Taxes, April 15
It’s April 15 and there’s lots of news and talk, as occurs every year on this day, about taxes.
If we had Citizen Dividends, if every adult had a guaranteed basic income, it would be much easier to enact real tax reform. Radical simplification of the whole system would become politically feasible.
One reform proposal that’s extremely popular is the flat tax. “File your return on a postcard,” proponents assert. Eliminate the complications, the tax credits, tax deductions, and such. Today, typically, conservatives love the idea, because it would minimize government intrusiveness and bureaucracy, while liberals reject it, because it would harm the poor and other groups that benefit from tax deductions and other programs.
A flat tax would benefit everyone if we combine it with Citizen Dividends. Here’s how it would work:
Suppose every adult citizen is getting, say, $1,000 a month. That’s $12,000 a year for an individual, $24,000 for a couple. That money could be tax-free, and integrated with the income tax.
A flat income tax would then make good sense. The net effect would be fair to everyone. There would be no need for tax credits, tax deductions, and loopholes. People could file their returns on a postcard.
Plus, the net effect would be clearly and absolutely, in tax jargon, “progressive.” Here’s a chart to illustrate that, using a flat tax rate of 40 percent.
Total Income
Tax -
40 percent
Citizen Dividends
Net Tax
Net Income
Net Tax Rate
0
0
12,000
-12,000
12,000
0 10,000
4,000
12,000
-8,000
18,000
0 20,000
8,000
12,000
-4,000
24,000
0 30,000
12,000
12,000
0
30,000
0 60,000
24,000
12,000
12,000
36,000
20 % 100,000
40,000
12,000
28,000
72,000
28 % 200,000
80,000
12,000
68,000
144,000
34 % 1,000,000
400,000
12,000
388,000
612,000
38.8 %
People who earn, in this example, less than $30,000 would receive a check from the government, a “negative income tax.” (Monthly checks for the very poor, because this would replace most or all welfare programs.) Those with very high earnings would pay close to the full 40 percent. There would no marginal inequities or work disincentives.
There will have to be compromises, of course, regarding the flat tax rate and the amount of Citizen Dividends. Some people will want both to be low, to increase work incentives. Others will want both to be higher, to ensure that the poor and unemployed have adequate income and can provide for themselves. Both figures will have to be adjusted periodically as economic conditions change. The debates about the rates and adjustments, however, will be vastly more simple and sensible than current fights about the tax code.
Though this wouldn’t totally eliminate the IRS and the need to file tax forms, it would radically reduce those burdens. Plus, it will reduce those burdens for employers. That’ll be especially good for small businesses, especially start-ups. So these combined reforms will promote innovation, economic growth, and job-creation because most new jobs are created by small businesses.
Another popular radical tax reforms is the national retail sales tax, which proponents call the “Fair Tax.” It already includes a “prebate” to offset the higher costs of food and other necessities. That prebate could simply be expanded into Citizen Dividends.
Today, unfortunately for almost all of us, real tax reform is nearly impossible. Too many special interests profit from the complications and confusion. Those special interests include lobbyists for just about every big corporation, industry, or group. It’s the complications in the tax code that allow them to insert earmarks and other provisions that benefit their clients.
One of those special interests deserves extra attention: elected officials. They get campaign contributions from the lobbyists. Our representatives often talk about reform, but it’s usually “reform,” something they say to appeal to us, the voters who are supposed to be their bosses, promises they make while knowing they won’t or can’t deliver.
Tax reform advocates, those who are serious about achieving their goals and not just talking, ought to be calling for Citizen Dividends.
Steven Shafarman
Tags: flat income tax, national sales tax, tax reform