Tax Fraud

I have discussed before how Donald Trump and his allies use marketing techniques to sell us programs we would be better off without. I have also discussed how we should be marketing our own agenda. Up to now, I have confined these discussions mainly to the subject of healthcare. But now it is time to look at “tax reform”. When you say those words, it sounds like you want a new system of assigning taxes that is fairer for everyone. You want to ease the burden on regular people, and get the rich and corporations to pay their fair share. You want a system that collects enough overall to fund a robust set of government programs that benefit everyone, but you want to do it without squeezing the poor or the middle class. The current “tax reform” proposal that Trump has put forth and the Republicans are trying to enact fails every one of these tests, miserably. They sell it with a lie they may even believe: that giving as much money as possible to the rich and corporations will put that money into the economy and thereby create jobs. In fact, the experience of the Bush tax cuts, as well as the results of similar programs in other countries, shows us that this money would instead bolster the stock market and also free up funds for more speculative investments. There is a word for a time when the performance of the financial markets becomes divorced from the economic realities of the poor and the middle class: a bubble. It ends in a collapse, with the financial crisis of 2008 being a recent, dramatic example.

So what would real tax reform look like? I have a proposal for corporate taxes that illustrates this, and also how we could sell it. At the moment, it is generally agreed that our corporate tax system is unduly complex. It puts a burden on our corporations in terms of record keeping and preparation. The system is riddled with loopholes that allow highly profitable companies to dodge their responsibilities, and pay little or no taxes. I have a solution that simplifies corporate accounting, reduces fraud, discourages the use of tax shelters and foreign tax dodges, and increases the overall revenue in corporate taxes paid to the government. It involves eliminating the requirement for corporations to file tax returns at all.

Wait, what? Hear me out. Our system now requires corporations to file a tax return with the IRS, and it is considered in a vacuum. No other evidence of the financial condition is considered, which allows for all manner of schemes to dodge paying taxes. But the government already collects other information on the financial condition of our corporations. Players in the stock market eagerly await quarterly earnings reports from companies, and those are followed a few weeks later by the filing with the SEC of the form 10Q. So let’s simply use the 10Q as the basis for corporate income tax. Do you want to use a foreign country to shelter your income from taxation? Fine, but you don’t get to report that money as earnings. Do want to follow in the footsteps of Enron, and artificially inflate your earnings with “creative accounting”? Fine, but you have to pay more taxes as a result. So using the 10Q for taxes should provide powerful incentives to discourage tax sheltering on one side of the ledger, and accounting fraud on the other. It reduces the burden on corporations by simplifying reporting. And, since no company wants to report zero or negative earnings to their shareholders, this proposal would encourage companies to pay their fair share of taxes.

As with healthcare, the best way to expose the Republican tax plan for the cynical fraud that it is is to put forward a true tax reform proposal for comparison. This can be the start of that plan. Let the experts score this plan, and provide an estimate of how much additional tax corporations will pay. Then propose using that money to relieve the tax burden on the middle class and provide additional relief for the working poor. Unlike the current proposal, this one is revenue neutral, meaning no budget cuts to popular programs are needed to pay for it. There also does not have to be an explosion of the deficit, such as the one the Bush tax cuts produced. By actually putting a meaningful amount of money in the hands of people who will spend it, this plan stimulates the economy where the Republican plan does not. So let’s put this out there, and watch the Republicans squirm as they try to explain why their plan would be better.

This week’s song is not one of Robert Cray’s best lyrics, but it does express the frustration ordinary people feel with our tax system. It also has some very tasty playing by the whole band: