worksheet
    (pp. 219-224)
  9. Notes
    (pp. 225-248)
  10. Glossary
    (pp. 249-252)
  11. Acknowledgments
    (pp. 253-254)
  12. Index
    (pp. 255-261)