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!
***************************************************************
Your Bio:
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"
copyright: YES
