A 15% single-rate tax on all income above a livable minimum, would solve all of the tax policy issues.
To determine what a plan to permanently fix the federal income tax code would look like, let’s first look at what the goals of income tax policy should be.
The first goal should be to enact a plan that raises sufficient revenue to cover all government spending which will eliminate the annual budget deficit. The tax plan should encourage economic growth, rather than placing burdens on growth. The plan should be as easy to administer as possible so that households could easily and without the advice of professionals, calculate their tax liability.
The plan should also not distort any markets by placing special taxes or subsidies on certain expenditures. The plan should be flexible enough so that changes could easily be made when economic conditions warrant. And lastly, perhaps most politically important, the plan should be viewed by taxpayers as being fair and equitable.
This is the only tax plan that can meet all of the goals, although there will be debate about the last goal.
Here’s the plan:
A single rate tax of 15 percent on all income above a livable minimum (twice the poverty level) with no deductions for anything. All income is treated the same whether earned from wages, rent, interest, profit, dividends or capital gains. The corporate tax rate is also 15%.
The plan is easy to administer.
For a family of four, the livable minimum would be about $50,000. If that household had a total income of $70,000, they would subtract the livable minimum of $50,000 leaving a taxable balance of $20,000. Just multiple that by 15% and they would pay $3,000 in federal income tax. That’s it. Tax liability is not changed no matter how that income was earned or how that income was so disposed.
By eliminating all loopholes, this policy would treat every American exactly the same, giving no preferential treatment to anyone. Labor and capital are taxed at the same rate, so there is no advantage to capital gains. The tax liability calculation is simple. No tax preparers are needed, and we have much less need for the increasingly…