Their noses grow longer as they cry for tax hikes

By Dick Tunison

As I understand it, almost any complex accounting is fodder for debate. I am not much of an accountant myself, even though I had a couple of courses in college. But that mostly pertained to the ABC Dry Cleaning Co., an imaginary small business in some place like Mansfield, Ohio. It turned out to be kindergarten accounting compared to the real stuff.

Accounting for large corporations is difficult and subject to different opinions on how monies may be expressed. In fact, some large corporations have gone to the point of providing work space for IRS accountants so that they can maintain close communication with them concerning tax issues. One should not think this is a hand and glove relationship, but more of a collaborative one intended to settle problems as they are discovered.

The GAAP (Generally Accepted Accounting Principles) is a set of generally accepted principles and not “rules” or “laws”. That’s one of the reasons so many corporations run crosswise with eager state’s Attorneys General who are as politically motivated as they are in search of truth. That’s not to say some companies and even accounting firms aren’t up to “cooking the books,” but often what appears to be fraudulent, amounts to a difference of opinion rather than an effort to obscure the truth about business operations. It often happens that accounting departments, and even CPA firms, struggle with the complexities of tax law.

This is no different from adversarial lawyers representing two clients. A lot of the disagreement arises from opposing viewpoints rather than true intent to circumvent the law. Seldom do we learn of a unanimous Supreme Court decision, and that’s because the justices view the law differently. We can find the same thing in the medical profession when one doctor makes a diagnosis that refutes the diagnosis of another doctor. Sometimes there’s more squish room in these matters than we as patients would like. But that’s not to say one of the doctor is lying.

The lead editorial in the May 10th Wall Street Journal makes a point of this by describing how the Federal accountants in the Congressional Budget Office have underestimated the government’s tax revenues. Many people in and out of government, political and technical, have predicted that cutting taxes would result in lower tax income for the Federal Government and the states. Intuitively, one would tend to agree. After all, if personal and corporate income taxes are lowered, why wouldn’t we expect to see a consequential decrease in tax revenues?

At least part of the answer is found in the fact that people react to incentives that are sometimes the unseen consequences of changing tax rules. Everyone who calculates his own personal income tax using one of the current software products on the market can watch the amount of taxes owed or to be refunded change with almost every entry. Our Federal Income Tax system is so complicated even accounting firms have fallen on computer applications to do the grunt work for them.

Although we may not fully understand the ins and outs of the Federal Income Tax system, we all know that when we have more of our own money to spend there is a resulting urge to buy things or make income producing investments. Lowering the amount we’re required to pay in taxes creates the incentive to spend. Concomitantly what we spend and invest is part of what expands the market and increases tax revenues for our governments. It’s a little like feeding the bread starter.

The Senate has just agreed to extend some of the lower tax rates until the year 2010. Actually, they would do the country a service by making major changes in the system and making them permanent. I hope this move is because they’re beginning to learn a bit of basic economics rather than relying so much on the Congressional Budget Office, or some other accounting arm of the government, to predict outcomes.

The Journal editorial points out that, “The latest evidence (of improved economic factors) is Treasury’s monthly budget report for May showing that tax receipts were up by $137 billion, or a remarkable 11.2%, for the first seven months of the fiscal year. That’s more than triple the inflation rate.” Individual Income Tax receipts were up by 10.2% and Corporate Income Tax receipts were up by 29.5%.

These results may not have much meaning to John Q average American, and that’s unfortunate, because they should be understood by everybody. But some politicians refute them because they clearly fly in the face of the dire predictions that cutting taxes would increase the deficit. It’s time for the negative chorus that wants to spend our money to admit it’s wrong about the benefits of tax reductions. Those politicians who hang their hats on the perceived need to increase taxes need to listen up. They keep telling us we will die of the grizzly deficit disease if we don’t raise taxes. If they persist in repeating misleading statements about taxes and tax revenues they are perpetrating a fraud on the American people and ought to be prosecuted along with other real scoundrels.

Let me say all of that again, in straight language. Those who tell us we need to raise taxes and tear away all the existing tax cuts in order to save our economic equilibrium are either ignorant or lying for political benefit. If the former is the case, they need to be educated immediately. If it’s the latter, they should be removed form office and “go straight to jail without stopping at go.” Is that straight enough?

The economic equilibrium I refer to is a point when spending does not exceed income and there is a slight reduction in the deficit. The solution will be found in government spending restraints and tax simplification and reductions, not in raising taxes to satiate an obscene appetite for spending taxpayer’s money.