Tax the rich or tax their consumption? Think tanks, tax reform and what’s fair

Cynthia: Gov. LePage and his think tank, the Maine Heritage Policy Center, want tax reform and welfare reform. Here’s an idea — let’s reform the way wealthy people get tax deductions for making contributions to tax-exempt “social welfare” organizations that promote policies to benefit wealthy people.

Mike: Cynthia, I’ve been harping about tax reform since we started this column. I think everything should be on the table for discussion, including those deductions for political groups whether left, right, libertarian, or socialist. Maybe there are valid arguments for the exemptions, maybe there aren’t, but it would be nice to speak without fear of tipping sacred cows.

Of course, such a change will also impact the Maine People’s Alliance, the Maine Center for Economic Policy, President Obama’s Organizing for Action, and countless other “progressive” groups. Or are those organizations more equal than others?

Cynthia: The Maine Heritage Policy Center is not equal to benevolent organizations that do charity work for the poor and disadvantaged. It’s a unique organization that readily concedes its intent is to be at the “forefront” of the LePage administration’s policy work.

The executive director of such an organization is no different than any other gussied-up, power-hungry lobbyist, except he gets paid a fat salary of “donations” that otherwise would go to public education and roads as taxes. Meanwhile, the MHPC rails against poor people for allegedly abusing the system? It’s a joke, really, to call such an organization — its main objective to put more money in the pockets of its members — a “nonprofit.”

Will the Maine Heritage Policy Center advocate for fair tax laws related to special interest lobbying groups and work to eliminate loopholes that favor organizations and individuals who don’t want to pay their fair share?

Mike: Wait a second — the lobbyists from leftist organizations are benevolent, while those on the right are power- and money-hungry? It seems the (glass) housing market is coming back, with a new year’s sale on big stones for throwing!

I do think MHPC will advocate for fair tax laws. I also think Democrats will fall over themselves saying MHPC is advocating “tax cuts for the rich,” which, in Maine, kicks in around $20,000. And therein lies the rub: “fair” is value judgement, not a proposal. Who doesn’t want fairness?

But if we are talking fair, let’s look at a really rich guy the left loves for saying the rich should pay higher taxes: Bill Gates. Of course, Mr. Gates now says he doesn’t want to pay more in taxes because governments do a poor job of spending money. He coupled that with advocating for consumption taxes in lieu of income taxes.

So what do you think? Should we abolish the income tax and rely on consumption taxes? You pay your taxes when you buy movie tickets, cars, or yachts. Seems “fair.”

Cynthia: I’m not talking about the left or the right. I’m talking about the Maine Heritage Policy Center — and other “nonprofit, nonpartisan, tax-exempt organizations” that lobby the Legislature for “tax reform” while not paying taxes and operate off the tax deductions of its members. I respect the organization, but the gaming of the tax system by it and countless others doesn’t pass the straight face test in an environment dominated by talk of “welfare reform.”

As for Bill Gates, he’s right! Exhibit A is the wasted money we spent on the Alexander Group report, or the money wasted suing the Obama administration over and over again.

I voted for tax reform that lowered rates, expanded the sales tax base and eliminated unworthy exemptions, and I’m open-minded to a consumption tax. I agree with you — the system needs major reform.

I also support making comparable the taxes paid on earnings and capital gains. Why should people who go to work for a living pay one rate, while others who earn interest doing nothing pay less?

Mike: Then you are talking about the left and right. MHPC and the Maine Center for Economic Policy both advocate for tax reform while receiving tax deductions from members. The difference is merely what each side advocates as “fair.”

I’m all for looking at the preferential treatment of capital gains, but it would need to simultaneously address the problems of pass-through and double taxation. A small business that wants to reinvest its profits has to pay a big chunk to the government under the fiction that the owner is pocketing it all. If they want to elect different tax treatment, then the business gets taxed, and from the remaining amounts the owner gets taxed again if she withdraws any.

So let’s do this: a flat tax on all income above a certain threshold at the federal level, minimal taxes on entities and instead tax the income distributed to individuals, and abolishment of the income tax in Maine in favor of a consumption tax. Have we fixed all the problems in 800 words?

Cynthia: Not quite. I’m not convinced thrifty Mainers consume enough to make the switch from an income tax to a consumption tax and still have a functioning government. Our income tax revenue makes up about half of the $3 billion we take in to pay for public services.

And of course, what’s good for the goose is good for the gander. That’s why “reform” has to apply to those at the top with access to power as well as those at the bottom.