The Democrat Party is “all about progressivity of taxation.” Despite income tax “rates” that may be higher for top earners in some countries the US has the most progressive income tax system. That is because virtually every country with higher “rates” also has a Value Added Tax (VAT) which diminishes the “progressivity” of income taxation. You won’t see the Democrat Party supporting a VAT any time soon. (See footnote 1 for my proposed tax system.) There is very little more income tax that can be extracted from the top income tier of the country without doing serious damage to the economy.
[Source: Taxes Are Worse Than You Thought, by John Mauldin]
Few Americans have any idea about the history of “the income tax.” For example, for the first 137 years of our Nation, Americans kept every penny they earned. There was no “income tax.” The income tax was introduced in 1913. What was it like then:
There were only four pages in the original 1040 form, including two pages of worksheets – see footnote 2 – (my 2016 federal and state tax returns totaled 115 pages and I’m a retired citizen living on a pension and social security).
The idea of the first income tax was to “tax the rich.”
Individual federal income tax rates started at 1% in 1913
The maximum marginal income tax rate was only 7% on incomes above $500,000 (more than $12 million in today’s dollars).
The personal exemption in 1913 was $3,000 for individuals ($72,850 in today’s dollars) and $4,000 for married couples ($97,000 in today’s dollars).
The average income in 1913 was $750.
- In 1912 the United States of America had schools, roads, colleges, an army, a navy… do I need to go on?
American taxpayers and businesses spend 6.1 billion hours every year complying with the income tax code. (If we only go back in time just 1 billion hours the year would be 112, 140 BC. Six billion hours ago Neanderthals were the dominant humanoids on our planet.)
Americans will spend an estimated $10 billion for tax preparation services and $2 billion on tax-preparation software.
Net taxes (after netting out the money we get back in entitlements), shows that 60% of Americans either pay no income tax or, actually, get a net benefit, 30% pay their proportional (by headcount) share, and the top 10% pay for themselves and for the bottom 60%. No other OECD nation has anywhere near that much progressivity.
My friends, I am hoping that President Trump can keep his promise to alter this madness. He will have enemies trying to block him at every turn.
The tax structure I would prefer would be based on a balanced budget amendment. Congress must levy sufficient taxes to pay for everything they wish to do during a given fiscal year. I believe a combination of the “fair” tax and the “flat” tax would be most appropriate. The “fair” tax is a consumption tax, and the “flat” tax is an income tax.
My ten guiding principles:
1. A balanced budget (as required by a Balanced Budget Amendment to the Constitution), unless we are at war. (Going to war requires an Act of Congress as stated in the Constitution and not a Presidential excursion permitted under the War Powers Act).
2. Everyone has “skin in the game” (i.e., everyone pays some taxes – see the single exception below).
3. Tax both income (employing a single tax rate – a Flat Tax) and spending (the FairTax Plan – although modified as appropriate because there will be two forms of taxation instead of only one). The “consumption tax,” I believe, is important to tax the “hidden economy” and income tax “dodgers.” I also propose that there be no income taxes on anyone whose earned income is below the poverty line. Also, if their earned income is below the poverty line they receive a refund for their “consumption” tax (i.e., those at the poverty line or below pay no federal taxes). The consumption tax can only be levied at the point of purchase. No Value Added Tax is permissible. There will be no issue about whether this tax proposal “explodes the budget deficit” or whether it “gives Congress free rein to increase expenditures.” The budget must balance.
4. All forms of Federal taxation are included under this single tax structure (i.e., no payroll taxes). Social security and Medicare taxes all fall under the term “taxes.” All “agency costs” must be considered in the federal budget. We will not add to our debt through federal agencies any longer. The American people will know what their government “costs” in my administration.
5. Reduce or eliminate taxes on saving and investing.
6. Reduce or eliminate corporate taxes.
7. No exemptions, no tax credits, no “nuttin,” as my sainted Mother would say. An exemption can be added but only by a super majority vote of both Houses of Congress, and of course, the budget must still balance.
8. Only the consumption tax can be raised if more money for new programs is necessary. The single income tax rate can never be raised or divided into “progressive” rates. This means that no politician can play one “constituency” against another. Every constituency will pay this tax. Thus every politician will face their electorate knowing they have increased everyone’s taxes.
9. Any increase in the consumption tax requires a super majority vote.
10. If these will not produce adequate revenue and no tax increase is deemed appropriate, then any deficit must be solved by reduced expenditures.
Footnote 2: Page 1 of 4 in the 1913 income tax form