Passion. Ability. Reality. Joy.

A recent article by the esteemed tax lawyer and USC professor Edward McCaffery reviewed some of the “issues” with the current debate over how much Mitt Romney pays in income taxes.  Romney’s 2011 returns show that he paid 14.1% taxes on the income that he earned last year.  Or roughly He also gave a lot of money to charity and I am sure took advantage of all of the tax code deductions available to him.

As does every other American.  Including you.  Including me.  Including every member of Congress.  And yes, even President Obama.

Now, many would argue that none of these people should be paying a lower tax rate than middle-class people, but in reality, over the years these people likely did pay higher tax rates based on earned income, as they built their wealth.  But now that the majority of their income is not earned income but rather investment income, they reap the benefits – including tax benefits – of their previous work.  It’s the same thing with the middle-class; if you have savings in mutual funds, etc., and have earnings from there, it’s taxed at investment income rates, because it wasn’t earned from labor.  We also have things like 401Ks, IRAs, and the like that allow us to save money, in some cases tax-deferred, and then take the money out later at the same investment income rates that Mitt Romney benefits from.

Now, do I see a problem with this?  I do.  Absolutely.  But not for the reason you might expect.

I think the whole idea of taxing people’s income is ridiculous.  Why should you pay taxes on what you earn?  I think this works well in an agrarian society, where people grow crops, sell them, and perhaps live more off of what they grow rather than what they buy.  But much like the uselessness of Daylight Savings Time, taxing based on income perhaps made sense at one time, but no more.

We are very assertive in beating people up for paying too little in taxes.  They are doing nothing illegal.  They are following the law.  The law all the politicians that are slinging mud today at Romney actually passed, and the law that all of those politicians take advantage of also.  To note, only 17 of the 535 members of Congress have released any of their tax returns, probably because many of us would start turning our attention over to them for the same types of so-called abuses of the system.  But in reality, everyone is likely just taking advantage of the system.  A very, very broken system.

Instead, I am in full favor of a consumption tax.  You earn the most you can.  You invest in education to allow you to earn the most you can.  You are charitable, and give to others.  You essentially do what you want with what you earn.

But the minute you start to buy something, you have to pay a tax on what you bought.  Doesn’t matter what you earn.  It only matters what you buy.  If you decide to go buy a very expensive sports car, you pay a very expensive sports car-like tax.  If you buy a jalopy because that’s all you can afford, you pay a tax on that.  And if you don’t want to pay taxes to the evil government, problem solved.  Just don’t buy anything.  Save your money – wow, that’s a great idea – and only spend it on what you actually need.

There have been LOTS of arguments for a consumption tax.  Some have called it a fair tax.  And this bring me to my point about the Romneys, the Obamas, the Clintons, the Bushes, the Buffets.  All of these guys make a lot of money and have a lot of money. God bless them.  I have absolutely no issue with that.  In fact, I think it’s great and an encouragement to me to keep trying harder to make the most of whatever talents I may have.  So stop beating them up for working hard, being wise, and benefitting from their efforts.

Instead, if you really want to “stick it to the rich”, tax their consumption.  There’s no way to take advantage of a system like that.  I don’t care if someone has a private plane.  Let ’em pay taxes on it when they buy it to help fund the government.  I don’t care if someone has 10 houses.  Let ’em pay taxes on them when they buy them.  That to me is getting people to pay their fair share.  Because I guarantee you, people who have money will not let something like a 28% tax on purchases keep them from buying what they want.  And frankly, it won’t prevent those people who are middle-income and below from being able to buy their things with that same tax, especially if the 25% that most claim to be paying in income tax is no longer being taken out of their paycheck.

By doing so, we might also be able to get rid of the IRS and save $12B in the process, and not have to worry about “keeping up with surging tax cheating and insufficiently collecting enough revenue or helping confused taxpayers”, as Nina Olson with Huffington Post points out.  Instead, use existing state revenue authorities – that already collect state sales taxes – to collect this and then each state could pay the Federal government for services.  How would that be…the Federal government asking the States for funding.

So, until someone decides to really look at tax reform and shifting to something along the lines of a consumption tax, this whole talk about getting people to pay their fair share is utterly meaningless and is only an exercise in class warfare.