The main reason our current economic recovery is so painfully slow is that our Middle Class is broke – lots of debt, no jobs, low incomes and depressed home values. Meanwhile non-sustainable growth by credit expansion, loss of high wage manufacturing employment and our convoluted tax code have all conspired to bring us to the point where the top 1% of households control 43% of the country’s financial wealth (meaning total net worth less the value of home equity), and the bottom 80% of households control just 7% of the financial wealth. Another symptom of this problem is Warren Buffet’s famous statement that his effective individual income tax rate is lower than that of his secretary. The tax code needs to be drastically simplified and made more equitable: the vast majority of loopholes, subsidies, exclusions, exemptions and deferrals should be eliminated; capital gains and other forms of passive income should be taxed at the same rate as earned income above a certain income threshold.
There are many well researched proposals which seek to change our income tax scheme, like the flat tax or fair tax. While these may have merit, our Nation is at a precarious financial position. Therefore, Modern Whigs do not propose any radical change to our income tax scheme at this time, other than a simplification of the current code and closing of tax loopholes. We must look to grow revenues in order to pay down the national debt a sound and fair funding base for our government. Any changes to the overall tax scheme must be implemented while in a strong financial condition.
Whigs will sponsor a National Association on Taxes which will explore the competing income tax proposals such as flat tax or fair tax with input from financial and macroeconomic experts to help us evaluate their effect on tax rates, national income and income inequality.
Further, the Modern Whig philosophy is to empower the states with the resources to handle their unique affairs. The logic is that people in Alabama should not always have to flip the bill for earmarks that occur in New York and vice versa. For example, a senator from Oklahoma has used his committee powers to stifle an important transportation project in Virginia. The reality is that the more local one gets the more in tune with the unique and specific needs of that area.
This is why we propose that federal tax dollars be provided to each state in a lump sum every fiscal year based on population. This eliminates the need for most earmarks and pork-barrel spending as the onus will then be on state legislators and governors to allocate funding for issues that they see fit. Of course the federal government will still vote on other special projects and traditionally federal items, but these projects will be more manageable to monitor. In addition, the allocations to the states also provides a better opportunity to balance the federal budget while also forcing local voters to pay more attention to state elected officials.