Blog or Not?



A statistically improbable polymath's views on politics and culture.

Monday, August 02, 2004
A Truly Progressive Tax
 
This is truly bizarre, but Dennis Hastert and I are in agreement on something. Namely, our country has one ugly-ass tax code. However, we're sort of in disagreement about how to make the tax code simple enough to dispense with the IRS or a similar agency. Representitive Hastert wants to implement a flat tax, a national sales tax, or some sort of value-added tax à la Britain. Now, on the surface of it, a flat tax doesn't look too bad--at least it's not regressive--but in order for the government to have the same amount of income, the tax burden for the lower and middle classes would have to be raised. Maybe that'll play in Hastert's 14th District (a bizarre anaglam of far-west Chicago suburbs and northwestern Illinois farmland, including Reagan's hometown of Dixon), but I can't see that it'll play in Peoria. Conversely, if you wanted the tax burden to be lowered for everyone, federal income would drop significantly--is that a good idea during wartime?

A national sales tax or a VAT-arrangement would be even worse--first of all, it would almost certainly be regressive, unless the VAT were structured so that luxury goods (cars over 30K, houses over 200K (depending on locale), general bling) had a higher taxation rate. But can you imagine just how difficult those codes would be to compile? I can almost hear the debate of the Finance Committee:

"But what about hybrid vehicles? Shouldn't they be exempted from the "luxury car" rate?"
"Wait--how do we define "hybrid" vehicle? Does that mean gas-electric, or can that also include cars which run on natural gas and ethanol?"

It's going to get crazy.

There are a few general principles of a tax plan that I believe Hastert and I would agree on:
1. The marginal tax rate should never exceed 50%--why? Because people don't like feeling that they're
2. All income should be taxed at the same rate without discrimination according to payroll, work income above 85K, capital gains income, with maybe some sort of exemption for inheritance (Hastert would probably want no estate tax, I would merely advise that all inheritances below certain levels [differentiating between land/business and liquid assets] be exempt).

Add to that my conviction that as your income decreases, your tax rate should decrease as well. In the language of calculus, we therefore have a variable where the second derivative is positive and the first derivative is less than .5. Since I aim to make this as simple as possible, I'm going to assume that this is a quadratic equation with an artificially imposed vertical asymtotic limit.

In plain English, put all of your income for the year together, minus exemptions, and shove it into a formula of the form ax2 + bx -c, where a, b, and c are constants and x is your taxable income. You've now calculated your tax burden in two minutes, without having to look through pages of the 1040 guide. However, if the result is greater than 50%* of your income, just take your tax burden to be .5x.

As an added bonus, the tax code can now be graphed using a TI-83 calculator.

*Or 33%, or some number which will be debated in Congress. The impact of this number will probably only influence the infamous "one percent", which you probably don't belong to.


Comments: Post a Comment