Taxocrats and Other Fine Luxuries of the Republic

First, I must say that the last posting to this blog was a deft attempt to deflect us from a discussion of the Democratic candidates and their desire to punatively tax higher wage earners to achieve their social engineering objectives. Let us not lose sight of the fact that the Democrats are essentially offering up their classical argument around taxing the rich and, in that sense, offer us nothing new.

With that said, I'll switch gears and take the bait. What my dear friend proposes sounds a lot like Mike Huckbee's plan for consumption taxes that was recently discussed in the Economist. The resulting consumption tax rate would have to be north of 30% which, though I have some sympathy for the concept, I believe the complexities inherent in this approach limit its viability.

That said, I am in favor of a simplier tax code with some very basic threshold deductions that allow people of all income levels to (a) know what they made and (b) know, regardless of their life choices, what they will have to spend. I believe a modified flat tax would be simple to administer and make it easier to track down fraud which in turn would further step up treasury revenues. What do I mean by a modified flat tax? To start we have a floor, say the federal poverty line + 20%, under which no income will be taxed. This floor adjusts itself very modestly based on household size. Second, all wage/other income, capital gains and the like would then be taxed at a flat rate until the household hit a maximum income of x (which would need to be determined). After which, I believe a relatively increase in tax should be considered. By taxing all income, regardless of source, at the same rate the government would stop playing social engineer in our lives and force us to make our own decisions. I also like this approach because it would add millions of people back to the tax rolls. I believe it is important to the Republic that everyone pay taxes even if the money they pay is redistributed back to them shortly thereafter.

This approach should be married to an abolition of all state income taxes. States should focus on base consumption tax and property taxes within their own borders and adjust those tax levers as a appropriate to encourage the type of economy that the people of each state want to have.

As I said, while I appreciate Huckabee supporters, like my friend, I just can't see the benefit in replacing one overly complex system with another. If we're going to stick to complexity then we should just discuss what the right deductions are in the current federal income tax system.