Alternative Tax thoughts

‘Tis the season, so I thought I would post an updated version of my little Reasonable Tax idea that I did back in February. I’ve made a couple of small changes based on the comments and some later thoughts I had.

So, here’s my idea for a Reasonable Tax.

  1. Only the states may levy taxes on citizens of that state or corporations based in that state, and ONLY on citizens of that state or corporations based in that state.
  2. Only income may be taxed. Income is defined as salary or wages for employment, interest and dividends from investments, earnings from rental property, or similar earned monies. Inheritances are not considered income. Sales tax, property taxes, and “inheritance” or “estate” taxes will be eliminated.
  3. The maximum tax rate allowable is 10% of total income, annually. Period. Local taxes are deducted from this 10% maximum (e.g., if your county tax amounts to 2% of your income, the state can only tax you up to 8% of your income). States may restrict the maximum percentage localities may set for taxes.
  4. States may tax businesses or their owners/stockholders, but not both (no “double-dipping” by taxing a business’s income 10% and then the owners’/stockholders’ incomes 10%).
  5. The federal government may levy taxes on each state, and only on the states, and no more than 10% of the total taxes received by that state.
  6. The 10% rate is a statutory/Constitutional maximum. Each state government may elect to tax less than that 10% maximum. The federal government may elect to tax the states less than the 10% maximum.
  7. Tax rates must be flat. If a state sets the rate at 8%, it is 8% for all citizens regardless of income level. However,  states may set a “poverty level” below which all taxes are waived (all or nothing). There may be a small income range where the tax is progressive to avoid situations such as where someone earning $19,000 and paying no taxes gets a small raise to $20,000 and is penalized by suddenly taking home $1000 less than before. The same rules apply to the federal government in taxing states.
  8. Tax rates must be set by legislative act, which cannot be delegated, and are effective for a minimum of 3 years and a maximum of 5. The legislature may raise the tax rate inside of that 3 year period only with a 3/4 majority vote. Such override shall be effective for no longer than one year. At the end of that year, a new bill must be passed, again with a 3/4 majority vote of the legislature, or the tax rate automatically resets to the lower previous rate. The rate may be lowered at any time with a simple majority vote.
  9. Any bill changing the tax rate must specifically address the tax rate, and only the tax rate, in a form similar to “Effective [date], the state income tax shall be X% calculated annually. Those with an income of $Y per year or less shall be exempt from any income tax.” Any bill changing the tax rate can only take effect at the beginning of the following tax year.
  10. Members of Congress and the state legislatures are prohibited by law from having others do their taxes for them, and each state and federal legislator will be audited every year they are in office, and for 5 years after they leave office, without exception.
  11. State and federal expenditures cannot exceed the previous year’s income – no deficit spending – except in the case of a current war, with a specific Declaration of War by Congress. Any such wartime deficit spending must be approved by a 2/3 majority of each house of Congress.

These are, of course, only the “core” of the tax – some other details may need to be worked out.

My main reason for taxing income rather than a sales tax is that sales taxes effect the poor disproportionately – a greater percentage of their income goes towards non-discretionary spending (food, clothing, housing, etc.) than does for the rich. The only way to offset that is by making necessary goods tax-exempt, which leads to the complicated and somewhat subjective debate over what is and isn’t “necessary.” Additionally, if the people with higher incomes restrict themselves to only buying the items determined to be “necessary” and thus tax-exempt, they can easily end up paying a smaller percentage of their income than those with a significantly lower income. Taxing income is actually simpler – both to legislate and to calculate – and more fair.

By only allowing the federal government to tax states, it gives the states a tool to use to fight federal overreach – by the state lowering it’s taxes and thus federal income – while providing a check on that power by requiring the state to cut it’s own spending to keep a balanced budget.

Discussion?

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6 Comments

  1. perlhaqr

     /  April 25, 2011

    I still like the “forbid withholding, move tax day” idea. I recognize the possible problem of “people would get to tax day and realise they didn’t have enough money to pay the bill”, but, well, frankly, that’s sort of my whole point. 🙂

    Reply
    • Honestly, I like that idea myself – maybe combine that with this, to hit two birds with one stone.

      I did make a couple of suggestions over at Walls of the City to go with that idea – I’m guessing you came over from that post? Writing a monthly or quarterly check would keep the point in people’s conscious minds throughout the year, instead of just around tax day – but doing it on tax day and putting that right before elections might hammer it home harder. I’m not really sure what would be best.

      Reply
  2. perlhaqr

     /  April 26, 2011

    I also think I disagree with the idea of a “poverty level” below which you don’t get taxed. Everyone who works needs to have their income taxed, so that everyone feels the pain of having government.

    And I say that as someone who utterly loathes income tax (it’s a property claim on you, as a person, by the state), but it’s also the best way to make that very point, that taxation is, at root, an evil that must be kept as minimal as possible. Sales tax makes it too diffuse. Property tax is possibly even more loathesome than income tax, though it’s a hard toss up. (We own you. We also own everything you have possession of. We have the right to charge you rent for keeping the stuff you bought with the portion of your income we let you keep out of what is rightfully ours. Yes, I may be something of a firebreathing radical on this subject. 😉 )

    I like that you’ve got a rule about deficit spending, but what’s the plan (certainly possibly outside of the scope of this article, but definitely a related discipline) to deal with the current deficit?

    Reply
    • There are some compromises that I built-in from the start, so that it’s slightly less unpossible that this could actually happen (not that it’s really possibly it ever will, anyway). The “poverty level” is one, and one I actually hesitated over for the very reasons you mention. It’s also why it’s optional for each state, and determined by that state. I did consider very strongly tying paying taxes to the right to vote – if you don’t pay income tax, you don’t get to vote – but I figured that would completely kill the whole thing, too. Too many people consider voting to be an absolute right, and too many people who don’t contribute keep voting themselves more and more of everyone else’s money.

      I’m right with you 100% on property tax, and I find inheritance tax even more loathsome – which is why my proposal would eliminate both completely – and I agree with you on sales tax, too, in addition to the reason I gave. It’s a “hidden” tax that most people don’t really think about even if they do see it every day – it’s so diffuse that it has become background noise.

      Oh, and on property tax? Believe me, I know. I’m paying a bank for the mortgage on my house, and the .gov taxes the bank on what I pay (which my payments are higher to make up for it, since businesses don’t pay taxes, but that’s yet another rant), then taxes me for owning the actual property in addition to what they already get from what I pay the bank. I’m essentially paying the .gov twice for the privilege of “owning” my home. 😡

      The current deficit is outside the scope of this post, but since roughly 40% of current spending is deficit spending, my plan would be to cut spending by a minimum of 50% and apply the surplus to the deficit until it’s paid. If my proposed tax plan were to pass, paying off the deficit (at a rate higher than interest, of course) would need to be a required part of the budget. It was a bit of an unstated assumption, really.

      Reply
      • perlhaqr

         /  April 26, 2011

        Inheritance taxing is just another form of double taxation, IMO. The parent paid taxes on it when they earned the income, the government shouldn’t get a second crack at it when they pass it on to their kids.

        Yeah, I wandered over via the link on WotC.

  1. Taxes and the socialist media « Curses! Foiled Again!

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