Wednesday, October 1, 2008

The perfect tax code

One of colleagues, who teaches AP US Government, has a class blog. (Sorry, you have to be a student in the class, or get special permission like I did, to participate). She has asked me to be the token right-wing Bible-thumper, as she and almost all the students are liberal (sigh). Anyway, I posted a thought or two today on how I would change the federal income tax, if I could. I have cut and pasted my thoughts below. I would welcome any feedback.

First of all, it would still be graduated and progressive. Either a flat tax or the so-called fair tax would be significantly less progressive than we have now. I have no problem with those who make more paying a higher percentage of their income than those who make less; but I would stipulate that there ought to be reasonable limits on how much anyone can pay.

What limits? I would stipulate that there is an alternative maximum tax of an effective 33% rate. (Note--marginal rates could be higher; at the current 35% top rate, a doctor earning 400k a year still doesn't hit an effective rate of a third). This is just a matter of fairness... even if it is economcially good sense, I think it smacks of theivery to confiscate more than a third of someone's income.

Moreover, I would have a minimum nominal tax. Under the current system, many, many families (mine used to be one) pay ZERO federal income tax. (in my case it was one teacher salary, a stay-at-home wife, tithing at church, a mortgage deduction, and three child tax net tax. Even though I lived in a brick house, had two cars, and sent the aforementioned kids to PG). I would set it to where everybody pays, say $600 a year minimum.$50 a month... less than most of the "poor" spend on cable TV, and a small price to pay for the benefits of US citizenship. Moreover, I would index that amount to future tax increases. So if spending/taxs go up 10%, the poor guy feels 5 bucks worth. The notion that we can spend whatever we want and someone else will pay for it is pernicious.

But what, you may ask, about the truly poor who get things like the Earned Income Child Credit? Still do such programs, but call them what they are: welfare. Put them on the "expenditures" side of the ledger, not as a negative on the "revenue" side. I don't care if a poor family takes in more from the government in welfare than they pay in taxes. I care that they (and we) think that somebody else pays the taxes. And I especially hate it when politicians promise "tax cuts" to people who don't pay anything. That's just buying votes with stolen money.

Finally, I would design the tax code around the concept of maximum federal revenue, subject to the above principles. If an increase in rates chokes off economic growth and creates less-than-maximum revenue, then it's a mathematically bad idea, regardless of how "fair" it makes us feel. But conversely, if a cut in rates does not throw off enough increased growth to make it a net positive, then supply-siders should be against it. I feel quite comfortable in saying that JFK cutting rates from 90% to 70% was sensible, as was Reagan's cut of 70% to 28%. I am less convinced that the Bush cuts from 39.6% to 35% were as necessary (but open to convincing on that point).

Spending, of course, is a totally different topic. But in the unlikely event that we generate enough revenue to cover all expenses and have leftovers (like we did during the tech boom of the 90s), I would say that excess revenue should go to debt reduction, not as a cut back to the taxpayers (provided, of course, that my other conditions are being met).


Pete said...

I think Starbucks should charge me $2.50 for my drink. In turn, I think they should charge the millionaire $10.23 and Buffett should be charged a C-note for the same drink.

I'd like to point out that the poor and most of the Middle class do not pay taxes... they simply give the Guv'ment an interest-free loan.

"Lowering income taxes" simply means they are obligated, required & coerced into loaning a little less. Unfortunately, they are still coerced to make that loan.

I say they don't actually "pay" taxes because they receive the money back if they are diligent enough to file their taxes and claim their refund.

As you can see, I'm vehemently opposed to taxing the wealthy more. It's a matter of principle. You don't raise the price of the cup of coffee just because you know the dude is loaded.

Philip Murphy said...

I'm probably one of the few that thinks the current tax code and structure is fine. Like any machine, it needs tweaks and twists every year. A complex tax system for a complex nation.

I get more frustrated with local taxes.

I don't have a problem with the tax structure... I have a problem with the spending structure.

bekster said...

"Pernicious." I like that one. :)

Yeah, I think the trouble is more in the spending, but your plan sounds pretty much fair.

Pete, the difference in giving money for a cup of coffee versus for taxes is that one can choose to buy that cup of coffee. One does not get to decide that they do or do not feel like paying their taxes. We know that taxes must be collected for roads, national security, etc., but it is not fair to take some money from certain people and not from others. But, it is also not fair to take the same exact amount of money from a person with less income as from a person with more income. Either the "rich" guy will pay something he is comfortable paying while the "poor guy" will feel oppressed by what he considers to be an unreasonable burden, or the "poor" guy will pay something he is comfortable with while the "rich" guy doesn't even notice the money is gone--while the government ends up with not enough money to pay for necessary things.

It is fair to charge everyone the same for a cup of coffee because it is not something one has to have. The "poor" guy can get by with drinking tap water, but the "rich" guy can afford--in fact, he's earned the right--to buy himself a nice cappuccino with whipped cream, please.

We should be taxed for things that are necessary and that contribute to the good of the whole, and that is a burden that we should all share. But, that burden is going to be felt differently by people who have differing means. It's only fair that we try to even out the perceived weight.

bekster said...

That said, obviously we don't want to "punish" the "rich" too much because it is good for everyone around for them to have money because then they are able to spread that money around, whether by employing people in their businesses or simply by buying a lot of stuff. That way, the money trickles down to the "poor" people.

It is true that a "rich" person probably pays more (in flat quantity) in sales tax and property tax than those with less income, so maybe they don't have to be hit as hard with income tax (even though they can handle it).

Speaking of property tax, that's the one that gets me. If you own something of value, taxes were already paid on the income used to buy that thing, and taxes were paid again when you bought it--so why in the world should you have to pay for that thing just existing under your name? This is especially stupid when the thing is inherited or when a "poor" person saves up everything he has just to buy this one special thing. No, property tax is a crime I just can't justify.

DK said...

Dude, I'm dying to see a post on the $700b bailout. I'm surprised you haven't written about it yet. Of better yet, what do you have to say about Obama's response to Joe the plumber?

Goode Design said...

dk, there is no need for a comment or post on Joe "the plumber" Wurzelbacher. Obama did a very good job answering him. I honestly applaud Obama's answer. It's one thing to say that you voted for a Dem believing he won't raise taxes on the average "Joe," but it's quite another to vote for one that admitted before heaven and earth his intentions are to do EXACTLY THAT.

Now, we can't just blame Obama if he gets elected... all the idiots that vote for him will be able to share in the blame for decades to come!

Welcome to the U.S.S.A!

Philip Murphy said...

(crickets chirping)

Goode Design said...

I hope you know, we all expect a full post-election wrap up. I am hoping you give us the full run-down of Red State vs. Blue State and how the candidates successfully (or not-so-successfully) usede their smoke & mirrors routine to buy our votes.

Larry, you should choose one of your bleeding-heart-liberal friends and do a podcast or write up of the election and what it means for America... And then you should both start a talk show on Fox and call it Not Hannity & Not Colmes.

We're all waiting with baited breath! not for the election results... but for another Coach Sal post.