My Proposed KISS Tax Policy ... Eliminate All Tax Deductions, Including Charitable Deductions, to Raise the Necessary Government Revenues ... Why Not Just Take This Simple, Sensible Route?

OVERVIEW

Let's get rid of the smoke and mirrors federal tax system we have. Let's just decide how much to pay in taxes, eliminate deductions, treat all income the same and be done with it. No more special tax treatment for housing debt, religious contributions, capital gains or dividends, property or estate taxes, Social Security, Medicare, ObamaCare and Medicaid taxes, or anything else.

Setting aside the issue of a flat versus progressive tax system for now, I propose that we adopt the KISS system for raising the necessary government revenues.

If as a country we earn $2X and government is planning to spend $X, the overall tax rate would be 50%, pure and simple. We should implement this at the state and local level, too. And the income tax on corporations should be eliminated. Just include that portion of the income in the taxes to be paid by the individual shareholders instead.

Then we'd know what the deal is on taxation, including exactly how much we each have to pay in total. No favorites either. And for the sake of transparency, stop withholding taxes from individual paychecks. Have us write personal checks to the government each week, month, quarter or year instead. That would the cost of government really clear.

Taxation should be all about raising enough money to operate the government, pure and simple, and not about incentivizing or disincentivizing individuals concerning what they do with MOM.

DISCUSSION

When asked why he robbed banks, famous bank robber Willie Sutton purportedly said, "Because that's where the money is."

And thus it is with revenue that the government wants to raise to fund its operations --- the money can be found with the people who earned it. So if government requires $X to fund its operations, just divide that number into income and that's the percentage of income to be taxed.

This KISS method recommends that we eliminate deductions for contributions to charity, religious organizations, mortgage interest, property taxes, donations to the YMCA and the like. And that we treat all income the same.

In other words, if our income is $100 and government needs $50 from We the People to operate within budget, just set the overall tax rate at 50% and be done with it.

{NOTE: Of course, the progressivity of the tax code is another thing entirely, but we'll focus on the deductions from income for now. But for progressive simplicity, maybe the government gurus could just tax the top 25% of earners to get 75% of what government will spend, and then the other 25% of the taxes could come from the remaining 75% of the earners. 3 for 1 and 1 for 3, or something like that. The foregoing is not in any way represented as accurate but is merely an indication of how simple such a no deductions, progressive tax policy could be.}

Why should government incentivize people to borrow excessively to buy homes to get an interest deduction on the loan and thereby owe less in taxes than someone who doesn't borrow to buy a house and rents instead? And why should government allow a person who donates to the YMCA or his church to pay less in taxes tham someone who chooses not to make similar donations?

Here's the point: Why shouldn't government just stick with raising money and skip the 'big brother' routine of encouraging or discouraging specifically how we spend the part of the earnings the government doesn't take in taxes?

THE WAY OF GOVERNMENT

But of course, that's not the way government does things. If government wants additional revenues (and doesn't intend to rely solely on economic growth to realize those revenues) it will follow Willie Sutton's advice and focus on getting the money from the "rich" because "that's where the money is."

That's also where there are only a few votes. So government imposes the additional taxes on as few people as possible. But at the same time, it then allows those same few people who perform what government deems to be acts of charity to pay less in taxes than others who don't contribute to those government encouraged programs.

But now there's talk in Washington that perhaps some current deductions from income will be eliminated or at least curtailed. My bet is that the deductions will be curtailed on the "few" and retained exactly as is on the "many." Again, government pays careful attention to not upsetting most voters-er-taxpayers. As for the filthy few rich guys, well, the money has to come from somewhere, so government will just get what it needs from them.

In other words, the politicians do what politicians do. They strive not to offend the many "middle class" voters who need saving and whose votes the politicians desperately want.

And that's how the concept of "means testing" enters the picture. In other words, the vast majority of voters-er-taxpayers will still be allowed to deduct all charitable contributions from their taxable income. The only people to get hit with the means testing will be the relatively few voters-er-taxpayers who represent the high earners.

So why not just skip the silly games and raise the rates on the high earners as much as the government knows best guys decide they need to operate the government? Because government doesn't want to offend the religious organizations, public charities and most individuals while raising revenues. That's why their tax breaks won't be affected in the end. And why the KISS methdology won't be adopted. It's all about special interests, campaign funds and elections.

Truth telling is not a part of the U.S. political scene. That's why we're in the mess we're in today.

Accordingly, retaining the deductions for the nonprofits and rate raising on the "rich" will be front and center on the political agenda. Unfortunately, the money they raise, however much it is, won't be enough. It never is. The politicians will spend what they get from the taxpayers and then proceed to spend some more. There's never enough OPM for the government knows best gang.

So although mortgage interest deductions, limiting the maximum amount that can be contributed to a 401(k), religious contributions, and donations to the YMCA and like organizations are on the so-called potential hit list, guess what? Ain't gonna happen. Unless you're among the "rich," that is.

Still all this talk has the nonprofit organizations worried. They're concerned that their donations will be less if the deductions are restricted or even eliminated. In other words, if the government doesn't subsidize these charities through the tax code, people may not contribute as much. And they may be right about that.

So the nonprofits have a simple solution. Keep the deductions as is, but just raise the income tax rates on the rich higher. The government gets the same money, the charities get the same or even greater donations, and the "rich" pay for it. Willie Sutton should have been a politician. When they steal from the "right" people, they don't get sent to jail. They just get re-elected.

I wonder if Willie and Robin Hood ever met. They would have become fast friends.

THE PLAN

So here's what's going on with the charities and the politicians now. The non-profit organizations are actively combining forces to support increasing tax rates on the highest earners in order to avoid limiting the deductibility of charitable contributions.

In other words, if tax rates are raised sufficiently on the high earners, then the deductions for charitable contributions won't need to be cut for anyone else.

But regardless of whether the new money comes from raising the rates or limiting the deductions for the high earners, it's important to remember that when we tax the rich, the new money that flows to the government can't then be used elsewhere. It can't be used for investment, for creating new jobs, or even for charitable purposes.

CHARITABLE CONTRIBUTIONS AND THEIR TAXABILITY

Now let's focus specifically on charitable contributions and the tax deductibility thereof.

Currently non-profit organizations are deeply concerned about what will happen to the  contributions or revenues they will receive if the charitable tax deductions are eliminated or otherwise limited.

How serious is this? In Fine Print of fiscal Debate, Charities Unite to Defend Deductions says this:

Diana Aviv leads an umbrella group for nonprofits that is urging lawmakers to preserve tax deductions for charitable giving.

"Proposals to cap or otherwise limit deductions in order to raise tax revenue from the wealthy are gaining bipartisan support in Washington — and making charities and nonprofits very worried. . . .    

At stake is the $300 billion that Americans donate to nonprofits every year — and the $50 billion a year that tax deductions for charitable giving costs the government.

Both Republicans and Democrats say they want to maintain tax laws that encourage Americans to give money to nonprofit groups. But . . . there is growing bipartisan support for peeling back some of the special breaks for high-income households.

That prospect has spurred Ms. Aviv and other nonprofit leaders to meet with high-ranking Obama aides for what participants described as a passionate discussion — if one largely about arcane matters.

The charity participants laid out their fears about lost revenue and abrogated programs, even if donations only dip at the margins.

The White House . . . shared concerns about tax changes that might unduly cut into charitable giving. But officials said revenue had to come from somewhere.

On Capitol Hill on Wednesday, leaders from local nonprofits like churches, schools and homeless shelters visited lawmakers to deliver the same message.

“So much of this Washington debate is focused on high-end taxpayers,” said Steve Taylor, public policy counsel for the United Way Worldwide. “From our perspective, that’s not what it’s about. It’s about the people who will have less access to the services our charities provide.”

The Rev. Larry J. Snyder, president of Catholic Charities USA, agreed.

“If this benefit goes away, who’s going to pick up the slack?” he said. “Definitely not the government. It’s the only deduction that directly impacts community benefit. Cutting it — it defies the logic of cutting, I think.”

Charities said that little of what they were hearing behind closed doors allayed their fears that in a rush to cut long-term budget deficits Congress might also end up cutting charitable giving.

“There is no elected official who would rather say, ‘I had to cut your program’ than ‘There is a process that resulted in your program being cut,’ ” said Christopher W. Hansen, the president of the American Cancer Society’s Cancer Action Network. “But if you design a deduction cap the wrong way, you decimate the charitable sector.”

Both Democrats and Republicans have shown a willingness to roll back some deductions for high-income households, and more broadly to clean up the $1 trillion a year in tax breaks in the code. But how they might agree to do that remains unclear.

One option, floated by Mitt Romney, the former Republican presidential candidate, is capping the total amount a household could deduct at perhaps $25,000 or $50,000.

Another proposal, backed by the White House, is limiting the value of the charitable-giving deduction to 28 percent, down from the current cap of 35 percent, for households with income above $250,000 a year. . . . 

“You cannot get the kind of revenue that you need simply from capping deductions or closing loopholes without taxing the heck out of the middle class — and that’s unacceptable for the president — or without ending the charitable deduction or doing other things that would never fly on Capitol Hill, for good economic as well as political reasons,” said Jay Carney, the White House press secretary.

This week, at least one person came away convinced of the White House’s logic.

“If nonprofit leaders don’t want changes to the charitable deduction, it is imperative that we get behind the president’s call for higher tax rates on the wealthy,” said Aaron Dorfman of the National Committee for Responsive Philanthropy in a statement.

“The majority of nonprofits know this is true,” Mr. Dorfman said, “and I urge the hundreds of nonprofit leaders who have traveled to our nation’s capital for visits with members of Congress today to clearly advocate for higher tax rates on the wealthy in addition to their advocacy in opposition to any changes to the charitable deduction.”"

Summing Up

We make all this too complicated. Here's my proposal. It's a KISS thing.

Let's just eliminate all deductions. Why should government and the special interests decide what programs to favor and who will pay more so government can subsidize them?

Just tax We the People's income based on whatever formula of income the government chooses and then we can write our individual checks for the amount owed based on the amount we earn.

If we took that approach, special interest lobbying would become a whole lot less and the games played by taxpayers seeking, and politicians granting, favors would come to an end.

As individuals we would still be able to give as much as we wanted to the church, YMCA and so forth. And we could buy whatever house we wanted and could afford to live in as well.

We just wouldn't be able to deduct from our income the interest on the mortgage and the amount of the donations that we made to the church, YMCA and  so forth.

Eliminating these deductions won't happen anytime soon, of course. But if that happened the current lobbying efforts by nonprofits would effectively cease.

And best of all, government officials wouldn't be deciding how or where We the People should donate or otherwise choose to spend our own money.

Other than divvying up our earnings between MOM and OPM in the form of taxes, this is.

KISS works for me every time.

Thanks. Bob.