Before this tax furor burns out, I need to say my peace.
A slightly-progressive flat income tax is the only workable system. 100% of income earning citizens need to pay taxes so everyone shares the burden. Under the current system in 2009, 43% of citizens will not pay $1 of income taxes. When Obama’s Make Work Pay tax credits kick in, up to 50% of citizens will not pay even $1 of income tax. And the cry during this trend is, “We’ll make the rich pay their fair share!”???
The idea behind taxes is that there are certain services and functions that we believe government should provide. Each of these services has a cost, and the burden of this cost should be spread among the citizens. The government should collect no more tax than this cost.
I believe a completely flat tax is the only fair system, but I recognize that for someone near the poverty level, each dollar is “worth” more to them than to someone who makes millions. I think most Americans agree and would give up some “fairness” in the spirit of a cooperative social contract.
I do not think that there should be deductions, credits, adjustments, exemptions, etc. I do not think that taxes should be used to encourage or discourage certain behaviors. A flat tax would allow anyone to calculate their tax liability or return, and reduce the opportunity for tax avoidance.
We’ve had posts before discussing the strengths and weaknesses of a consumption tax, but even this seems to miss the point to me. I should not pay taxes because I choose to spend what I earn. What does this have to do with my expectation of what the government should provide? Do we need to anticipate the number of cars that will be bought each year when planning our defense budget or should we be anticipating the earnings of the citizens?
As Ron Paul said during the presidential debates on the topic of cutting taxes “you can only do that if you change our ideas about what the role of government ought to be. If you think that government has to take care of us, from cradle to grave, and if you think our government should police the world and spend hundreds of billions of dollars on a foreign policy that we cannot manage, you can’t get rid of the IRS; but, if you want to lower taxes and if you want the government to quit printing the money to come up with shortfall and cause all the inflation, you have to change policy.”
A system where less than half its citizens pay taxes cannot last.
Last 3 posts by Eric B.
- Nassim Taleb on the Economy - June 25th, 2010
- Full Circle - May 3rd, 2010
- The Dark Side :) - April 5th, 2010
Just wanted to add an amendment to my flat tax…
I said that everyone who makes an income needs to pay taxes. I want to specify that this includes unemployment or any other type of government assistance. This prevents people from thinking they can escape the market system and leech on the government system to avoid their responsibility.
Two comments: 1) I totally agree about the breadth of taxes. Even the widow’s mite should be worth something. Everyone needs to contribute no matter how small.
2) Taxes by their nature encourage our discourage behavior. A progressive tax system of any kind discourages work. Different levels of taxation on different kinds of income change behavior. I prefer the government discouraging consumption rather than discouraging work, savings, and investment. I also think the consumption tax would be easier to police and collect than an income tax. With regard to your question about the government having to forecast the # of cars etc in order to see how much revenue it will get, it already does this forecasting with respect to income.