Tax Day: Why We Pay and How Not To
In the Outlook section of yesterday's Washington Post, AEI Senior Fellow Kevin Hassett analyzes why we pay taxes, noting that between 1983 and 2003, tax rates for both middle and high income earners are both about 30% when all taxes are included. Of course, he misses the 1993 data point, where taxes on the wealthy were a bit higher due to the Clinton tax increase.
It's not just about the rates, however. The reason we pay is that for most individuals, taxes are withheld from our paychecks - including contributions to Social Security. The April exercise for many taxpayers is about getting a refund rather than paying taxes.
Readers of this blog will know that we at the Center are in favor of eliminating the filing of personal income taxes for most taxpayers, with the notable exceptions of sole proprioters business owners and the wealthy. Employers collect most of the money gathered by from wage income and must report it. It is a simple step to simply make them responsible for the taxes, allowing employers to decrease gross income, but not the net.
This would have the same effect as a consumption tax, except that the revenue paid would be hidden. Additionally, subsidies for poor and large families would be handled by increasing wage equality and by transferring popular credits for home mortgages and family size to the employer who would then pay these to the employee as part of the salary. The reason wage equality would increase is to prevent employers from shifting all compensation to family size credits and paying no other wage at all. This would also solve the problem of taxing dividends twice for all but high income earners, since the business income tax would be a hidden VAT, so that all value added and paid to households (whether in salary or dividends) would be taxed at the firm level.
We also propose that many government functions, such as public education, higher education, workforce development and social services be undertaken by employers or by charitable organizations designated by the employees and that a tax credit be awarded to firms for funds so diverted. This should quiet the critics who want taxes to be as uncomfortable as possible so as to "Starve the Beast." The best way to starve the beast is to make it compete with other beasts for food. Some individuals will likely favor a public system and will voluntarily fund it. Others will fund a private system and shift their service usage accordingly. The only residual taxation would be to fund domestic military costs, which might be funded by a minimum tax which is collected as a visible sales tax. This will give some impetus to minimize these costs.
Sole proprietors continue to file because they are businesses. The rich will continue to file because the only way to tax them at higher rates, forcing money into the consumption sector to counter those funds paid to them in net interest on the National Debt, is to do it directly or to add a surcharge for payments to these families at the employer level. Of course, this would require disclosure of personal financial data to the employer and to anywhere you have investments. Most would rather simply disclose to government to pay what would be a surtax of 3% to 15% of income and the liquidation of any inherited assets, both over $100,000 per year. This surtax would end when the National Debt is retired, including that portion held by Social Security and any transition costs to privatize it, the contingent liability to the World Bank/IMF is also retired and overseas military postings are ended (since these are a source of future debt). This would make wealthy conservatives into peacenicks rather quickly, freeing up national assets for better use.
It's not just about the rates, however. The reason we pay is that for most individuals, taxes are withheld from our paychecks - including contributions to Social Security. The April exercise for many taxpayers is about getting a refund rather than paying taxes.
Readers of this blog will know that we at the Center are in favor of eliminating the filing of personal income taxes for most taxpayers, with the notable exceptions of sole proprioters business owners and the wealthy. Employers collect most of the money gathered by from wage income and must report it. It is a simple step to simply make them responsible for the taxes, allowing employers to decrease gross income, but not the net.
This would have the same effect as a consumption tax, except that the revenue paid would be hidden. Additionally, subsidies for poor and large families would be handled by increasing wage equality and by transferring popular credits for home mortgages and family size to the employer who would then pay these to the employee as part of the salary. The reason wage equality would increase is to prevent employers from shifting all compensation to family size credits and paying no other wage at all. This would also solve the problem of taxing dividends twice for all but high income earners, since the business income tax would be a hidden VAT, so that all value added and paid to households (whether in salary or dividends) would be taxed at the firm level.
We also propose that many government functions, such as public education, higher education, workforce development and social services be undertaken by employers or by charitable organizations designated by the employees and that a tax credit be awarded to firms for funds so diverted. This should quiet the critics who want taxes to be as uncomfortable as possible so as to "Starve the Beast." The best way to starve the beast is to make it compete with other beasts for food. Some individuals will likely favor a public system and will voluntarily fund it. Others will fund a private system and shift their service usage accordingly. The only residual taxation would be to fund domestic military costs, which might be funded by a minimum tax which is collected as a visible sales tax. This will give some impetus to minimize these costs.
Sole proprietors continue to file because they are businesses. The rich will continue to file because the only way to tax them at higher rates, forcing money into the consumption sector to counter those funds paid to them in net interest on the National Debt, is to do it directly or to add a surcharge for payments to these families at the employer level. Of course, this would require disclosure of personal financial data to the employer and to anywhere you have investments. Most would rather simply disclose to government to pay what would be a surtax of 3% to 15% of income and the liquidation of any inherited assets, both over $100,000 per year. This surtax would end when the National Debt is retired, including that portion held by Social Security and any transition costs to privatize it, the contingent liability to the World Bank/IMF is also retired and overseas military postings are ended (since these are a source of future debt). This would make wealthy conservatives into peacenicks rather quickly, freeing up national assets for better use.
posted by Michael Bindner at 3:30 PM
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