The vast majority of Americans are investors, although many
don't realize it. The vast majority of Americans are creative
with their 1040 numbers, although most won't admit it. The
majority of Americans would agree that investing, retirement
planning, and estate preservation would be easier to manage
if the Internal Revenue Code was comprehensible. A landslide
of American voters would elect any candidate championing IRC
replacement surgery.
All of us aspire to some degree of economic security and none
of us would be so critical of the wealthy if we had a shot
at joining their ranks. One side of the legislative mouth
encourages savings and investment while the other treats it
with totally "unearned" disrespect. One wealthy
political party wants us to hate anyone with indoor plumbing
while the other (wealthier) one spends most of its time trying
to protect its diminishing turf and powerful cronies. All
levels of government view businesses small and large as their
all-purpose Reserve Accounts and, as a result, both prices
and taxes suffer from a terminal case of "downward stickiness".
Not surprisingly, in a DC crowded with 10,000 combative fiefdoms,
nowhere can a PhD in dot connecting be found. We can change
this!
It is likely that most of you are more familiar with the controversial
Fair Tax Legislation than I am, but what I have found most
shocking is just how thoroughly The Act's refreshingly new
ideas have been swept under the congressional carpet. Neither
political party really wants to change the sacred IRC, and
why are our media heroes keeping their heads in the sand on
this one? Let's squeeze some meaningful change out of the
next administration. From an Investor's point of view, implementation
of just three elements of the Fair Tax would be an outstanding
starting point, even without the more sweeping changes that
the Bill addresses.
[The Fair Tax Act of 2003 was authored by Representative John
Lindner and co-sponsored by 54 others. Its purpose is: To
promote freedom, fairness, and economic opportunity by repealing
the income tax and other taxes, abolishing the Internal Revenue
Service, and enacting a national sales tax to be administered
primarily by the States.]
Now this is pretty heady stuff, for sure, but every bit as
easy to implement as real Social Security reform would be.
The three changes reviewed briefly below would be an excellent
Phase One.
1) Eliminate the Corporate Income Tax, and all other nuisance
fees and taxes that businesses must pay just for existing.
Whatever any business is charged in fees, taxes, and mandatory
assessments is translated into higher prices for goods and
services… and at more than a 1/1 ratio. Governments need
to look at businesses as employers and wealth generators,
not as rateables. Lower expenses should result in lower prices
and higher profits, and this would be comparatively easy to
monitor for compliance.
Corporations would have more incentive to control their general
expenses if such savings would actually make it to a bottom
line that could be used to grow the business, compensate owners,
and reward employees. More, higher paid, employees and more
spendable (untaxed) corporate dividends are good for the economy.
How many billions in lobbyist fees would be removed from corporate
pricing formulae? With no income taxes or mandated charges
to fork over, corporations could focus on growth and innovation.
Investors would own more viable companies, selling more competitive
products, to a more affluent population. Additionally, fewer
jobs would be exported, more foreign companies would invest
in the US of A, and GNP would rise at a faster pace. Rising
profits would increase dividend payouts, stock repurchases,
debt retirement, and employment opportunities.
2) Eliminate the Capital Gains Tax: I've often referred to
taxes (or tax avoidance decisions) as one of two "Tails"
that "Wag the Investment Dog". Every year, millions
of people go out of their way (with professional encouragement)
to lose money on perfectly good securities. Those who take
profits too soon are punished severely and those whose behavior
is tax-wise may severely damage their investment portfolios'
future. Although it is clear that the Capital Gains Tax was
originally designed to pick the pockets of those terrible
folk wealthy enough to play the stock market for profit, it
now inflicts considerable pain on all of us… particularly
those who foolishly subscribe to the archaic Buy 'n Hold investment
(mismanagement) strategy. Times have changed, and the average
investor is now a pretty average guy indeed, willing to build
a future if Uncle will let him.
A Government that bemoans the population's low savings and
investment rates has only itself to blame, and Wall Street
Institutions are happy to exacerbate the problem with their
own financial pandemic of products, strategies, and tax deferral/avoidance
schemes. Fair Tax advocates estimate that Billions of Dollars,
Hours, and Antacids could be allocated more productively every
year, just from eliminating this portion of the tax form preparation
process… not to mention the trees.
3) Eliminate taxation on all forms of investment and Retirement
income: Dividends, Interest, Rents, Royalties, Social Security,
Pension, IRA, 401(k), etc. It just makes abundant sense, doesn't
it? Without taxation, interest rates, rents, and professional's
fees, just to name a few, could fall. Personal disposable
income would rise and a much larger number of retirees would
be able to live comfortably. Isn't this what periodic IRC
tinkering is all about? Wouldn't it be cool if all of those
different IRAs and self directed plans could be combined and
relabeled: "My Untouchable Retirement Plan"? We
would all save more and spend more if we had more to deal
with.
No one expects a hundred million taxpayers to agree 100% on
the final plan. I have problems with taxing education and
health care spending, for example, and there is no doubt that
displaced IRS bureaucrats will populate new compliance entities
that monitor corporate operations. And most would agree that
three separate sales taxes would be unacceptable. But real
win/win/win change is in sight. We just need a positive leader
with some…
Here's my proposed 2006 (and beyond) Voting Resolution for
anyone with even the smallest start-up IRA account: "I
promise to never, ever, cast my vote for any incumbent, at
any level of government and from any political party, that
has not clearly demonstrated that the repeal and replacement
of the existing IRC is at the very top of his or her political
agenda." It's time to reinvent this wheel!
Steve
Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor:
The Book that Wall Street Does Not Want YOU to Read",
and "A Millionaire's Secret Investment Strategy"
