Saturday, December 15, 2007

Pizza Logic Won't Solve Our Federal Tax Code Issues

"You better cut the pizza in four pieces because I'm not hungry enough to eat six." - Yogi Berra

Based on what I've heard from Presidential candidates , I don't have much hope for Federal Income Tax and Federal Spending solutions. Every proposal seems to be variation of cutting the pizza into different slices. The slices may be different sizes but the total pizza available and the number eating are still the same.

For example, the Democratic party proposals seem to be about increasing taxes for the "wealthy" and corporations. I didn't see any discussion about reducing spending. To me, the Democratic party plans are the same as deciding between six or four pieces for a pizza.

On the other hand, the Republican Presidential candidates recommend tax cuts and reductions in spending . Again, the proposals are partly about resizing pieces of pizza. The Republicans at least realize that reducing the number eating the pizza may help. However, I have yet to see the Federal government effectively reduce overall spending. From 2000 to 2006, Federal spending rose every year except for 2004, which was down 0.3% from 2003.

Here's an out of the box idea that I haven't yet heard from any candidate. Instead of continually redistributing of tax liability among the 60% that already pay federal income tax, perhaps we could continually increase the number who qualify to pay federal income tax. For example, we could increase the number of highly paid technical and engineering workers in the U.S. Here are a couple of approaches that could help:
  1. Increase immigration quotas for higher paid professions. Currently, the immigration number is limited to 65,000 per year and is causing some companies, such as Microsoft, to open offices in Canada where immigration restrictions are not as limiting. Every incremental immigrant admitted would be a new person pay federal income taxes. For example if 100,000 additional immigrants paid $10,000 federal tax each, that would be $1 billion additional tax revenues.

  2. Incent students to choose majors that lead to higher paying jobs. I have seen municipalities give homeowners temporary property tax abatements to encourage luxury home building within the city limits. Perhaps, something similar (e.g. federal income tax credits for five years) could be done to encourage people to major in and working for technical and engineering fields.

    While these people would pay lower federal taxes for a short time, eventually they would be paying more in the long run, due to a higher paying career.

While these are not fully workable solutions, I think they may be possibilities if people would consider ways to increase the number of people paying taxes. Also, I think using tax breaks to generate more tax revenue in the future would be an "elegant solution." In any case, I'd sure like to hear more ideas than "Tax the wealthy," "Redistribute taxes" and "Reduce spending" from the Presidential hopefuls. I'd like to see some new ideas that would address the problem instead of just getting votes.

For more on Reflections and Musings , check back every Saturday for a new segment.

Photo Credit:, Joe

This is not financial or tax advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC

No comments: