TO: Our next President and Congress

FROM: Leigh Pomeroy

RE: Okay, so you've been elected. Here is what you've got to do.

Now that we have endured a long, mostly pointless and sometimes nauseating campaign season mostly devoid of any discussion of the important issues, it is time to confront those issues and ask ourselves quite seriously, "That the hell are we going to do about the world's future?"

Notice I didn't say "about America's future." The reason is simple: The future of the U.S. and indeed every country is inextricably bound up with the future of every other country. In an increasingly smaller world, no longer can one country act in a certain way and have little or no effect on any other country.

National boundaries are now dissolving at a rapid place, despite even the misguided and ultimately futile erection of walls between one people and another as we are seeing in Palestine and on the U.S. and Mexican border.

People flow like water to the most promising spot, and artificial boundaries can only temporarily deter the laws of physics and survival. This is also true of capital, goods and services on the positive side, and pollution, warfare and anarchy on the negative.

Thus, national boundaries are only artificial lines drawn on the globe, and even geographical boundaries are becoming less important as the planet shrinks due to global communications and transportation.

This said, what will follow in a short series of essays is just a small list of some problems and solutions that the new U.S. President and Congress must face and should consider, if not adopt, in the next four years.

Restructuring Tax Law

While tax law is not the most important of the boogeymen waiting inside the closets of the White House and Capitol, it is certainly one that should be dealt with before it gets completely uncontrollable. The problems inherent in the current tax laws are beyond just tweaking. We've tried that, and while sometimes such adjustments can lead to short-term solutions, inevitably the tax code is still beset with long-term problems that only create larger problems.

There is only one solution, and that is we must restructure U.S. tax law.

Optimally, we should replace the income tax with a carbon or pollution tax. It makes a lot more sense to tax what is bad for society and survival (pollution and carbon), not what is good (income). A carbon and/or pollution tax has been proposed by many futurists and thinkers, among them most prominently Lester Brown, Greg Mankiw and 255 top Canadian economists.

In the absence of going this far, in the very least the tax system must be simplified. The greater the complexity of a system, the more time and effort is spent to administer it and the greater the chance there is for inaccuracies and fraud to creep in. In other words, as a system becomes more complex it also becomes less efficient. In some cases, some systems become so complex that their costs exceed their yield.

While the U.S. income tax system has not reached this point yet, it is becoming less efficient each year. It is time to reverse this trend.

Numerous proposals have been offered, two primary ones being the so-called flat tax and a national sales tax to replace the income tax. The flat tax attempts reach the goal of simplification not because of its everyone-should-pay-the-same-rate advocacy but because it proposes to eliminate most deductions. Adding graduation to a tax system only adds a small dollop of complexity.

The national sales tax is worth considering because it takes the onus of taxation off income (earning money is good) and puts it on consumption (both good and bad, depending on what is being purchased). The big drawbacks to the national sales tax are that no other country is using it, and such a system would be difficult to enforce. In the global economy, no country can adopt financial systems, be they taxation or accounting or financial, that is vastly different from the worldwide norm without adversely affecting its own economic well-being or that of other countries. A case in point is the offshore tax havens in the Caribbean, which adversely affect tax collections in the U.S. and Europe.

A national sales tax would be difficult to enforce as barter would become increasingly attractive, replacing the exchange of money for goods and services. And it's very difficult to tax barter, as we already know.

A False Issue: Lowering the Capital Gains Tax

We have heard the constant call to lower of the capital gains tax as a means for encouraging investment, thus fueling the economy and making life better for everyone. Balderdash. The only reason for raising or lowering the capital gains tax is to bring it into equilibrium with the prevailing norm in the world.

To repeat: Money flows like water. It is going to go to the most advantageous spot, regardless of national boundaries or laws. If all investments yielded the same return around the planet, capital would naturally go to the country where taxes are lowest. But if investments yielded, say, a 30 percent higher return in country A than in country B, and country A had a 20 percent higher capital gains tax than country B, then investors would still choose an investment in country A over country B despite its higher capital gains tax.

Earned income (wages and salaries) should never be taxed at a higher rate than capital gains. To do so only discourages labor and productivity.

And while we're on it, let's stop making the IRS the scapegoat for the nation's tax ills. The IRS simply carries out the law. It's Congress that writes the law and the President who signs it into being. If the tax law sucks, don't allow the IRS to be blamed. Instead, look into a mirror.

[To be continued: Replacing the GDP, finding a permanent health care solution, revamping political campaigns, investing in real "defense", and coming to grips with the mega-challenge — energy, environment, food, water and land.]