Americans for Tax Reform

November 5, 2011

I am an American, and I am fully in favor of Tax Reform.

In my view, Tax Reform means removing all of the crazy loopholes that allow certain special interests to avoid paying taxes, or to shelter income under some special rule that allows their income to be taxed at some artificially low rate.

Tax Reform also means capturing federal and state income taxes from the “Shadow Economy.”

Of course, a portion of our shadow economy involves illegal activities such as burglary, robbery and drug dealing, but the lion’s share of our shadow economy is comprised of regular people who don’t seem to want to be obvious criminals.

As our official economy has continued to deteriorate and unemployment hovers in the 9% range, some creative people have found opportunities in the shadow economy.

It is no surprise that in hard economic times, creative people turn to resourceful solutions in order to get by, and Americans are noted for their ingenuity. With high unemployment, informal entrepreneurs — particularly those who don’t pay taxes – have come out of the woodwork.

Unshackled by excessive regulations, license fees, and (yes) various taxes, people work in the shadow, trying to keep their family from becoming a statistic.

Could be a day laborer waiting on a street corner for a construction gig; a single mother running a day care center out of her apartment; an unlicensed street food vendor; a plumber who offers a discount to clients who pay cash; or an auto repair shop that prefers cash over checks or credit cards, and offers an incentive to customers who are willing to pay cash.

Various sources have estimated that the shadow economy makes up a larger portion of the economies of countries like Greece (25 percent) or Mozambique (more than 40 percent) than it does in the U.S. where consensus pegs the shadow economy somewhere between 8 to 10 percent of total GDP — in 2010, an amount equal to around $1.4 trillion That translates to lost federal tax revenue of $280 Billion, assuming a 20% federal tax rate.

Added to this opportunity to increase tax revenues at the individual level, the awful state of our corporate income tax code further exacerbates the problem.

A recently released look at the inefficiency of our corporate tax policy and rules by the nonpartisan research group Citizens for Tax Justice gives us a picture of some simple changes that could be enacted to help create tax equity and to generate significant new revenue at the Federal level. The full report is available at

http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersReport.pdf

Here is a brief excerpt:

“The corporate Alternative Minimum Tax (AMT) was established in 1986 to ensure that profitable corporations pay some substantial amount in income taxes no matter how many tax breaks they enjoy under the regular corporate tax. The corporate AMT (unlike the much-maligned personal AMT) was particularly designed to curb leasing tax shelters that had allowed corporations such as General Electric to avoid most or all of their regular tax liabilities.

But laws enacted in 1993 and 1997 at the behest of corporate lobbyists sharply weakened the corporate AMT, and now hardly any companies pay the tax. In fact, many are getting rebates for past AMT payments. In late 2001, U.S. House of Representatives leaders attempted to repeal the corporate AMT entirely and give companies instant refunds for any AMT they had paid since 1986. Public outcry stopped that outrageous plan, at least so far, but the AMT remains a shell of its former self that will require substantial reform if it is to once again achieve its goal of curbing corporate tax avoidance.”

So, while the organization known as “Citizens for Tax Reform” makes plenty of noise and strongly encourages candidates for public office to sign a Taxpayer Protection Pledge, the real deal here is that they are perpetuating the loopholes which corporations and wealthy individuals are able to use to avoid the tax bracket they ought to be in.

We don’t need to increase tax rates at all. What we need is real Tax Reform that will eliminate these tax avoidance scams once and forever.

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