A Simple Plan

One huge problem with the federal government is that taxation is neither fair nor simple. I was inspired, in part by Steve Forbes' flat tax, in part by the experience of doing my own taxes, to formulate my own tax plan. Mr. Forbes thought he could rally support by calling for fairness. His goal was simplifying the tax code. I agree, but think he went too far with simplification.

Lower tax rates for lower incomes is known as "progressive" taxation; lower tax rates for higher incomes is called "regressive". I'm still a firm believer in progressive taxation, so my plan is a different than Mr Forbes.

The main argument for taxation being progressive is moral. While many feel that welfare is a waste of money, there is little reluctance to just taxing the poor less. Our current federal tax system is nominally progressive, unfortunately, it is much less so at the high and low end, due to 1) social security and capital gains are regressive for the wealthy and 2) there are complicated loopholes that typically only the wealthy can take advantage of (there are simple loopholes too).

On whole the Center for American Progress finds the federal system progressive for the upper 20% (NYT 11-Apr-04 page WK-2).

There is a practical argument for taxation being progressive that I find quite strong as well. The wealthy get the most value out of the state. They certainly take more advantage of much of the infrastructure of the government, not least being the security provided by the police and defense forces. The more you have the more there is to protect. Imagine if our world became one with no police or military. Ask yourself who would loose the most if such a change were to come about. The homeless probably didn't come to mind.

The argument for simplification is also strong for many people. The people that directly benefit from the convoluted tax code are accountants and lawyers. Their work is like a tax in itself, a drag on the overall economy, adding to GDP, but not producing anything of value.

Unfortunately, many people benefit from the current tax scheme. Personally, I get a huge tax cut on mortgage interest and a smaller cut from charity. It seems to me that the government should use it's expenditures to promote or discourage behavior, not taxes. This puts the burden of complexity, where it belongs, with the budget makers. With my plan, everyone fills out the "EZ" form. A further benefit is transparency in government; one only needs to look at the expenses to see what effect the government has. The income side needn't be examined in the same detail.

Here is a spreadsheet that details my plan.

Bill de la Vega - 8-Mar-2003

 

A friend saw this page and asked what i thought about the "fair tax". Thats a great name, but I don't think the fair tax lives up to it. Judge for yourself here - they certainly have a prettier site than i do. On the plus side, it does have a reimbursment up to some minimal poverty line, so it is not as regressive as a straight consumption tax. Like all consumption taxes, it would promote savings. However, it exempts corporations. Individuals can incorporate and most (all?) super rich have access to corporate resources (can you say corporate jet, expense account, ...).

In case you can't guess from the rest of the site, I wish corporations had less power, not more. I want them stripped of the right to free speech and taxed the same as people. (12-Feb-04)

 

Beware! There are many non-profits out there that have hidden agendas! Don't believe anything you read until you find out who funds them. Some are on the political left, but most are on the right. Many will use images of the flag, the capital, or the statue of liberty to give the impression that they are impartial, even governmental. Those images are public domain.

An example is the www.taxfoundation.org, which has mostly good data and accurate assessments, but represents the rich. One common technique is to mix the quantitative with the retorical. For example, from the above foundation:

"If overtaxed, high earners will react predictably — they’ll earn and invest less."

Are they saying the rich will not bother to earn as much with higher taxes? Ha! What drives people is most likely their relative standings, not some absolute number. People will still do whatever maximizes there income. Only a marginal rate near 100% (or more) would convince someone to not bother to earn. We are nowhere near that.