--by Sebastian H
April is always a good time to think about tax policy, and I
see Kevin Drum making fun of the idea of a very short tax code. Now I'm not entirely sure that we could
reduce the tax code all the way to the size of the Constitution. But it would probably be interesting to
try. But for now, I would put down what
I see as principles of a good tax system:
1. Realize that some people are just too poor to effectively
pay taxes.
2. Admit that there is a marginal difference in dollars: it hurts the rich less to tax them somewhat more than the middle
class.
3. Work under the realization that people who will vote for
spending plans that they think they can make other people wholly pay might not
consider them as carefully if they expect to pay. People are more careful about spending when
they know that they are also the ones paying.
4. Make the connection between spending and taxing MUCH more
obvious.
To do that, exempt some percentage of the income earners
from taxation entirely. I propose 10-20%.
Some large plurality of the population pays the Basic Tax
Rate (BTR). I propose that the middle third of the population pay the BTR.
In order to not deincentivize finding a job, the span
between the exempt bottom fifth and the BTR will be bridged by and even
curve--EITC-style.
In order to fulfill principle 2, we have a progressive tax
rate past the middle third.
In order to fulfill principle 3, this rate will cap out at
some point--I propose 15-20 percentage points above the BTR. This will tax the
rich at a higher rate, without allowing the general voting populace to become
disconnected from the fact that higher spending equals higher taxing.
In order to avoid disincentivizing steps, the curve from the
BTR to the top rate shall be a nice smooth one. (maybe slope of about 3/2x), beginning just above the top earners for whatever percentage of the middle we decide are paying the BTR
Each year the government shall post spending. That will set
the rate of the BTR for two years hence. (I'm not as sure about this time
frame. I feel like setting the rate in December for the April taxes is too
short of a time, and wouldn't allow for keynesian spending in recessions).
Setting it three years out would seem to allow for too much gaming. Anyway, the
main point is that the BTR fluctuates to meet spending. If we vote to cut
things, the BTR goes down. If we vote to increase spending, it goes up.
IMO the number one problem in this country is some majority of voters want
increased spending while another majority (and no that isn't a contradiction,
and that is the problem) wants decreased taxes--and both political parties try
on some level or other to please both. One
of the nice features is that it makes Keynesian government spending possible on
the recession side, and enacts the part of Keynesian analysis that almost all
politicians want to ignore (the cutting spending and increasing taxes side when
not in a recession part).
The last time I looked at the specific numbers, I figured the BTR to be about 18-20%. And unsurprisingly, this number wouldn't change much without enormous changes in the tax rate of higher earners, but could change quite a bit based on different spending assumptions.
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