Small Time Thinking By Small Time Polticians - Tax Edition

In my lifetime there have been very few members of the political class that I would call big thinkers. Big thinkers, in my opinion, focus only on the big issues and challenges that affect the most people. They have a grand plan in mind that they have meticulously constructed by identifying underlying root causes of a problem, they understand how various components interact under various action plans, they know how to integrate and leverage those components into an overarching strategy, and they provide the leadership needed to unselfishly and fairly move the plan towards success. Ask yourself, how many of today's politicians fit that description?

I started thinking about these types of positive traits when confronted by the small demands and small thinking from the Obama/Pelosi/Reid triumvirate over the past few weeks. Specifically, their unending demands to "tax the rich" and close the loopholes in our tax code in the following areas:

• Close tax loopholes that oil companies currently enjoy, bringing an additional $2-3 billion a year into the Treasury.
• Close the tax loophole that Obama supported in his economic stimulus plan for corporate jet owners, bringing in an additional $300 million a year.
• Eliminate the Bush tax cuts for those Americans earning over $250,000 a year, bringing in an additional $70 billion a year.

The drone around these three items is almost constant. And the smallness of their view is also constant. Let's assume that Obama, Reid, and Pelosi somehow got their wish and these three ideas became reality. This would increase government revenue by about $72 to $73 billion a year. What would that do to the Federal government's budget outlook:

• $73 billion would reduce this year's government deficit by a little over 4%.
• $73 billion would represent about 2% of the overall budget number.
• 2% and 4%, pretty small thinking. But if you listen to the bluster from these three Democrats, you would think these three tax issues were the biggest injustices possible to inflict on the country and these three steps are the root of all evil.

But what would large, important thinking look like:

- In March, 2008, Money magazine reported on IRS statistics that showed how the IRS estimated they do not collect $197 billion a year in unpaid taxes. $197 billion is about 12% of the 2011 deficit and over 5% of the total budget. A big thinker would find a way of getting their hands on this type of money which is much larger than corporate jet taxes. This one success of big thinking would be more than two and half times more than the small thinking of Obama, Pelosi, and Reid.

- Numerous times we have cited credible sources who estimated that the Social Security, Medicare, and Medicaid programs lose $200 billion a year via fraud and waste. A big thinker would find a way to get the waste and fraud out of these programs. Combine this big thinking with tracking down tax evaders and all of a sudden you are talking big numbers, covering more than 20% of the 2011 deficit.

- In the spring, it became news that even though General Electric had 2010 profits of over $14 billion, it paid absolutely no Federal taxes. Adding insult to injury, the Federal government's tax code, a code created, amended and operated by the political class, provided General Electric with a $3.2 billion tax credit.

If the U.S., had a simple 15% flat tax rate, GE would have had a 2010 tax burden of about $2.1 billion, resulting in an additional $5 billion for the U.S. Treasury (the flat tax amount plus the rescinding of the tax credit.) That would be big thinking, getting everyone to pay a fair amount of taxes including corporations. This simple fix would have gotten more for the Treasury from one company than closing the tax loopholes for ALL of the oil companies.

But Obama would probably never go after GE for their legal tax evasion. He has appointed the GE chairman as the head of his Presidential jobs commission. The GE chairman has been a big contributor and supporter of Obama's election efforts. The White House allowed GE executives to escape compensation limitations for GE's financial executives when the company received Federal bank bailout funds under TARP, even though every other corporation that accepted TARP funds had to also accept executive compensation limits.

In return, it is a distinct possibility that Obama received more than favorable press coverage through GE's historical ownership of MSNBC (an ownership that is now controlled by Comcast). A big thinker, a true leader would insist on fairness for all and favoritism for none, something that cannot happen given the incestuous relationship between the President and GE.

Just a few examples where small thinking results in small effects. Should the oil company and jet owner tax breaks be rescinded? Probably. Should GE pay Federal income taxes regardless of his relationship to Obama? Probably. However, these would be moot points if we had some true leaders in Washington who were looking at overhauling, not tweaking or politicizing, the tax code.

If you did a great job of putting a fair and simple to understand tax code in place, this type of small time thinking would go away, it would be easily handled by the revised tax code. In the absence of such grand thinking, the political class drone goes on with small time thinking, small time issues, and small time results.

While this type of symbolic but small time thinking may be attractive to voting blocs, it does nothing to fix what ails the country. We are faced with big time problems and are stuck with small time politicians and their small time thinking.




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