A Fair Tax

 

Whatever the tax code is, we can all agree that it should be a fair tax, right?  Here’s what I think defines a fair tax:

 

No social / economic engineering

 

The income tax should not be used as a tool for social or economic meddling by the government.  The sole purpose for the income tax is to fund the government.  It’s truly remarkable that while out of one side of their mouths the Republicans decry big government interference in the free market, the other side is championing tax subsidies (favoring big oil at the expense of green energy) and defending a low tax rate on capital gains (favoring investment over savings [savings are taxed at the higher income tax rate] and owners over workers).

 

All form of income should be treated the same

 

Is it fair for a billionaire earning capital gains to pay a tax rate of 15% while someone working 40, 60, 80 hours a week as a wage earner pays 28% or more?  No it is not fair.  The only justification is that a lower tax rate stimulates certain kinds of investment (and speculation which causes asset bubbles!)…see the previous point please!

 

Along these lines, the mortgage interest deduction needs to be phased out.  This deduction ostensibly favors home owners over renters.  But in reality, it simply causes home price inflation and causes a redistribution of tax burden to non-owners.  Of course, this deduction needs to be phased out slowly --- over decades perhaps --- to prevent an adverse reaction of the housing market.

 

Estate tax

 

Inheritance is not income any more than a parent paying for a child’s education is income for that child.  Currently, the estate tax is set to rise to 55%.  This is onerous, unfair and often forces a fire-sale of assets to pay the tax.  If there is an estate tax, it should be at a much lower level.  It also makes sense for the tax, if any, to be levied by states, not the federal government.

 

Adam’s 1-1-1 Tax Plan Stupid

 

  1. 1 deduction
    1. Each family gets a $40,000 income tax credit. This makes the plan automatically progressive without any special deductions, loop-holes or tax-rate engineering.
  1. 1 rate for every entity (man, woman, corporation, Chihuahua): 20% of income
    1. No loopholes, no tax credits, no deductions.
  1. 1 type of income: all income taxed the same
    1. Wages, dividends, capital gains, profits are all the same.

 

Comparison of Adam’s 1-1-1 plan to the current tax system. 

 

This comparison shows that under Adam’s 1-1-1 plan everyone pays less…but not really.  Because of our current system of tax, the wealthy are entitled to massive deductions and loopholes which lowers their effective tax rate to below that of middle-income earners.  Under Adam’s 1-1-1 plan:

 

·        everyone pays their fair share,

·        the system is straightforward,

·        more money in the pockets of low- and middle-income earners will lead to a more robust economy

·        the government collects more revenue

·        American’s will save billions of dollars each year with simplified tax preparation

·        market distortion due to tax policy will be eliminated.