This’ll be fun…
So let’s talk taxes. Discussions about economics always seem to lead to discussions about taxes, which in itself says something. Seems like taxes should be “invisible” — in that people don’t really spend too much time dwelling on them. Even though people will never be *happy* about paying taxes, it seems just about everyone thinks the tax code is royally screwing them (or people they know). Of course, money in general carries with it the power to make everyone inherently dissatisfied (especially in our consumer culture). Just about everyone, no matter how much they have, always wants more, because no amount of money can ever be enough. Contentment does not come from what you have, it’s an inside thing.
All that being said, a number of comments have been posted to the blog on the topic of taxes. I thought I’d share my vision on taxes with the world, and see what kind of (lively) responses I get.
- If the tax code cannot be written on the front and back of a single 8.5×11 sheet of paper, then it’s too long and should be rewritten. The concept that entire industries and shelf fulls of software packages exist just to help the average American navigate the tax code is beyond ridiculous through commical to just plain sad.
- Here’s what I’d put on the 8.5×11…
- Income tax is far more flat. Two buckets. A poverty line is developed and adjusted for inflation every year. Income below that line means that I pay NO income tax. Above that line, I pay a fixed percentage of my income to the government, similar to the way we do now. Three variables — the poverty line, the poverty line adjustment rate, and the income tax percentage. Say maybe $20k/yr, 3% and 20%. Thus people are much more fairly taxed on what they earn.
- Sales tax is federalized and works just like income tax. Below the poverty line, you are treated like a non-profit organization — you have the card in hand, so you pay no sales tax. Everyone else pays a fixed (probably much higher than today) sales tax. Say maybe 20% as well. Thus people are now taxed on what they spend, moreso than what they make. You aren’t penalized nearly as much for success, and “poor” people are exempt from taxes. Obviously the rub is for the guy making $21k/yr, but there will *ALWAYS* be some kind of line(s) at which things get hard. Adding 50,000 pages of tax code hasn’t made that go away, and I submit adding exceptions and exemptions and rebates and more tiers, etc never will. A fixed PERCENTAGE is fair.
- Property tax stays in play, as do corporate taxes. Can’t get around it as much as I hate it. One change here, though, is that I’d make it illegal for cities to bargain tax breaks with businesses to get them into town. That just royally screws the home owners; no way around it. Those businesses have an obligation to fund local infrastructure, such as schools, etc.
- I’m far less familiar with business tax code, so I can speak less to it. However, a couple things that I would do… This code should be dramatically simplified as well, hopefully similar to above. In addition, above a certain threshold of “harmfulness” (which I think should be determined by referendum — pure democratic vote — at the federal level, so that the concept can’t be hijacked by career politicians), I would have businesses pay extra taxes if they produce products harmful to the community. Smoking, drinking, gambling, porn, etc would have heavy taxes leveled against it, then these “vice revenues” would be used to fund schools, local assistance programs, community development programs, shelters, etc. It’s the least these companies (and the people who buy these products to make the companies viable) can do to help society deal with the crap they’re spewing out.
- No estate tax … at all. It’s totally unfair. Pretty fascist actually. I’m no fan of 2nd generation wealth, but that doesn’t give the government the right to come take half of what I’m trying to leave my children when I die. It’s grave robbing. And on top of that, this is the stuff I’ve managed to accumulate AFTER I paid taxes all my life. It’s taxing my income and all my stuff AGAIN. It’s just wrong, and we need to learn how to live without it. I just don’t believe in punishing people (actually, it’s not even them, it’s their children) for accumulating. Under the old estate tax laws (before Bush raised the limits), my father’s (blue collar worker all his life — two jobs for most of it) farm would have to be liquidated to cover the tax burden of his death. So, his prize possession — dreamed about since he was a kid, works on every day, loves — my brother and I would have to sell it to cover the estate tax. How is that right?
- So, state tax would be transparent, in that we’d just pay it and not have to file anything to the state. Property and business tax processes would continue similar to today. Federal tax would be payed on a website once a year, maybe once a quarter, and take an hour at most. The IRS should have about 25 employees, instead 115,000 (what it has today). If you figures these folks make $10/hr (ha!), then that’s a savings of $1M / hr (or $2.4B/yr) right off the top.
What would happen under the Jeff plan?
- Start with the easy stuff. The IRS. The actual IRS budget for FY 2005was $10.7B. We could stop throwing most of that money away. Yes, we have the fallout from these folks no longer having a job, but they could compete in the private sector then. Better for everyone. Maybe we even take the first year’s $11B savings, and devote it to helping them change careers. That’d be the least we could do for them. Also fallout from tax accountants having their industry go up in smoke, but it seems like they could be other kinds of accountants, actuaries, etc. No doubt there’d be an over-supply of math nerds quick, which would have some negative impact. But I think worth it.
- What about federal tax revenues? Federal tax revenue for 2005 was $2.15T (that’s with 12 zeros). If we go to more of a flat model, what would happen? Let’s use my $20k (pretty close to the actual number of $18,244, but let’s keep it round and simple) and 20% numbers above. The average American household makes about $45k. About 13% of the nation is “poor”. The number of households in the US is about 110M. So, it’s just math from there. 14.3M households are poor, and pay nothing. The other 95.7M pay 20% of their average income of $45k. Total federal tax revenue = $4.3T dollars — more than double what we brought in last year under our 66,498 page tax code. If 2005, the average tax burden per household was $20k. Under my plan, the average tax burden per household is $9,000 (20% of the $45k average income).
- What about state taxes? Well, considering that NOBODY pays anywhere close to 20%, I think it’s safe to say revenues would be through the roof there (without my taking the time to spell it out). So, of course my vote would to be dramatically lower the 20% INCOME rate, and put more of the burden on the sales tax side of things. If you combine this with cutting our spending by 25% (which I would absolutely make part of my “comprehensive” approach to taxes), I don’t see why we couldn’t all pay less and have far more money available to the government with far less complexity and a far more fair system.
Guess that’s it (until I think of something else). Either way, I’ve gotta get to real work. What do you think?