Tax policy reform, part 1

Taxpayer organizations and the U.S. Tax Advocate have pleaded for decades to simplify tax law. Despite that, the U.S. tax code increased about 3-fold in length from 1975 to 2005 (U.S. Tax Advocate, 2010 annual report, page 4; Tax Foundation 2006 report). Neither the Democratic nor Republican parties have an interest in simplifying tax laws. There are good reasons for that.

A great ecosystem for corruption

The U.S. tax code is a political payback hiding place for campaign contributions and other sleaze. Few members of the public or the press understand the depth and scope of political corruption and economic waste buried in the tax code. The topic is dull and seemingly irrelevant, given other pressing concerns.

However, after considering how helpful fixing tax code and policy flaws would be, the topic is neither dull nor unimportant. In view of its blinding complexity and sheer length, the tax code is rich in known and unknown species** of ways to not pay taxes. No wonder it is so popular with people who know how to exploit those species.

** Unknown species of tax breaks are ones that congress unintentionally created and may or may not be aware of. Known species are tax breaks like the well-known deduction for mortgage interest. Some of the smartest minds in the U.S. economy do nothing other than hunt for those precious new species - the payoff can be worth hundreds of millions or even billions. For top tax attorneys and accountants, that is a hunt definitely worth going on.

Current tax code and policy has serious deficiencies. That threatens national security by damaging our economy. Among the major flaws are:

Intentionally lax tax collection efforts

Tax law enforcement is lax or nonexistent for some sectors of the economy. Both congressional Democrats and Republicans refuse to fund IRS tax law enforcement efforts. The Internal Revenue Service (IRS) estimated that the gross tax gap amounted to about $345 billion in 2001. IRS enforcement efforts subsequently recovered only about $55 billion of those evaded** taxes, leaving a net tax gap of about $290 billion for 2001. The current net tax gap is likely higher than the 2001 estimate. Studies have shown that for each tax dollar spent collecting evaded taxes, $3 to $4 is returned to the treasury. Given that, it would appear that tax law enforcement spending is an efficient use of tax dollars.

** Tax evasion is illegally not paying taxes. Tax avoidance is the legal use of tax laws to not pay taxes, regardless of whether congress intended the exemption (loophole or tax spending) or not.

Despite the obvious upside for taxpayers and the public interest, congress refuses to increase IRS enforcement efforts. In their ideologically driven hate of government and despite massive spending and budget deficits, Republicans actually want to reduce IRS enforcement efforts. That attitude prevails even though the current tax gap (uncollected taxes) is estimated at about $330 billion per year. The refusal of Democrats and Republicans in congress to make major changes is completely understandable. It allows campaign contributors to continue to evade taxes with impunity. And, for most Republicans, not collecting taxes nicely fits their anti-government ideology.

Other political ideologues such as Texas Representative Ron Paul would go even further than most Republicans. According to David Johnston, an investigative tax reporter and analyst, Mr. Paul believes that the requirement for businesses to keep tax records and to withhold taxes is unconstitutional involuntary servitude under the thirteenth amendment to the constitution (David Cay Johnston, Perfectly Legal, 2003, Portfolio publisher, chapter 14, Mass Market Tax Evasion, page 206). If nothing else, Mr. Paul's comments show intense contempt toward the tax code by some powerful members of congress. No wonder the tax code is a mess.

Part 2 discusses more tax code flaws

A new political party for 2012: A summary

For a minority of Americans, there are sufficient reasons to want to start a new political party. I am one. However, it may be premature for the rise of a mainstream new party. There are obstacles. California requires 103,004 signatures to qualify a new party by registration or 1,030,040 to qualify by petition.

For the 2012 primary, that has to be done 4-5 months before the Feb. 5 primary, i.e., by October-November 2011. That probably isn't going to happen, even though there are 15 parties trying. There isn't enough time to qualify for the next election cycle.

And, there are other problems.

The mission statement of the American Third Position Party is "to represent the political interests of White Americans." They appear to be white supremacists. The Christian Party wants to do "amazing exploits for God", whatever that means. The Twelve Visions Party of California appears to be anarchist. The We Like Women Party appears to be on hallucinogens. Those parties are flaky. The Working Families Party of California makes some sense by focusing on some key issues, e.g., campaign finance reform and wages, but it is based on labor unions and grounded in hard core liberal ideology. Not good enough.

Given the situation, it is unlikely that any third party will qualify in time for the 2012 elections. The existing third parties, Libertarians, Greens, etc., provide a more mainstream range of ideologies. That's probably why they are qualified already.

I am a secular pragmatist. My interest is in transparency, intelligent policies and limiting the influence of (1) special interest money and (2) political and religious ideology on creating thinking in politics.

This blog tried to provide a number of reasons to start a new new party and show different ways to approach politics. It is too late to do that for 2012. There is no point in continuing to try.

Regrets

My regret is that the voice of reasonable moderates and pragmatists will not be represented in any meaningful way in the imminent battles over the size, scope and function of government in California and at the national level. We will get what hard core Republican ideologues can force on hard core Democratic ideologue foes and vice versa. Reason and rationality will take a back seat to preconceived but largely incorrect ideologue notions of what reality is and how we should fix our political problems.

There's always tomorrow

I can see the disaster coming but can do nothing to blunt it for now. What will be left is to try again for the 2014 elections and then see if any of the damage the two parties will inflict can be contained or reversed. It's daunting, but not hopeless.

A conversation with lobbyists, part 2

At the meeting described in part 1, lobbyists were urging Company A to to hire them as their lobbyists and use them to again try getting the government interested in its product.

The plan

They argued that the company had to do three things to get reconsideration for its product. First, Company A had to go to the responsible federal authorities who originally rejected them and tell them (1) that their original criticisms were absolutely sound and correct (even though that was nonsense), (2) because of those insightful criticisms, the company had gone back and solved all the problems the feds had spotted, making the rejected product much, much improved (more nonsense) and (3) thank you so much for your brilliant insights you selfless federal bureaucrats (also nonsense).

The lobbyists made clear that if this wasn't done, there was no chance of its product of being reconsidered. According to the lobbyists, federal bureaucracies under attack just circle the wagons and say no, regardless of whether they are wrong or right. But, if you butter them up, they just might say yes if you give them a self-serving reason.

Second, Company A needed to make key people in congress aware of the "new and improved" product (even though it wasn't new or improved) and then wait for the need for the product to come to the attention of the press. The need for these products come up from time to time as a hot issue. Once the topic came up, and it would, Company A would then unleash the lobbyists, make campaign contributions and remind the congresspeople about Company A's product. Company A's lobbyists would gently mention the press coverage and say what a shame it is that no product had been developed.

Last, Company A had to seize the moment and "leak" to the press its story about its product and the failure of the bureaucrats and congress. This should add some public pressure on the people in congress. The leak had to be handled with care and tact. It had to be done when the topic was hot with the press, so the window of opportunity might be very short.

In essence, the lobbyists were telling Company A that it had to use the press to coerce people in congress to get a fair hearing about a reasonable product. The lobbyists thought that course of action and combination of circumstances might, just maybe, get the federal government to reconsider Company A's product - maybe even buy it.

Company A didn't do business that way. They asked the lobbyists if simply writing to responsible people in the federal government explaining the situation wouldn't work just as well?

The lobbyists were adamant: That wouldn't work at all. They explained that people in congress get letters with good and bad ideas all the time. Those things are simply ignored as "just noise", which was the lobbyists term for it. Simple pure logic and compelling data carry no weight with people in congress. That isn't how congresspeople do business or what they are there for. People in congress are there to get reelected, not to act rationally with taxpayer money.

At this point, I was getting the vibe that the lobbyists thought Company A was just plain stupid, hopelessly naive or both.

Company A said that both Democrats and Republicans would need to be approached but that both were responsible for the failure of this program. The lobbyists said that would be no problem at all. When speaking to Democrats, just blame the Bush administration and Republicans for the failure. When speaking to Republicans, just blame the new Obama administration and Democrats. They don't talk to each other much, so you will not get caught speaking out of both sides of your mouth. And, you won't be speaking with a forked tongue - both sides are at fault.

Company A respectfully declined to hire the helpful and eager lobbyists. Company A sent letters explaining the situation to people in congress and federal agencies. However, as the lobbyists had predicted, those letters received no response from anyone. No one in the federal government cared. Company A went away and is gone.

Where will change come from?

In at least some situations, maybe most, that's how the federal government and lobbyists work. In my opinion this story exemplifies the rule, not the exception. When I advocate for a new political party, I consider things like this. Given that both parties are comfortable with doing business like this, is it reasonable to expect that they can fundamentally change how they do business? Consult your common sense about that.

Change will have to be forced on the two party system from an outside political force. Look at the dysfunction of the Democratic and Republican parties today - they are hopeless. Neither the business sector nor any other major social institution has an interest in changing much of anything. At most, their interest in change is to get further advantage for themselves using lobbyists and campaign contributions. The press is too self-absorbed, co-opted, spread too thin or some combination of those things.

The only force I can think of is a coherent new political party. By coherent, I mean disciplined and focused, just like the Republican party is now. The only way to get that kind of consensus without being focused on political or religious ideology is to focus on pragmatism and reality. Then the collective will of that group has to be asserted forcefully.

We are doomed

Absent that, I suspect that we are doomed to get what the two parties are about to give us, e.g., in the fiscal year 2012 budget. I can only speak for myself, but that is something I don't think I am going to like. Especially after how the fight over fiscal year 2011 played out. You can just see where this is going. From here on out, it is going to be real ugly.

Losing an opportunity and the fight

Where is the moderate or pragmatic voice in politics? Why isn't it coalescing into a political force like the Tea Party? There are other ways to view reality than just how the dysfunctional and corrupt Democratic and Republican parties spin it to us. Time is running out.

A conversation with lobbyists, part 1 of 2

A couple of years ago, I attended a meeting between a company (Company A, now defunct) with a potential new product and lobbyists. President Obama had been in office a few months and Republican opposition was coalescing and hardening. The lobbyists were Democrats, Republicans and included a former member of congress who was fairly powerful in the House. The lobbyists were well-connected and knew how government works. They were also familiar with the federal program behind the development of the types of products that Company A had developed to near completion.

Company A's product had civilian and military applications. The technical problems were identified and solved. The product was effective at what it did and had no real competition. Congress had budgeted money for purchase of a several products for this problem. But other than this product, none were in advanced development.

During development of the product, the government told Company A their product would be purchased as it was the only thing that worked for its use. The need for the product was urgent. However, instead of buying the product, the government changed its mind and rejected the product as a failure. The reasons the government gave for changing its mind didn't make any sense to Company A. The science behind the product contradicted the reasons given for the failure.

The millions of dollars Company A spent to develop its product were wasted. Final development of the product was stopped. Company A later went bankrupt.

What happened?

Being cautious people, the lobbyists would only intimate about what happened. I suspected that they knew exactly what happened. They may even have been involved in view of their detailed knowledge. What happened was that there was another company (Company B) who was pursuing another but not directly competing product in the same federal program. Company B had been awarded a purchase contract for hundreds of millions of dollars provided they could finish the technical development of their product and deploy it.

Then, Company B got a great idea. They hired lobbyists and backed them with campaign contributions. Company B decided to use their lobbyists to try to prevent any of the money that congress had appropriated from going to any other company or product in the program. They succeeded. Company A with the product that worked was rejected. Company B ultimately could not solve its technical problems. Its product failed. The government had to cancel Company B's contract.

It depends on context

What happened made sense in the context of how the federal government works. In the context of service in the public interest, it made no sense. Lobbyists working quietly behind the scenes can and do kill good ideas in favor of second best or even fatally flawed ideas. They do that in service of whoever employs them, not in service of the public interest. The lobbyists don't care if what they advocate for is good, bad or indifferent to the public interest. Its just business. Business is amoral.

Whose side do you think federal agencies, people in congress and lobbyists are on? Yours or theirs?

Part 2 - How to coerce congress (legally)