Sunday, January 13, 2008

Tax structures?

Taxes suck. We can all agree on this. That's why I'm supporting Ron Paul for president, but that's another post.

America currently levies a progressive tax on all citizens.

The marginal tax rates in our country range from 10% to 35%.

The more money you make, the higher the tax bracket you are in, the higher the percentage of your income the government steals.

There are tons of arguments for and against the progressive tax structure (as well as whether or not the idea of an income tax is constitutionally allowed). Some of the arguments in favor of a progressive tax structure are generally rooted on the liberal side of the political spectrum.

I'm a frequent reader of the "Progressive Intelligence and Opinion" blog. Its author describes himself as a center-left liberal. He argues for more taxes for the rich and has repeatedly rallied against supply-side economic theory. Needless to say that I disagree with him.

I don't argue that supply-side economic theory will solve all the problems, but it's still better than Keynesian theory.

Back to tax structures.

There are (basically) five different options.

1. Progressive tax structure: With this tax structure the rich pay a larger percentage of their income to the government. The more you make, the more you pay.

2. Regressive tax structure: This is the opposite of a progressive tax structure. The more money you make the lower the percentage of your income you pay to the government.

3. Flat tax structure: With this tax structure everyone pays the same percentage of their income no matter how much they make.

4. National Sales Tax (FairTax proposal): This would get rid of the national income tax altogether and put a 23% (with the FairTax proposal) national sales tax on retail items.

5. No sales tax or income tax: Self explanatory.

While we would all love #5, there's basically no change of this happening (unless Ron Paul somehow wins the election) anytime soon.

Proponents argue that #4 is a more efficient way to redistribute wealth than the progressive system.

The most we can hope for is either #4 or #3. Let's face it, the politicians and bureaucrats love spending our money, so they're not going to try too hard to reform the system.

Liberals and socialists argue that the progressive tax system is essential for ensuring that everyone is hit equally hard by the tax burden. They also argue that it is essential that we tax the rich more heavily to fund social programs for those who are impoverished. Universal healthcare is a hot-button issue these days and is most likely going to make its way into America. The liberals plan on raising taxes for the highest tax brackets in order to fund it.

On a side not, my personal opinion is that universal healthcare won't work. There's no doubt that something needs to be done about the healthcare situation in this country, but universal coverage, raising taxes, and increasing the size of the government aren't the answers. Look at America in contrast to the rest of the world. We have lots of land, so we don't allocate it efficiently. We overuse most of our resources. We use too much energy. We waste money with big government. What do yo think will happen when everyone has 'free' coverage? The resource ('free' healthcare) will be overused. That's just our nature. Without co-pays we'll be going all of the time. Now I don't think that waiting room wait times would be increased by hours like some opponents say, but they would most likely increase, especially in the short term. If we can somehow fix the healthcare problem and stop enlarging the government life would be a whole lot better.

Why should the rich be taxed more heavily than the poor? It seems that they are taxed on general principle, a form of "fiscal jealousy".

Wouldn't it be nice to get a big raise at work and not have it ruined by the government taxing you more.

The progressive tax is unfair and it punishes productivity. Just based on the actual cost of implementing such a tax (think of how much money the IRS hemorrhages) it's a bad idea.

Center-left liberal's recent post on this issue is an interesting read, but still doesn't justify the wasteful system. Instead of babying those who don't do enough to provide for themselves (I'm not talking about the people who genuinely need help; we as the richest nation in the world should help them) we should be ensuring that if they do better themselves they won't be paying a higher tax rate as they increase their productivity. This means more incentive for productivity.

Just my thoughts on the subject.