Two Modest Proposals
for Tax and Electoral Reform

Dave Shafran
71702,3713@compuserve.com


    There are two propositions that all people who criticize
government can agree on.  We need tax reform.  Radical tax reform.
And Campaign Finance reform.  We need to be able to pick and control
our elected officials with our votes, not our dollars.  With our
votes, we the people can be triumphant.  In a contest of dollars, it
is always the shadowy rich who triumph.

    Proponents of the Left and Right disagree about where government-
collected money goes, but we all agree that those who spend it and
those who collect it have run amuck.

    These are the two most crucial areas of government, because a
money/advertising campaign process determines who gets elected to
collect and spend the money, and who determines from whom it gets
collected.

    I would like to present two proposals, one for Campaign Finance
Reform and the other for Income Tax Reform; which could make the
phrase `freedom and justice for all' meaningful again.

Campaign Finance Reform

    Since the advent of television campaigning, the entire way in
which we Americans conduct political campaigns has changed.  Before
the War, campaigns were largely conducted in person and in print.
Candidates traveled around their electoral districts making speeches
and meeting voters.  Their doings were reported and speeches reprinted
in local and national newspapers, which were read as the only source
of news.  News stories, editorials and the campaigns themselves were
no less scurrilous than are our campaigns today.  However, they were
much less expensive, and the voters saw their candidates unfiltered by
TV editing.  Now we see five-second news-bites and artfully structured
commercials (which cost more than most Americans earn in a decade)
where all we `learn' is that the other candidate is worse.

    And campaigns have grown longer.  Under pressure of the media, the
next presidential campaign and speculation begins soon after the
election is over.

    With campaign financing, we have two issues: the cost of
campaigning and the source of the funds.  One drives the other in an
ever-escalating spiral that shows no sign of ending.  As TV
advertising becomes more the way campaigns are run, and as campaigns
get longer, it becomes more necessary for candidates to develop long-
term relationships with wealthy contributors, or else have access to
large private fortunes.  Therefore, far more than 99% of Americans are
denied the chance to stand for office.

    Yet when we consider public financing of elections, no-one wants
to take hundreds of millions of dollars of tax money and throw it at
spin-doctors and TV stations.  And these TV stations collect their
millions because they are licensees - in trust - of the public
airwaves.

    However, consider what could happen were we to change the rules
for licensing broadcasters.  Instead of simply granting these
corporations government-protected monopolies, why not make them meet
some requirements?  Why not require them to broadcast debates and
speeches by the candidates.  Require a specified number of hours per
station during a specified, limited period before the election.
Create local, public agencies to monitor broadcasters, with legal
authority to instantly suspend the license of any station which
doesn't fulfill its requirements.  Suspension will be followed by
forfeiture unless the station can document that it met the
requirement.

    Specifying the time period for stations to air the debates and
speeches gives us control of the length of the campaign.  While we're
at it, why not make it a requirement for candidates that they have to
meet each other in a specified number of hours of debate.  If they
don't, they forfeit the election.  No argument.  If there are only two
candidates, if neither one debates, they both forfeit.

    Now that we've got them talking to us and each other,  why not
just eliminate those pesky paid political ads?  By mandating debates
between the candidates we have created a better forum in which we can
evaluate them.  If we just make the ads illegal, with one stroke we
eliminate a major source of disinformation and drastically reduce the
cost of campaigning. Now we have reached a place where we can
realistically talk about publicly funding political campaigns.

    I believe that publicly funded political campaigns (wholly
publicly funded - no private money allowed at all) are the only way we
can move to a new, higher form of democracy.  The Nineteenth Amendment
and the Voting Rights Acts have extended the vote to more and more
Americans, while modern campaign financing has restricted candidacy to
fewer and fewer Americans.

    American democracy has become the right to choose between two
candidates whom we have had almost no choice in choosing.  To be a
real democracy, any of us, all of us, have to have the same ability to
stand up  for election as the millionaires and party functionaries.
And the same ability means the same chance to be on the ballot, the
same chance to get our message out to the electorate.  As all `men'
are created equal, so should all candidates be equal.

    Today, almost all candidates for local and national offices are
nominated by one of the two institutionalized parties.  Most third-
party or independent candidates are either woefully underfunded or,
like Perot/Huffington/Forbes, personally wealthy.  The average
engineer, nurse, plumber or office-worker has hardly any chance of
being elected and even less of being nominated.

    I propose that we have just two requirements for candidacy (other
than constitutional age and citizency requirements).  First, that the
candidate be a resident of the electoral district in which she/he
wishes to run.  Second, that he/she present to the registrar of voters
a petition signed by at least ten percent of the registered voters of
the same electoral district, supporting her/his candidacy.  Once the
signatures are verified, the individual will be a duly registered
candidate, presented an amount of money for campaign expense exactly
equal the amounts presented to other candidates and granted the same
access to media speech and debate time as all the other candidates.
With paid political advertising and all private money removed from the
campaign process, we, the electorate, will be free to evaluate the
candidates one against the other and for their ideas, not their ads.
The nominating process will be open to all, not to just political
parties and millionaires.


Tax Reform

    The air is full of new tax proposals these days.  We hear about
the flat tax, the VAT tax, a federal sales tax, etc.  There is one
thing we never hear mentioned.  The difference between the tax rates
on labor and investment. Oh, we think we hear about it when
politicians and economists talk about capital gains, but they don't
say anything but the ritual formula `cutting capital gains is good'.
Why?

    A Capital Gain is the increase in value of an investment.  When a
stock or a piece of real estate increases in value, that is a Capital
Gain.  Politicians tell us that we have to reduce capital gains taxes
to get our economy working.  A low rate, they tell us, allows
investors to reinvest their money in new businesses.  In truth, all
they do is trade stocks on existing business back and forth.  This
brings no money back to the business, just to the stock-holder.  The
ratio of old trading to new issues in the stock market is something
like 150 to 1.  This doesn't put more money in our paychecks, it
doesn't create any new jobs, it doesn't do anything to improve our
economy.

    An investment is full or part ownership of property.  Income
Producing Property is any property that returns an income to its
owner.  It includes stocks and bonds (which earn dividends), rental
and commercial real estate (which earn rents), mortgages and loans
(which earn regular interest payments) and savings accounts (which
earn interest).  Income Producing Property does not include owner-
occupied real estate, automobiles or other properties which do not
earn a return.

    Property which does not produce income may still appreciate in
value, as in the art market, where art, like everything else, is
bought low and sold high.  The difference in value between the owner's
buying and selling price is the Capital Gain, which gets a lower tax
rate than the labor of the artist who created the work.

    Of course, the best property both returns an income and
appreciates in value.

    Property has certain advantages over labor in the tax game.  Stock
and Bond traders do not pay sales taxes when they trade their shares
back and forth.  We do when we buy clothes, cars or anything but food.
Stock/Bond/Property owners do not pay social security taxes on their
dividend or rent income.  People who work for a living do.  And when
the owners sell the property at a profit, they pay tax on the capital
gain at a lower rate than their income tax bracket would usually
claim.  On which again, they pay no social security taxes.  And if
they sell the property at a loss, they get to deduct the loss.

    The American dream has always been the accumulation of property.
Since the end of World War Two working people have been told that the
goal has been to own a `home of one's own.'  [Before that, the goal
was just a job of one's own - sort of like these days.]  In reality,
the goal has been to accumulate enough property to be able to live off
the income.  To that end, the American economic system has been
designed to protect property as much as possible.

    There are two immortals in America.  They are not the Constitution
and the Bill of Rights.  The Constitution can be amended, even
superseded, as the Constitution superseded the Articles of
Confederation.  The Bill of Rights is itself just a series of
Amendments.  The two immortals are property and corporations.  In
America we have been told that the deed to a piece of property or the
ownership of a share of stock is forever.  The deed or the share can
be transferred from one owner to another, but the land never reverts
to itself, the stock ownership is forever, even if the company fails,
until the corporation itself buys back all the stock and retires it.

    And a corporation is also legally immortal.  What is the purpose
of this immortal entity?  In full, it is known as a `limited liability
corporation', because the function of a corporation is to limit the
liability of the owners - the stockholders.  By law, once a dividend
is paid to a stockholder, even if it is later determined that the
corporation earned that money through fraud, deceit or outright theft,
the dividend cannot be recovered from the stockholder.  If the
corporation is sued, loses and is driven into bankruptcy by the
decision, the value of the stock may drop to zero (in which case the
stock-holder is entitled to deduct the losses from his/her taxes), but
all the money that the stockholder has received from dividends and
stock appreciation is untouchable.  His/her liability is limited, but
her/his profit is not.

    This is why corporations have become the major economic entities
of our world.  They insulate the real owners from liability.  And not
just liability, but identification.  In the days of the `robber
barons', we knew who the powerful were.  They had names; Astor,
Morgan, Rockefeller, etc.  But now do we know who owns Goldman Sachs,
General Motors, Boeing, Martin Marietta?  We do know that far less
than ten percent of Americans own almost the whole of this country,
but who are they?  They are, for the most part, invisible.

    When a corporation pays income tax, it pays only on its profits
(after deducting rent, labor, cost of materials, advertising, legal
expenses, insurance, etc.; the `cost of doing business').  When a
family pays income tax, it pays on its gross receipts (total income;
with no deductions for rent, home labor, materials, food, etc.).  If
families paid taxes the same way businesses pay taxes, we would only
pay tax on the amount we had been able to save and/or invest at the
end of the year.  For most working families in the U. S., that would
mean no taxes at all!

    Between 1960 and 1983 corporate income taxes fell from 23.2% of
federal tax revenues to 6.2%, down to almost 1/4 of what it was
twenty-three years before.  Yet businessmen and their paid politicians
continue to call for more cuts on business taxes.  During this same
two decades, the wages of workers employed by these businesses have
either remained constant or fallen.  And these same businesses have
not been creating new jobs for American workers with the tax money
they have saved.  They have been cutting jobs at home and exporting
jobs overseas.  Does giving them tax breaks for this make any sense?

    Let's do a small thought experiment.  If business taxes had not
been reduced so much since 1960, federal tax revenues would have been
higher.  If federal tax revenues had been higher, would we have the
same giant federal debt that businessmen spend so much time
complaining about?  I don't have the answer to this in real figures,
but I'm willing to bet that this country would be solvent today if
American businesses had been carrying their share of the load these
last twenty-three years.

    Another interesting fact about the federal debt - it is financed
by selling government bonds.  Who buys these bonds?  People with money
to invest.  High-income people whose taxes have been cut drastically
since the `Reagan Revolution'.  In essence, this means that we have
given these people tax breaks, then borrowed from them the money we
would have collected in taxes.  And when we borrow this money from
them, we are obligated to pay them interest over the life of the
bonds.  Does this make any sense?  Not to me.  Yet our legislators
continue to tell us that this is the way we should be doing things.

    Since families, not corporations, make up the citizenry of this
country, shouldn't they be given equal tax rates to business?  Why
shouldn't we get to deduct our costs of doing business?  Or, if we
have to pay taxes on our total income, why shouldn't corporations?
The argument is usually made that business creates jobs and needs
incentives, but anybody who has been reading the newspapers knows that
corporations have been doing everything they can to cut jobs.  We
continue to give them incentives while they dump their workers into
the garbage.

    Let me suggest a simple tax proposal that should benefit all
Americans.  Eliminate the differences between business and
single/family tax rates.

    At first I thought of applying business rules to families,
allowing us to deduct rent, food, clothing, etc. as our `costs of
doing business', but it was pointed out to me that the book-keeping
would be enormous.  I also remembered that business people complain
about the cost of compliance right after they finish complaining about
the tax-paying itself.  It costs time and money to document deductions
and exemptions.

    So why not apply family rules to corporations?  They can save
money on compliance.  The advantage of a larger tax base is that you
can reduce the tax rate on the income being taxed.  And include ALL
income at the same tax rate.  Eliminate the advantages of `unearned
income' over `earned'.  The tax advantage of property over labor.  If
we do this, we can create a flat tax (one tax rate for all taxpayers)
that is fair to all.

    The charts below, from the 1994 Form 1040 Tax Rate Tables, show,
the actual Federal Income Tax and percentage of income that all
taxpayers would pay with no deductions.  The range is from 30% to not
quite 40%, less than ten percent.  This from the poorest to the
richest in this country.  Of course these figures do not reflect
reality.  Larger income-earners have generous tax deductions, capital
gains is taxed a lower rate than higher income-tax rates and the
earned-income credit lowered tax payments on the low end.  Still, a
lower-income earner is more likely to pay his/her full percentage of
taxes than the high income earner.

-----------------------------------------------------------------------------
Tax Rates for Single Taxpayer, no Deductions
--------------------------------------------
               Tax        Income  Inc. Tax     FICA        Total   Total
     Income    Rate          Tax   Percent                   Tax   Percentage
-----------------------------------------------------------------------------
    $22,750   15.0%       $3,413     15.0%   $3,413       $6,825   30.0%
    $55,100   28.0%      $12,470     22.6%   $8,265      $20,735   37.6%
   $115,000   31.0%      $30,970     26.9%   $9,272      $40,241   35.0%
   $250,000   36.0%      $79,640     31.9%   $9,272      $88,911   35.6%
   $500,000   39.6%     $178,640     35.7%   $9,272     $187,911   37.6%
 $1,000,000   39.6%     $376,640     37.7%   $9,272     $385,911   38.6%
$10,000,000   39.6%   $3,940,640     39.4%   $9,272   $3,949,911   39.5%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Tax Rates for Married Filing Jointly Taxpayers, no Deductions
-------------------------------------------------------------
               Tax        Income  Inc. Tax     FICA        Total   Total
     Income    Rate          Tax   Percent                   Tax   Percentage
-----------------------------------------------------------------------------
    $38,000   15.0%       $5,700     15.0%   $5,700      $11,400   30.0%
    $91,850   28.0%      $20,778     22.6%   $9,272      $30,050   32.7%
   $140,000   31.0%      $35,705     25.5%   $9,272      $44,976   32.1%
   $250,000   36.0%      $75,305     30.1%   $9,272      $84,576   33.8%
   $500,000   39.6%     $172,305     34.5%   $9,272     $181,576   36.3%
 $1,000,000   39.6%     $370,305     37.0%   $9,272     $379,576   38.0%
$10,000,000   39.6%   $3,934,305     39.3%   $9,272   $3,943,576   39.4%
-----------------------------------------------------------------------------

    I have included Social Security (FICA - the full 15.3%
`contribution') for two reasons.  First, because it is a major
component of the taxes most working people pay and second, since FICA
tax is not collected on income over $60,600, it very strongly changes
the actual tax rate range.  And FICA is not collected on dividend
income or capital gains.  If our Social Security taxes are rolled into
the total tax rate, and paid on all income, from bottom to the very
top, the whole system becomes very simple, very fair and, not
surprisingly, most of us end up paying a whole lot less.

    Now for the good news.  We can lower taxes for almost all
Americans and eliminate the deficit with a flat tax.  The Gross
Domestic Product for 1992 was $5.96 trillion.  Federal expenditures -
including deficit, were $1.38 trillion.  If ALL domestic income were
taxed at one flat rate, enough for income to match expenses, with no
deductions, that tax rate would be 23%!  That means that if we all
were taxed equally, it would go down greatly for those of us who pay
our fair share and even the ones who've been skating will get the
benefit of the lower rate.  We could, most of us, pay less and still
not be financing debt!

    Instead, actual Federal Revenue was $1.09 trillion, leaving us
with a $290 billion deficit.  It also means the actual national tax
rate was only 18%.  So who was getting by for ten percent, while the
rest of us were paying thirty or more?