How about we dump the progressive system of taxation and try something more "fair" to everyone. Everyone must have some skin in the game by paying some of the tax burden, regardless of income. I propose a combination of the "Flat" and "Fair" Tax.
The "Flat" tax rate should be around 10% with no deductions allowed, corporations included. The tax will kick-in at 250% above the poverty level which I believe is about $45-50,000. With a stable, simple, and predictable tax rate individuals and businesses will be able to more successfully plan and invest for the future with profound stimulus to the nation's economy.
The "Fair" tax portion should be a consumption based tax exempting items considered necessities for living. Basic food items, clothing (say any garment under $50), rent, housing purchase, higher education, and basic medical care should all be exempt from taxation. Their should only be ONE tax rate for the "Fair" tax, not some arbitrary progressive tax. Think about it, if the tax rate is 10% and one item cost $100 and another cost $100,000 then one is already paying ALOT more in taxes for the latter ($10 vs. $10,000 for those of you who are math challenged). So for all of you that believe the wealthy should pay more in taxes, this plan will meet that need. Under this plan the wealthy will pay more in taxes because they consume more and more of the items they consume cost more, thus they will pay alot more in taxes than the non-wealthy.
The appealing part of this plan is that now individuals, not the government, are deciding how much they pay in taxes by choosing their spending patterns. The downside is that government revenues will be more cyclical as tax revenues will decline if consumption falls. On the other hand, perhaps this threat will force government policy makers to adopt more pro-growth policies that benefit the economy and ultimately, the consumers.
Perhaps we need to reconsider how the federal budget expenses are determined to smooth out these fluctuations in the long run. But that is another blog for another day.
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I'd be a fan of doing away with income tax altogether and imposing a higher sales tax. Thoughts?
ReplyDeleteIf there was a guarantee that income tax would never be imposed again then I would be all in favor of a consumption tax, however I have little faith that the federal government could keep their dirty little hands out of our pockets for good. My problem with the consumption tax in general is that I fear it will breed corruption as businesses pay-off our legislators to reduce the tax on their product. Also, do all items get taxed equally or are some taxed more than others (i.e. luxury items)? Who determines what is a luxury item? So in the interest of simplicity I still believe that a flat tax is the way to go.
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