If President Obama wanted to immediately pump $200 billion into the American economy, give all tax payers a simultaneous rebate, and emancipate Americans from 3.8 million days of unpaid enforced labor (read 'slavery'), it can be done quickly by simple legislation. First I explain the figures.
The annual report from Nina Olson who is chief of the IRS Taxpayer Advocate Service tells us how much time and money Americans spend to comply with a tax code that she says requires a "sanity check."
She estimates the cost of compliance to be $193 billion a year. Others estimate as much as $300 billion. So I use $200 billion. Every earner must fill out a form. This is unpaid, forced labor, usually known as slavery. Americans spend 7.6 billion hours in this work, or 3.6 million full time person-days of labor.
About the 20 volume 16,000 page long tax code Nina Olson says, "The tax laws should be simple enough so that most taxpayers can prepare their own returns without professional help, simple enough so that taxpayers can compute their tax liabilities on a single form . . . "
Allowing for certain necessary boiler plate legalese and a few qualifications, Congress could pass and President Obama could sign a 10 page tax code. The heart of it would read something like this: Every American shall pay a tax of 17% on that part of his or her earnings that exceed $35,000 a year.
That would exempt tens of millions of the lowest paid Americans from all federal income tax. It would emancipate millions more from involuntary servitude. It would allow the 80% who pay someone to help with taxes to save those millions of dollars. It would give much needed certainty to investors and entrepreneurs. And it would still bring in the same amount of taxes the government gets now, and probably more since fewer people would cheat.
How's that for an instant, fair, and understandable stimulus that works?
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So, a 17% tax on earnings, huh? Do you think we ought to be able to deduct expenses from those earnings? Or should we create an incentive that biases economic activity against those that require investment? If we can deduct expenses, which expenses? To take just one example, could I deduct depreciation on my rental properties? That is as real a cost as employees. If I can deduct depreciation, at what rate? And, all improvements on my properties? What about repairs? All repairs or only durable repairs? Perhaps a flat tax is not as 'simple' as you would like to think. What it does accomplish is having the same marginal rate for everyone. Big deal. The part of the tax code laying out the marginal rates is only half a paragraph. No saving of complexity there.
ReplyDeleteWhile I decline the invitation to write a new tax code in a blog, I grant your point that nothing in life is simple or perfect (and maybe less so in government and economics). The flat tax comes as close to simplicity as a political system can get. Various versions of it exist in several countries.
ReplyDeleteThe basic principle is simple and fair--set the rate wherever need be to replace the present system with the same initial revenue stream. Exampt from all tax a reasonable family income.
One grand simplification in any system would be to eliminate all tax on business income and tax only the money paid in salaries, wages, dividends, bonuses, etc. Your rental properties would be treated as a business.
Forget depreciation. Everything depreciates, including the value of stocks, the cars we use to go to work, and even you and I. What you spend to cure depreciation in real estate is not paid in profits.
What you pay for in repairs becomes someone else's income. Unless you do the repairs yourself--sweat equity. Under the present code it's not deductible, though any profit it generates is taxable. Ah well, your disincentive is Joe the Plumber's incentive.