Sunday, December 19, 2010

Tax Compact – My Take

Here is my take on a tax compact and the four questions from the November 13 post.

Who should pay an income tax and who should be exempt from it?  My take is that anyone who is not classified as officially poor should be obligated to pay income tax.  This is about 85% of our population.  Compared to the 85% of the non-poor, only 68% of Americans actually paid US income tax in 2006.  My belief is that anytime the Government wants to expand services, then everyone who can pay an income tax should feel some part of the pain whether that pain is 1% or 40%.  In my view, this is necessary to maintain a responsible working social and electoral structure.  All classes will bear their share of the burden.

How much tax is too little?  None.  I don’t know if the minimum tax should be 1% or more, but I would settle for a minimum tax of 1%.  

How much tax is too much?  I believe that no one, no matter how rich, should pay more than 50% of his or her income as a tax.  That is a total income tax and that includes both Federal, state, and local.  In California, the maximum tax is 10.3%.  If the liberals ever succeed in setting the maximum tax at 39.6% or higher, then the highest combined income tax would be 49.9%.  Now that would work with me if that is all there was, but there’s more.

The reason why 50% of income should be the maximum combined income tax is that economic freedom was part of our revolution from the British, and that pursuing economic self-interest in the Adam Smith sense is central to that freedom.  If anyone spends one hour of any day making more money for the Government then for him or herself, then we are in tyranny.  That is why I believe in a maximum tax rate.

If Republicans are going to argue that 39.6% is too much tax and 35% isn’t, then they need a better explanation then “class warfare”.  No one even knows what that means.  They also need to justify it on a basis other than the Laffer Curve, which was discussed in the previous post.  It cannot be used to prove 35% will produce more tax revenue than 39.6%. 

There is a case to be made that small business owners would use the 4.6% difference hiring more workers and generating more overall government revenues.  However, conservatives are not proving the point with data.  The data is there.  Go find the data and make the point.

Okay, so 39.6% fits, except that when Social Security taxes are added, which I consider an income tax.  It is becoming a pure transfer tax from the younger generations to the older ones.   It can no longer be considered an investment.  It is simply, correctly, and honorably, a response to a promise from one generation to another that should not be broken. 

If we add Obama’s 39.6% to Social Security’s 7.65% and California’s 10.3%, then the total rate climbs to 57.55%.  This is 7.65% into the tyrannical range for income taxes.  Some would point out that Social Security taxes max out at $106,800 a year.  Well, as suggested in a previous post, the ceiling should be lifted to convert Social Security from a regressive tax to a flat tax, a move that would go a long way to solving its funding problem.

All of these changes would result in a maximum Federal Income Tax of 32%.  That would be a just tax………..unless the Fed’s challenged California to get its fiscal house in order and lower its maximum tax rate in order for the Fed’s to raise its maximum tax. Let’s see, California would respond that the Federal government should take back some of the responsibilities it has passed down to the states to fund, and it would go on from there.  It would be two behemoths pushing each other around, similar to watching sumo wrestling in Japan.  Now, that would be interesting.

1 comment:

  1. The 50% tyrannical point is concise and just. I agree with all of our points on Social Security as well. I wonder though, it seems to me that a growing number of Americans do not see taxes as going to the government, but, to social programs for the greater good for all Americans. It’s as if the taxpayer is viewing their payments as donations. If the taxpayer looks as their payments as honorable they will not attribute higher taxes to tyranny.
    Please keep this up. While I may get behind, I do love reading them.