In another thread, I put forth the idea of a guaranteed safety net for all Americans, in the form of government-issued food, clothing, shelter, and medical care for everyone. (Period.) I postulated that this could be paid for out of general revenues, as my (very rough) calculations indicated that to maintain everyone at at least the federal poverty level would consume 19% of GDP. This figure may be wildly inaccurate; I don’t wish to pick over that at the moment.
I also said that one’s earnings should be taxed at 100% until they reached the contribution threshold, at which point one’s earnings would be taxed at a flat percentage, necessary to pay for all the other functions of government. This percentage would certainly be less than the existing percentage levy, because it would only have to fund the non-social-services portion of the budget; SSI, Medicare, etc. would have been replaced by the basic contribution tax.
Now, this would be a strongly regressive tax, in that the highest tax rate would be on the smallest amounts of earnings. Traditionally, we’ve had a “progressive” tax structure, in that the largest earnings are taxed at the highest rates. Many have objected to this method on the grounds that progressive taxation serves as a disincentive to investment: the better you do, the less of your money you get to keep. Certainly, corporations are now keeping huge cash reserves rather than investing them in capital improvements or new hiring. To what extent this is caused by progressive taxation is debatable (I include S corporations in the above), but it seems to me that a regressive tax might actually serve as an incentive to investment.
Certainly, a flat tax is unworkable, because the amount that would need to be collected from each individual would exceed many persons’ incomes. The current taxation structure, many conservatives in particular will tell you, inhibits growth. So what do you think about a regressive tax where earners pay for the national safety net program first? (The 100% initial tax can, of course, be modified in any one of a dozen ways; the idea is that ALL tax revenues collected first go to the national safety net.) Would a regressive tax structure serve as a stimulus to investment and growth, and would the automatic funding of a national safety net answer most of arguments for a progressive tax structure?