What should a fair federal taxation system look like? I’ll explore that conceptually here.
The fairest way to assess taxes is to have everyone pay the same percentage of their income in taxes. We’ve seen proposals like that before, commonly called a “flat tax.” However, those proposals were generally thinly veiled attempts to lower taxes on the wealthy.
I’m not proposing a flat tax as was commonly understood. I’m proposing a Fair Tax. The basic elements of this tax would be all income in, and all necessary expenses covered.
It is important to have the broadest tax base possible to keep the tax rate down. Also, having all income in the mix prevents distortions in a fair payment scheme. “All income” includes, but is not limited to, wages, investment income, insurance proceeds and inheritances. There would be no deductions or exemptions because they create winners and losers. If the government thought there was something worthy of monetary support, they would appropriate funds for it and not alter the taxation landscape.
Included in “all necessary expenses paid for” would be the typical costs of running the government, but also Social Security, disability, unemployment insurance, Medicare, health and dental care and long-term care.
There would only be one taxation percentage applied that would start at an income level equal to the (very low) poverty level. I’m not an economist so I can’t tell you what that percentage would be. With all income in, the rate should be at a manageable level. Market distortions due to some costs, like health care, being paid on a per-person basis instead of on a percentage of income, would be eliminated.
What are the advantages of this system in addition to the inherent fairness of a taxation system where all pay the same percentage of their income? A significant benefit is that we relieve the burden on our businesses to process and pay for a large set of social programs and benefits. They would now be able to compete better nationally and internationally. Entrepreneurship and capitalism can flourish with medical care and other costs divorced from the workplace, giving people the freedom to change jobs and start businesses.
With everyone paying an equal percentage of their income for health care, there will be a greater incentive to structure medical and drug costs more efficiently and finally address the fact we pay nearly twice as much as other countries for similar outcomes.
The long sought-after simple tax form would finally come into play and the numerous tax code exceptions that benefit segments of the population would, thankfully, come to an end. Of course, changes would need to be phased in over a period of years to avoid disruptions in markets and long-established norms.
Isn’t this a better way?
Norm Etkind lives in Woodbury.