I wouldn't pretend to have a solid plan to repair our tax system and get back to fiscal sanity, but would it really be impossible to do some variation of the following?
- First, say, 30K is yours--keep it (per individual, so 60K for married couples)
- Remainder of income over 30K taxed at a flat rate of 20% up to 500K
- Taxable income over 500K taxed at flat rate of 25%
A sample of income levels and their tax liability would break out as follows:
Salary Tax % of Income
50,ooo 3,600 7.2%
75,000 8,100 10.8%
100,000 12,600 12.6%
150,000 22,200 14.8%
250,000 43,200 17.3%
500,000 95,700 19.1%
1 mil 217,500 21.75%
No deductions--period. I could see an exception made for charity, but I don't think people give to charity primarily for a write-off and charitable contributions can be--and sometimes are--abused.
As for child deductions, do we really need to subsidize having more children? With a system like the one above, a family of 4 (or 3 or 6, for that matter), wouldn't have to pay a penny in income taxes up to $60K. That seems pretty reasonable. Having children is a very personal choice that can be effected by numerous different factors. The government shouldn't be involved in either rewarding or penalizing the decision to have or not have children--and certainly not the number of children.
For mortgage deductions, it needs to go--which might make this a highly unpopular proposal. But it doesn't make sense to subsidize borrowing (particularly very leveraged borrowing) and the recent housing debacle seems to prove that point yet again.
Additionally, why not institute a national sales tax of about 8-10% that goes primarily to the welfare state (food, medicine, and housing would be exempt--including mortgages :-))? Though regressive, it would be progressive in effect and go toward things like public housing, food stamps, Pell grants, and the like--though infrastructure, education, and public safety would be reasonable programs to fund with the tax as well, depending on the nature of it.
Between Social Security, Medicare/Medicade, and a VAT tax of 8%, even someone making only 30K/yr would still be paying about 12-15% of their income in taxes (assuming they spend the majority of their income, which they likely would of course). This VAT tax would ensure that everyone is paying into the social safety net as well, including those benefiting most from it (10s of millions of Americans pay no income tax at all).
The VAT tax would likely bring in close to a trillion dollars a year, quite possibly more (US GDP in 2009 was $14.4 Trillion), and one should hope that such a figure would be enough to take care of the social safety net ($1 trillion is over $3,000 for every man, woman, and child in the US).
The VAT tax would also, at least presumably, encourage saving and investment vs. consumption. Though the argument could well be made that it might hurt business in that, effectively, it raises the prices of their goods and services, people will still need products and every vendor would be treated equally. Additionally, if overall tax rates are lower, it gives more Americans more money to spend should they need/want to and, at least hopefully, mitigate the extra VAT tax expense.
I fully realize that my numbers may well be off and that the rates might work better with other numbers. Additionally, this system could almost double the tax rate for the very poorest in our society. But the very poorest would be receiving almost all the benefits of such a system--I don't see another way to do it, practically.
The main idea is to develop a system that is both easy and effective and, perhaps most importantly, neutralizes most of the arguments from both the left and the right. It would be hard to complain much with a very-near flat tax system that both protects the poor but does not completely exempt anyone at the same time. Another huge benefit would be the reduction of lobbying power. If there is nothing to gain in the way of tax codes or preferential tax treatment, why lobby? Lobbying would obviously continue, but I can only think it would very substantially be reduced.
Just a thought. I very conspicuously left off entitlements and corporate taxes, but this post is too long as is. I'll leave that for another day though, in short, I would favor a reduced flat corporate rate with little to no exemptions and I favor a partial privatization of Social Security.
