9-11-04 - 3


The right form of tax is so clearly a flat tax with a deductible. The basic formula is :

T = (I - D)*R

I = income
D = deductible
R = tax rate
T = tax

You set your taxes with D and R. Obviously T is clamped at zero, not allowed to go negative. I can't say exactly what D & R should be, they need to be tweaked to keep the total amount of taxes collected roughly the same. It's important to keep the discussion on changing the tax formulation separate from the question of changing the total amount of taxes collected.

My rough thinking would be that R should be 35% (0.35), which keeps the tax on the top bracket roughly the same. D should be something like $30,000 , so that anyone making less than that (eg. people near the poverty line) pay zero tax.

I would also propose that you remove all deductions - children, houses, etc. get rid of them all, they're just too easily abused. Also, all forms of income count as income - capital gains, inheritance, etc. all go into your income for that year and get taxed as part of this total. Furthermore, there's no separate Social Security tax or anything like that, all this money goes into the general pool and gets divided out as needed.

The result of removing all the shelters and loop-holes is that the rich would get a real-world increase in their tax rate. The poor would get a huge real-world reduction in their tax rate. The government would also save a huge amount of money by simplifying the tax code, you can cut the IRS severely. Furthermore, the American economy gets a huge boost by not having workers waste time doing complicated taxes.

No comments:

old rants