My Tax Reform
Posted on 25 September 2008 by Michael Callaway
One of the things that makes it hard for me to support any politician is that despite what they say on the campaign trail, none of them can truly deliver what they promise. The reasons are vast and someday I will blog more about that. What I want to do right now is talk about the change that I believe would be good for America.
The first and probably the most important one is our current tax code. Our tax system has been written in a way that makes it confusing and I believe that it is done deliberately. No one likes to pay taxes and we all wish that they were lower, however, there are some government programs that are essential and without tax revenue it would be impossible to fund those programs.
Generally speaking there are two types of taxes that are discussed, a progressive tax or a regressive tax. A progressive tax is designed to tax you more as your income goes up. The value of a progressive tax is that it dramatically lowers the amount of actual taxes paid by lower income workers; the draw back is there are all kinds of rules that make it more complicated.
A regressive tax such as a flat tax or national sales tax is much easier to understand and would be fair. The draw back on a flat tax is while it is fair in a true sense of the word, it hurts lower income workers more then it does anyone else. Someone who makes one thousand dollars a month paying one hundred dollars a month is the same as someone who makes ten thousand a month paying one thousand. However, to the person making just one thousand a month most of that money goes to essentials so in reality it is not as fair as it would seem.
Here is the dilemma, on one hand you have a tax system that is overly complex, in the other hand one that is simple and easy. But, in one hand you have a tax system that helps lower income Americans while the second one is more of a burden. If only there was a way to get the best of both. In my opinion there is and this is how I would do it.
First, get rid of all deductions and I mean all. Give money to a church, great social institution, no deduction. Pay interest on a home, good to own a home long term (despite what is going on right now), no deduction. Invest in some crazy off shore company that does who knows what, I would stay away from it but who am I to judge, still no deduction. Everyone loves their deductions and many people do a lot of dumb things to get one, in the end, you are always better off not spending the money on what ever it is and paying more taxes if your aim is more money in your pocket. If you give money, buy a home, or invest in something, taxes should be the last reason you do it.
Second, redefine income, it is not fair that some people pay one set of tax based on how income is earned and another group pays another (either higher or lower) based on how the same amount of money is received. Everything should be income and follow the same rules, be it working for yourself, for a large company or selling an asset.
Finally go to a flat tax but with a twist. The first fifteen thousand that you earn (or what ever the final number would be) would be tax free. This would be true if you are Bill Gates or if you are a single mother. After that, every dollar you earn is taxed at the same percent. This would be the best of both worlds, you would have a tax system that is easy to follow and understand but at the same time does not harm lower income Americans. It would be fair for everyone and would make it easy to know if a politician really is lowering taxes or is using smoke and mirrors.
Popularity: 7% [?]
September 26th, 2008 at 9:48 pm
Th drawback of an ordinary National Sales Tax does, as you say, hurt lower income workers but, the FairTax is an extraordinary National Sales Tax. It does not hurt lower income workers in two ways, 1) It eliminates the Payroll tax (Social Security & Medicare) 2) Provides for a monthly prebate for every legal American family (used to pay taxes on necessityies up to the poverty level. THe drawback on your proposal is that it is still an INCOME TAX! Therefore one must still report to the government what they earn and where from. If Congress controls your income, then they control you! Go to Fairtax.org for more details.
September 28th, 2008 at 11:25 am
Now I did not comment on the fair tax sales tax because I really do not know much about it. A traditional sales tax would hurt poor more then the wealthy. I know Mike Huckabee said that this one would not but I have not seen that for myself. Another fear that I have with a sales tax is that it may hurt spending.
In the 1970’s and 1980’s the government wanted to tax the wealthy, wealthy people buy yachts so they put a heavy tax on yachts. This tax did not do what the government wanted, wealthy people just stopped buying yachts, the government did not get extra tax revenue, wealthy people were still wealthy, the people that it hurt were middle class people who built and sold yachts.
I want the wealthy people to spend money because it creates jobs for everyone else. I could support the fair tax if it does not hurt the poor and if it does not hurt consumer spending.