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Tax What They Burn Before Tax What We Earn...

As America faces the so-called "fiscal cliff," let's turn our attention to our country's systemic tax problem. To paint a picture, imagine our country as a mine car with its brake lines severed, barreling toward an uncertain fate. In this metaphor, the brake lines are represented by the U.S. tax code -- all 7,500 pages of it -- long the victim of severe tampering and perforating by corporate lobbyists and tax attorneys and unattended to by inadequate IRS enforcement. What is troubling is that these metaphorical brakes have been damaged for years, and only now, with an economy fitfully recovering from recession and the livelihoods of millions of Americans at stake, are the dangers ahead becoming headlines.

President Obama, as of now at least, supports letting the Bush tax cuts on the wealthy expire. But even if President Obama stands firm on this position in negotiations with Congressional Republicans, there's more work to be done to achieve more fundamental tax reform. As the president and Congress debate raising the income tax rate from 35 percent back up to where it was under President Clinton -- 39.5 percent -- keep in mind that under President Eisenhower, the largest earners paid roughly 90 percent after deductions. It was 70 percent at the start of Ronald Reagan's first term (which he then lowered drastically to 28 percent). In 2012, the line in the sand has been drawn on a relatively meager 4.9 percent difference.

To many Americans, the very word "tax" strikes a sense of resentment -- few like to give up a percentage of their hard-earned wages. But let's recall the words of Justice Oliver Wendell Holmes, "taxes are what we pay for civilization." The basic purpose of taxation is to raise revenue needed for the public services we presumably all benefit from, and a purpose of government is to ensure that everyone is paying their fair share. Rarely is the fairness yardstick applied to the biggest culprits of tax avoidance and/or tax evasion -- the corporations. And, given grossly inadequate government tax enforcement budgets on global corporations, "tax evasion" is the proper term to add to the words "tax avoidance" (as the corporate attorneys would prefer, likely adding that it's "perfectly legal".)

Did you know that many large U.S. chartered corporations -- Bank of America, Verizon, GE, to name a few -- did not pay a single dollar in taxes to the United States government in 2010? These are companies that report massive, billion dollar annual profits, but don't contribute a dime of federal income tax to the country that provides them with resources, public services and infrastructure to conduct business. Some of these giant corporations even receive a hefty tax benefit from the federal government. In the years 2008-2010, for example, GE made over $7 billion in U.S. profit, paid zero federal tax, and reaped nearly $5 billion extra from the United States treasury. All they say is "perfectly legal" because of the bloated tax code, with its numerous loopholes, which have allowed crafty tax accountants and attorneys to devise an entire playbook of tactics to avoid paying their way.

Tax avoidance at GE is seen as a systematic profit center with the smartest loophole experts getting bonuses. Consider this: One building in the Cayman Islands -- the Ugland House -- is the legal address of thousands of U.S companies' corporate subsidies. All to avoid taxes. All "perfectly legal".

So if the basic purpose of taxation is to raise revenue needed for public services, why are the individual U.S. taxpayers, year after year, fronting the money for such corporations? How does filling the coffers of profitable companies like Bank of America, GE and Verizon benefit the lives of everyday citizens? Seemingly, the ones who benefit the most are the corporate CEOS, who regularly reward themselves with enormous paydays, the likes of which could pay the yearly salaries of hundreds of their workers.

How do we address this issue? What are the principles we should consider when deciding where the tax burdens should fall in a fair and just system? We should start by saying: "Tax what they burn, not what we earn" and "tax what they bet, not what we net." Before we tax gainful labor, we should tax the areas that have the most potential negative influence on our economy and our society, such as pollution, Wall Street speculation, the junk food and addiction industries, and corporate crime. By using the tax code to diminish harmful and reckless activities, we'll recoup savings in innumerable other ways, fiscal, environmental and social.

Going further, The Institute on Taxation and Economic Policy published a short policy brief in August 2011 that laid out five principles of a sound tax policy: equity, adequacy, simplicity, exportability and efficiency. Read the short explanation of each principle in the brief itself here.

Former IRS commissioner Sheldon Cohen once wrote: "If you know the position a person takes on taxes, you can tell their whole philosophy. The tax code embodies all the essence of life: greed, politics, power, goodness, charity." With that sentiment in mind, any significant push toward fundamental tax reform has to start by chipping away at the corporatized, commercial Congress which uses tax breaks, deferrals, credits and exemptions as inventory to sell for campaign cash in increasingly costly campaigns. Until that happens, the metaphorical "brake lines" will remain faulty as America speeds toward increasingly more ominous fiscal cliffs.

(Many of these tax reform solutions are discussed in further detail in the first chapter, "Fundamental Tax Reform" of my latest book, The Seventeen Solutions: Bold Ideas for Our American Future.)