Sunday, November 06, 2005

Tax reform proposals good for Republicans

Since politics will decide how much of the reform proposal gets through, its makes sense to look at the political implications. Seems to me that the first proposal (see page 5 for a summation of the new proposals), the only one that has a real shot of attracting actionable attention, would do much to help grow the Republican voter ranks.

First, it would end the subsidization of states with high state taxes by the states with low state taxes (requesting a synonym for the word 'state'!) Thus, states with a higher cost of living would likely have to decrease their state tax rates. Less money paid in taxes means more money to do things like start (or grow) a family. And a bigger family means mom and dad want politicians who espouse traditional values (easy to screech at the Boy Scouts for banning gay scout masters when you're childless, but when your son is heading off into the woods with one your perception changes).

Second, mortgages over $412,000 losing the deduction mean homes in cities on the coasts (Democratic bastions) are going to have a new economic disincentive--time to move to the cheaper inner flat lands and in the process start voting Republican.

No more pesky AMT. This helps sustain the middle class. Coupled with the fact that the plan is least friendly to the super rich, we have a recipe for more net income equality. And income parity (along with educational and cultural parity) means more Republican votes.

Small business owners are a Republican stalwart. The Simplified Income Tax Plan (first proposal) lowers the top rate small businesses can be taxed at to 33% and would allow most small businesses to use simple cash-basis accounting (deduct it from the books when you pay it and add it to the books when you receive it, instead of all that pesky stuff like deferrals and accruals).

In addition, a $1500 credit per child is patently more beneficial than the current $3200 exemption deduction. Having little urchins running around the house correlates with voting Republican.
And a further reduction in the marriage penalty encourages marriage. The majority of married individuals vote Republican while singles go for the Democrats.

Does anyone see a silver lining in this proposal for the Democrats? I don't. Chuck Shumer, who in my estimation is currently the sharpest limelight Democrat, certainly wasted no time in lambasting the proposal.

Hopefully some simplification will occur. The social incentives or disincentives are a point of argument, but cutting down on the estimated $190 billion spent each year to comply with federal tax laws is a deadloss we will all be better off without having (except maybe tax accounting firms like H&R Block).

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