This is the first of a 3 part series on taxes.
1. Flat Tax
3. Basic Economics and the Laffer Curve
Flat Tax
Today in America we have a progressive tax system. The greater your income, the greater percent of your money goes to the government.
One rate to rule them all.
Google was in the news yesterday when it was discovered the company pays only 2.4% income tax.
As it works out, almost half of Americans pay no taxes and the wealthy can afford lobbyists to influence legislators to create tax loopholes and accountants to utilize them. The tax rates are so prohibitively high, it’s worth the extra cost of paying lobbyists, attorneys and accountants to figure out a way around them. If businesses and individuals didn’t have deductions and credits, businesses would shut down and people wouldn’t have enough money. We’ve created a tax system that’s unrealistic.
A flat tax means one tax bracket for everyone. The US government would make the same amount of tax revenue if everyone and every business paid 13% income tax. That’s about equivalent to rate that applies to the poorest Americans who pay taxes.
Almost no deductions or credits.
The only way for one tax rate to work is to get rid of all of the “loopholes,” or tax break incentives. Deductions and credits are used to provide incentives to manipulate people into certain behavior. We want people to be homeowners, so we reward them and renters have higher income taxes as we punish them for renting. We want people off cigarettes, so we smokers pay higher taxes. The government rewards people monetarily for behavior that the politicians-in-power like, and punishes people monetarily for behavior the politicians-in-power don’t like.
The theory is that taxes should be used to provide government with the money it needs to fulfill it’s constitutional responsibilities. Taxes should not be used as a reward and punishment system to manipulate choices of the citizens.
The resistance, of course, is that we like our tax deductions and tax credits. If this is an argument it simply reveals that it is not just those on welfare who are dependent on the government. It means we are if we’d avoid a more just system because we want to chase after government financial rewards for good behavior.
The 13% rate includes deductions for mortgage, rent (so renters don’t have a heavier tax burden than owners), and not much else. The system also includes help for poor Americans.
Benefits of a flat tax
A flat tax would mean everyone would have ownership of government. We would not be dependent on the government dole to give us back our tax dollars, we’d all pay something, relative to our income. A sense of ownership would do wonders for the half the country that doesn’t pay taxes today.
The IRS could all but shut-down. Payroll costs go down. Americans would save millions of hours and dollars preparing their taxes. How difficult would it be to calculate 13% of your income? The tax form becomes a half-page worksheet.
The greater your income, the more dollars you send to the government. The lesser your income, the fewer dollars you send. How straightforward! At the same time, it would help us back away from the class warfare language that the Obama administration has been pushing. We’re supposed to hate the rich (arbitrarily defined as those who make over $250K), and love the poor (arbitrarily defined as another income bracket). Why? If the poor have money, they have the ability to use what they have to move up through income brackets. If rich people have money they tend to invest it in companies that hire people at lower income levels, which is job creation.
