I’ve written a few times here about tax fairness. People sometimes say that 50% of the country has “no skin in the game” because they pay zero on their 1040 return. I point out that they actually have skin in the game … the problem is that they don’t KNOW it.
They pay 7.5% or so in payroll taxes. The “employers share” is the same … and like a benefits package the only realistic way to look at that is as part of their income that they never see. It’s one of the stealthier taxes. So that’s 15% or so that they’re paying right off the top.
Then every dollar they spend has corporate taxes passed on to them in the form of higher prices. Again a stealthy way of getting the money out of their pockets and if you’re on the low end of the income scale you probably spend nearly every penny you make. Some of the spending is hit again with federal gas taxes and “sin” taxes on cigarettes and alcohol. Probably other taxes I’m not thinking of.
I propose the following principle: every dollar, for every person, should be taxed exactly once, at one flat rate, as visibly as possible.
Every dollar. No exclusions. No deductions. No credits. No loopholes. No distinction between a dollar you take in as wages and a dollar you take in as capital gains or dividends or interest.
For every person. Rich or poor. Yes … I do mean even for someone barely scraping by with a part-time job.
Should be taxed exactly once. Get rid of corporate taxes. They’re really just passed along as higher prices. Get rid of payroll taxes. Get rid of gas taxes and “sin” taxes.
At one flat rate. Echoing what mbecker said in this thread http://www.redstate.com/waitstaph/2011/04/23/paul-ryan-will-raise-taxes/ maybe two brackets if you twist my arm and eliminate deductions and exclusions and so on.
As visibly as possible. No stealthy taxes. No taxes that take a nickel here and a dime there. Let everyone see exactly how much the federal government got out of them that year in one big fat number when they file their 1040.
Let’s talk about what this means and let’s start with what for many people would be the hardest selling point: taxing every dollar earned by someone who is barely scraping by working part-time jobs at low wages. Could I really be proposing something so heartless?
Look again at the current situation. They’re already paying around 15% just to FICA. They’re paying corporate taxes indirectly in the form of higher prices. They’re paying at the gas pump and so on.
If you got rid of all the stealthy taxes and set the flat rate for income tax to 15% you’d be giving them a tax cut … less of their money would be going to the federal government … but at the same time you’d be increasing their awareness of just how much skin they have in the game. I’m not arguing for a tax increase … just a different and much more visible way of collecting taxes they’re already paying.
Someone in that other thread mentioned the death tax. “Taxed exactly once” fits here as well. The idea of taking a second chomp out of someone’s wealth … after they’ve already paid taxes on it as they acquired it … simply because they have a large estate to leave behind is sickening. On the other hand, as someone pointed out in that thread linked above, it sometimes also means that the very wealthy end up with money taxed at a tax rate of zero. It’s hard to justify that too.
I’ll close with my own example from a rather unusual tax year for us. We sold a house for quite a bit more than we paid for it. It was our primary residence so those gains were not taxed. We had some moderately large long-term capital gains that … thanks to a loophole in effect for 2008 to 2012 and the fact that we had almost no wage income … were taxed at a rate of zero. http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States
Because there was such a small amount of wage income we paid essentially no payroll taxes. Because of various tax credits we actually got back a refund larger than what was withheld. I guess that puts us in a negative tax bracket.
Using an on-line tax estimator and assuming dual incomes … and adding in the payroll taxes … if we’d taken in the same amount of money in the form of wages the government would have taken something like $60,000 or $70,000. Instead we cleared enough money to pay our living expenses for the next few years … and paid no taxes at all on it. In fact because of tax credits a few thousand dollars that other people paid into the US treasury were redirected into our pockets.
How messed up is that?
Let me hasten to add that I’ve had other years where the AMT hit me really really hard so don’t think the government hasn’t managed to get its fingers deeply into my pockets. The tax code just happened to be messed up in my favor for a change this year.
The moral of the story is that our tax code is seriously messed up. And also that if you make your money by working for a living you’re a sucker. Just kidding about that last part. Sort of.
Every dollar, for every person, should be taxed exactly once, at one flat rate, as visibly as possible.
BTW this is my first diary here … please go easy on me.