How would you reform the US national income tax system?

It is now within your power to unilaterally reform the national income tax system.

How are you going to do it?

Flat tax?

Reduce / increase the number of deductions?

Exempt the first $50,000 from being taxed?

Abolish it completely?

Something completely different?

Well, once I am in charge the tax code would go from 10,000 pages to about 10.

Flat tax on income with no exemptions/deductions etc.

If I have two children and my neighbor has none, that shouldn’t mean he pays more taxes than I do.

Everybody should pay some taxes, so I don’t know that I would exempt the first 50K from the tax. They would have a much smaller burden than the rich, but if more than 50% of the citizens don’t pay taxes, what reason do they have to not oppose wasteful government programs?

Well, at the very LEAST I’d make it so that all of the forms could be filled out online.

mutters, grumbles, and runs to the post office for yet ANOTHER form

Any tax reform requires at least two principal notions be observed:

  1. It must maintain equivalent tax revenue for both the Fed and State govts.

  2. It cannot be so onerous to the rich that they send all their $$ to Barbados (or wherever) because they will – if necessary, which will result in major problems (see #1).

First, I’ve always thought a ‘consumer credit’ would be an interesting reform, namely if you spend x% of you income, then you pay less tax since you are introducing greater amounts of capital into the economy. This would create jobs, generate revenue and benefit all levels of society. The rich and middle class may spend more and the working poor are already living paycheck to paycheck. OTOH, I would only support this if the max IRA contribution was doubled – which would hopefully balance out the reduction in personal savings.

Second, more tax credits for companies that can truly say they have ‘made in the USA’ products (No parts made in USA by robots then shipped out for assembly in Taiwan or Mexico).

Third, a major small business tax credit (defined as up to 100 employees - but with a sliding scale between 50 and 100 employees). Small businesses tend to fail, but still employ 70-80% of all workers in the US. Lets give them something to work with (instead of the Airlines or Car Co.s – they can dig out of their own hole).

Fourth, a motorist tax based on your odometer when you go to the DMV. Every 10k miles = pay tax. If you use the roads a lot, you should pay more for them.

Fifth, a national school tax (based on percentage of income) that is a function of the number of children you have. Every (even the childless) would have to pay, but those with one kid pay less than those with three kids. Amounts would be re-distributed nationwide by district need, not by contribution. Rich would pay more (even with fewer kids) because this would be a percentage of income, but all would pay more (including deadbeat parents).

More to follow (perhaps). But per the OP, basically my premise is that tax reform can be a wonderful force in social engineering.

Autz: FYI, I started this exact thread about a month ago:

Have fun… I’m sure plenty of folks will want to go arund on this topic again.

Oh, but I think it is very important to do things multilaterally. I wouldn’t dream of reforming the U.S. tax system without first getting the the support and input of Sweden or France. :slight_smile:

Seriously though Abe User… what’s with the subsidy to corporations that produce things in the USA? What does that have to do with tax reform?

Per my original statement, I believe tax reform is best used for social engineering. So, made in the USA product equals USA jobs and more capital/wealth/tax revenue generated within the USA. Yes its a protectionist measure (and might violate NAFTA/GATT) designed to make certain products competitive with cheaper foreign goods, but there’s got to be more opportunity in the modern economy for high school grads than min wage retail jobs.

Social engineering is what made such a mess of taxes in the first place. Taxes exist to raise money for government to function. Not to attempt to change the behavior of citizens.

Enforcing or subsidizing “Made in the USA” means more expensive products for everyone in the USA. In the end, we lose more money than we gain, and all we end up protecting are the jobs in the specific industry we are protecting: we dampen job creation everywhere else.

Debaser: while malthought social engineering goals may well have led to lots of terrible outcomes and unjust situations, it’s silly to go on about why taxes exist. They are for whatever someone decides they are for, and you’d be hard pressed to find an economist that doesn’t agree that they are a very powerful tool, whether good or bad, intentional or unintentional, at changing the behavior of citizens. Unless we’re talking head tax, virtually any concievable tax is going to alter people’s behavior: the question is whether one alteration is better than another. Taxing pollution production is certainly better than taxing income.

Any American with a high-school diploma, regardless of the complexity of his or her life, should be able to fill out, correctly, his or her own tax forms. That’s my only demand.

The government can either raise money in a neutral way, or it can raise taxes in a way that promotes responsible behavior. Which do you think would be better for society? Now there’s certainly a question as to whether certain taxes actually promote the behavior that they intend to promote, or do so efficiently, but I can’t see how it would be better to raise taxes without promoting certain behavior.

I would limit taxes to 15% of a persons total earned wages. Everyone pays the same percentage regardless of how much they make. This way the richer pay more and the poor pay less, but they each pay their fair share, no more and no less. I would split off 10% to federal tax and 5% to the states. My first cut would be in the salarys of elected officials. They dont need to live in mansions and have fleets of cars at their disposal while we have homelessness and poverty in the U.S. I would also want them to be paid hourly instead of given a flat salary. If senators and govenors were paid by the hour I think we would get more work out of them. Aside from that it would be buisness as usual, exept that there would be no extra money floating around. Make all of this big government function on less money and succeed or go broke and be replaced.

Tax inheritance the same way you tax income. It is after all “income” to the inheritor, and unearned income at that.

If you are going to tax me on money I worked to earn, why wouldn’t you tax someone for money they receive without working for it? Where’s the fairness in that?

(What’s with the attempts to abolish estate tax, anyway? Are we trying to create an American aristocracy? Seems anti-egalitarian, to me.)

What we should count as “income” is always a controversial issue. The classic definition (can’t remember the two names always associated with it) is an increase in one’s power to consume. Once you start thinking deeply about this question, you realize that lots of things are clearly forms of income… but are not taxed.

Oftentimes this is for logistical reasons. Other times it is simply a matter of habit (grandfather clause thinking, instead of zero-sum), or is a sacred cow. For instance, one of the biggest holes in the tax base, from the perspective of all income, is the imputed rent on people who live in a home they own. But given the power of homeowners in this country, it is safe to say that we will never tax imputed rent, meaning that as a matter of behavior modification via taxes, we are favoring homeowning over renting in the tax structure. So it goes.

In-kind transfers of goods and services are clearly kinds of income… but they are not taxed (and, to be argumentative here, are no more necessarily deserved, in the form of doing anything to get it, than is inherited wealth).

In the case of inheritance, you can see it several ways. It is definately a form of income for the people recieving the money. On the other hand, it’s a gift, and sometimes a gift that was worked for (and taxed) for the explicit purpose of being given. Is it an unfair double tax? I dunno. When a baker sells bread and is taxed on that income, and then uses the remaining income to buy wheat from a farmer who is then taxed for HIS income: is that a double tax? Would the story change if the farmer never delivered any wheat to the baker, and the baker was just tipping the farmer for a lifetime of partnership?

I’m not exactly sure that you’re premise follows from the facts. Reducing tax burdens for “Made in the USA” companies might mean tax revenues must be generated from other sources, but the bottom line would be reduced cost of doing business for those corps, and lower wholesale prices.

Yes, less jobs abroad will follow, but that is the idea. The ‘free market’ notion (GATT/NAFTA) has not resulted in the utopian economic promise of lower prices and increased efficiency. All that has followed is fewer low-skill jobs in the US and 18 century work conditions for the poorest people of South America and Asia. This is not progress, it is only a means to improve gross profits which are then funnelled into executive compensation packages.

Another way to put it is that what some call “social engineering” is what an economist might call “correcting for market externalities and other market failures.”

Wow! That might save like 0.01% of the government budget! And, which elected officials actually live in mansions and have fleets of cars? Is there any evidence that the problem with our elected officials is that they don’t work hard enough?

For those who are proposing a flat tax (without a large deduction):

(1) If you do this then the tax system as a whole becomes regressive. (The poor pay a greater percentage of their income than the rich.) This is because the social security tax is regressive (both because it applies only to wages and because it cuts out after a certain amount). And, sales taxes are regressive (because the poor spend more of their income than the rich do since the rich can afford to save and invest some of it).

(2) What is so magical about having everyone pay the same percentage anyway? How do you justify this as being fairer than some other choice?

You would get more work out of them?! Just how much time do you think they slack off?! Most elected officials work ridiculous amounts of hours researching and working on legislation, plus committee meetings, plus chipping in to the case work every once in a while, meeting with lobbyists and constituents, etc. Please go learn about and/or work in Congress before you make statements like this.

—Reducing tax burdens for “Made in the USA” companies might mean tax revenues must be generated from other sources, but the bottom line would be reduced cost of doing business for those corps, and lower wholesale prices.—

Good grief. Of course lowering taxes on only some bussinesses helps those bussinesses relative to others. So what? You are still sheltering inefficiency, which still means higher prices for all consumers, and less overall for Americans. You can’t take an honest look at policy outcomes if the ONLY thing you focus on is job creation or destruction in one particular industry. The thesis that Americans have been losing income in toto to overseas workers is simply not bourne out by any empirical data. There’s just no correlation there. Sure, the jobs created aren’t always exactly the same ones that the other people were doing before, but that’s hardly the point.

And, as an aside, I don’t think being concerned for only the bussiness interests of Americans is at all lauble. Sure, it’s based on national, not ethnic, supremacy principles. But in what sense of justice can anyone possible justify preventing or hindering one person from trading with another person just because the second party happens to live on the other side of an essentially arbitrary line?

—If you do this then the tax system as a whole becomes regressive.—

The “tax system as a whole” is, presumably, what we are talking about. A flat tax (a misnomer, actually) is still progressive in the sense that the rich pay more money for being citizens than the poor. I think the default burden of proof is how exactly THAT justified in terms of “fairness.”

originaly by: Neurotik

The last time I checked congress was only in session at certain times of the year. If they arent going to work all year round like most normal people then they shouldnt get paid for the time that congress isnt in session. Kind of like how most normal people dont get paid if they arent working. Even companys with a paid vacation policy rarely give out more than 3 weeks in a year.

Originaly by: jshore

NY’s junior senator Hillary Clinton comes to mind. The last time I looked, houses in the Hamptons were way out of the price range of the majority of the citizens of NY. Also, the mayor of NY city and govenor of NY state both have mansions paid for with tax payers money. If they had to foot the bill for their homes out of pocket , like normal people, then we as tax payers could save thousands each year in the cost of heating, cooling, and upkeep.

I dont see what your saying. If everyone pays the same percentage then how can the poor end up paying more? If the tax is a flat 10% and you make $30,000 a year , then you only pay $3000 in tax. If you make $300,000 a year then you pay $30,000 in tax. It is all just a simple ratio.

IMHO it is a fairer system because everyone pays the same percentage. There are no breaks or advantages for anyone, hence a level playing field. No one section of the population is left picking up the slack for another section of the population. In a sense everyone pulls their own weight equaly.

Apos, I think we’ve talked about the fact that the terms “progressive”, “regressive”, and “flat” in taxation have the meaning of being defined in terms of percentage of income. E.g., a tax is regressive if it takes a higher percentage of income from the poor than from the rich. It does not have to take a higher dollar amount to be termed this. You may not like this definition, but since it is the standard one, it makes life rather confusing if you unilaterally adopt a different definition.

As for the justification…We’ve been down that road before and I don’t want to repeat myself in too much detail here. I think one justification is on the basis of benefits received from government. I think these benefits are at least proportional to your income if not more so. For example, the police protection for your property is worth more if your property is worth more. More to the point, I don’t think it is realistic to believe that anyone can acquire the sort of wealth that the wealthy acquire without government being there to enforce contracts, etc., etc.

Other justifications are in terms of marginal utility. I.e., we have to pay for shared services and it certainly causes less burden for a rich person to part with a dollar than a poor person. It even causes less burden for a rich person to give up a certain percentage.

Well, Congress is on salary. They are not paid an hourly wage so how do you know that they are getting paid if they aren’t working. Also, I consider meeting with constituents back home to be an important part of their job.

Why don’t you look up her salary if you are so concerned about it? It’s not hard to find. The money she used to pay for that house probably came from other things (like the book she wrote).

And, I would say there are a lot of folks who get paid more than the majority of citizens. What about all the heads of corporations who earn more in one year than Senators make in their lifetime?!?

Besides which, is it really good to pay these people such low wages that we don’t attract good people and that we encourage them to have to get money from other sources. I think the deal that was made in the late 80s or early 90s where the senators and reps gave up being able to accept speaking fees in return for a salary raise was a cheap deal for taxpayers since it reduced their dependence on people who might want to influence legislation. (The problem, of course, is that we haven’t reformed the financing of their campaigns in the same way.)

I lost you here but see my comment to Apos concerning the definitions of regressive and progressive. Also, your case is a bit different since it sounded like you might use your flat tax to replace other taxes like sales tax (and social security?) in which case the total tax burden could truly be flat.

I’ve just never understood why everyone paying the same percentage is supposed be considered a priori fair and level. Apos seems to be arguing that fair and level might be everyone paying the same monetary amount and, while I strongly disagree with him, I at least understand how that could in principle be an alternate conception of fairness. John Rawls would argue for a social system that maximizes the well-being of the least well-off. Others (like me) wouldn’t be that extreme but would argue for progressivity on the basis of the facts that those who are best off are (almost by tautology) those who are getting the most out of the system and that those folks can more easily afford to pay a larger fraction of their income in taxes without undue burden relative to a poorer person.

I’d also argue that since the economic decisions we have made over the last 20-odd years have resulted in the real incomes of the top 1% growing by >150% while the median income grew much more anemically (again in real terms) and lower incomes basically didn’t grow at all, this is a time in which the tax system should not be adjusted in a direction that puts more burdens on those who have seen the least benefit and produces additional windfalls for those who have already received great windfalls.