Friday, October 17, 2008

You want a real tax plan?

Three words - flat tax rate.

Currently, after tax returns at the end of the year, I'm paying about 26% in taxes, both state and federal. For simplicities sake, we'll just round it off to 25%.

Everyone gets taxed at 25%.

This means that the low-paid laborer that only makes $20,000/year would pay $5,000/year in taxes, while the corporate CEO bringing in $20,000,000/year would pay $5,000,000/year in taxes.

This automatically scales actual tax payments between income levels, and has the poor paying less, the middle class paying a middle amount, and the rich paying a large amount.

I'd even want to see it taken a step further and raise the minimum wage for tax liability. Since it's nearly impossible to live in this country on a salary of $20,000/year (even though the official poverty level is $10,400 - which is insulting, in my opinion), I'd like to see the minimum wage for tax liability raised to around $30,000/year - higher if we can cut the massive spending of our government (according to the US Census Bureau, the median income per person in 2007 was around $38,000 per year). This would have the added benefit of allowing our poor to actually use every dollar they make to support themselves, rather than losing a quarter of their already low salary to taxes. The fact is, most of our employed poor in this country spend the money on such necessities as food, shelter, and clothing, and opt out of luxuries such as multiple or large-screen televisions, luxury cars, cable TV packages with all of the premiums, fine dining, and other such things. (It should be noted that even with this suggestion, my income level places me well within the taxable portion of the country.)

I won't complicate this with exact math specifics (tax math is not exactly easy), but suffice to say, a flat tax rate that would be roughly equivalent to the current complicated tax rates would be around 20% for federal taxes, and 5% on average for state taxes would ultimately help people and keep the government afloat.

The major stumbling block to this is the $10 trillion+ debt that the US currently has. With current government expenditures as they are, a flat tax won't pay off the debt without reducing massive amounts of government spending and increasing taxes elsewhere, which is an option, because taxes on certain things - like luxury items and multiple home purchases/equity, would tax only those that could afford the higher rates.

Unfortunately, bad voter decisions and subsequent bad government choices have put us into this financial quagmire. If the US was ever to become truly an independent nation again, elimination of debt is the first step to take. We cannot be independent when foreign nations own a major part of our economy. We, as citizens, are ultimately responsible for the debt caused by our government. A flat tax would help to ease the burden on the people.

Bottom line, everyone would be paying the same percentage, regardless of income. As stated previously, the actual dollar amount would increase along with salary, so the poor would pay less, and the rich would pay more. It's the fairest way to determine taxes (no to mention eliminating the amount of wasted time everyone spends in January, February, and March trying to figure out just what they owe in taxes - "oh hey, I made this, so I owe that" is far more easy).

I'm not proposing lower taxes, I'm proposing fairer taxes. Perhaps our great-grandchildren will see lower taxes. You might be on a 30 year mortgage for your home, but the American government is on a 200+ year mortgage for the economy.

It's a mess. We need to clean it up and fix it.


Scott Wimer said...

A serious challenge with any "start paying taxes at this level of income" in a tax plan is the massive variance in cost of living throughout the U.S. $50,000 a year in NYC might mean eating a lot of Ramen, but in my hometown in rural Idaho, it would be a damn fine living.

You could index it to the regional cost of living, but that simply opens up the door for crooked politicians to fiddle with these values. We've seen what that leads to.

I'd like a tax plan that can be written entirely on a 3x5 index card in 12 point font. That needs to be the whole thing, including things like due dates, penalties and the like. If we could accomplish this, odds are it would be fairer, if only by virtue of not bing a jobs program for accountants and lawyers paid by the ultra-wealthy to keep more of their money.

Ben said...

I can see how a flat tax would seem more fair, but it would still be a tax increase for people who are less able to afford it and a tax decrease for the wealthy.

And what about the practical side, I can't imagine that the flat tax plus increasing the minimum wage for liability would do anything but increase the deficit.

I think it makes more sense to place more of the burden on people that can handle it, while giving the lower tax brackets a break so that they can get themselves in a better situation by getting more education, saving more, buying a business, etc... so they can become greater contributors.

I agree that we need to reform government spending, but we need to do that first. We can't reply on reform to make up for lowered tax revenue.