Posted by
Andrews on Sunday, October 19, 2008 7:30:03 PM
I was looking at budget figures today preparing to write a lengthy piece on how I would reform our tax system and government spending when I realized something shocking.
The BEA estimated total income at around $12 trillion per quarter. Even if we limit it solely to income from wages, it is still about $8 trillion per quarter. However, our entire federal budget is under $3 trillion per year. That means that, even if we just taxed wages, if we did not allow deductions, and did not exclude anyone earning under a certain threshold, we would only have to tax at a rate of about 10% or less to fully fund the government without a deficit.
Now, of course there would be some losses, as the system would not be perfect, but my point is this. We are so caught up in using the tax system for purposes other than bringing in revenue that we have made it remarkably inefficient.By declaring that those who earn below a certain level are exempt from taxation, we have placed a huge percentage of income off limits. And we have farther hampered revenue collection by allowing standard deductions, child deductions, mortgage deductions, deductions for medical expenses and so on. Were we to stop trying to use the tax system as a tool to encourage certain behaviors, or to create "income equality", we could apply a uniform rate of about 10% to all personal incomes and have more than enough revenue to fund out government without going into debt.
Of course, there are those who promote the FairTax as the panacea, claiming it is more simple and more fair, but I
would argue the opposite. First, the "prebate" is a bad precedent by making every citizen used to getting a check from the government. Second, by adding the distinction between wholesale and retail and between "new" and "used", not only does it allow massive room for fraud, but it also creates new complexities which can make the system much more confusing than the advocates admit.
We have already worked out most of the difficulties of our present system. It is inefficient in the extreme, but it has been refined over a century. So why not take that system, strip out all the needless complexity and build on it? Simply remove all the exemptions, all the deductions, all the many tax schedules and say "We know what we consider income, take all the incoem you earn over a quarter and send us 10%"?
I will grant it is not the best solution, but it is an easy solution. Ideally, I would restore the original system of funding via direct contributions from the states, but that would require massive disruptions, which is also my complaint against the FairTax. If we want reform now, and want it to be implemented quickly, the simplest solution is a flat tax, without exemptions or deductions. Granted, for the poor it would represent a greater tax burden than they have now, but for everyone who pays taxes now it would be a massive tax break. And, to be honest, it is time that the poor felt some bite from the tax man, it will cure them of the belief that taxes are paid by other people, while they reap all the benefits.
We need a system where everyone pays their share, otherwise it is too easy for politicians to pretend they can give something for nothing.