Texas GOP Promotes Partisanship Over Practical Solutions

Photo credit: texasobserver.org[/caption]

The state of the economy, job creation, and tax reform are important issues for independent voters. Most people in this voting demographic want practical and pragmatic solutions to some of the biggest problems facing the country, and not proposals that fall purely on partisan lines.

Within the Republican Party and among conservative voters the biggest debate on tax reform is typically whether the national tax code should be replaced entirely with a 23% federal sales tax, a plan more commonly known as the “Fair Tax,” or if the federal government should move to adopt a low, flat income tax where every American pays the same rate regardless of earnings.

During the 2012 Texas GOP Convention, the party decided that the best solution for both the state and federal tax codes is to move towards a consumption-based tax code with the implementation of a flat income tax during the transition from the current system to the new one.

Federal Tax Reform – We recommend repeal of the Sixteenth Amendment of the U.S. Constitution, with the goal of abolishing the I.R.S and replacing it with a national sales tax collected by the States. In the interim we urge the income tax be changed to a flatter, broader, lower tax with only minimal exemptions such as home mortgage interest deductions.

Permanent Tax Cuts – We urge the income tax, capital gains tax, estate tax, and all other tax reductions be made permanent. The death tax is immoral and should be abolished forever.

Capital Gains Tax – We favor abolishing the capital gains tax.

See the full document here.

The most common argument for the “Fair Tax” is that it would allow the federal government to eliminate burdensome taxes, including the income tax, but would still generate a substantial amount of revenue. People would be taxed based on consumption, and not on income. Therefore, in theory, if consumers take home more of their income they are likely to spend more.

When certain variables are not added to the equation and key factors are not considered the “Fair Tax” lives up to the name. People would take home the full fruits of their labor and everyone, regardless of how much money they make, would pay the same tax rate.

However, not everyone spends the same amount of their income on items that would be taxable under a national sales tax. The people who end up carrying the heaviest tax burden are lower and middle income earners who spend a higher percentage of their income on consumer goods and services compared to wealthier Americans.

According to John T. Harvey, Economics professor at Texas Christian University, the top 20% of Americans spend roughly 62% of their income. Everyone else, in comparison, spends about 87% of their take home.

When you take into consideration the demand per-dollar of income lower and middle class families have, add in an exponentially higher sales tax than what Americans currently pay for state, county, and/or local sales taxes, and then eliminate the Capital Gains Tax completely the Texas GOP supports a severely regressive tax system.

According to the “Fair Tax” website, another incentive to eliminate the IRS and replace it with a national sales tax is that it would put the individual tax burden in the hands of the taxpayer. The less you spend the less you will be taxed. It encourages people to, not only live within their means, but to be thrifty.

The consumption-based tax code is supposed to provide a system that benefits consumers and businesses while strengthening the economy, helping job creation, and bringing in enough revenue for the government to deal with the national deficit and debt. However, if people are encouraged to be frugal then they aren’t spending the extra take home and it won’t help the economy or encourage businesses to hire.

American Jobs – We support a favorable business climate of low taxes and deregulation to encourage capital investment, ensuring retention and creation of American jobs.

The Texas GOP favors a tax system that is business friendly in an effort to attract entrepreneurs and encourage job creation. Would eliminating business taxes be the key solution to getting Americans back to work?

Many economists argue that it isn’t, and that the best job creators are consumers. If consumers are spending then businesses are prospering. Basic law of supply and demand dictates if demand is high then entrepreneurs need to compensate by increasing the supply. In order to increase productivity they would then hire more workers.

If demand is low there is no incentive for businesses to hire. Even if you eliminate every business tax employees are still a cost to any business. If the demand for the worker isn’t there then that is an additional cost employers can and will avoid.

The Texas GOP platform reflects the immense polarization that is keeping this country solidly divided. It proposes unrealistic and sometimes contradictory ideas for how to solve our nation’s biggest problems. We need real solutions that work in both theory and application.

Many voters would agree that we need tax reform, but the system needs to be both fair and pragmatic. We can’t rely on policies that echo partisan talking points without considering what those policies would mean if implemented. We can’t simply go with whatever looks shiny on the surface.