A rare occasion where I disagree with Insty.

Instapundit links to a Reason article showing that under Bush’s tax cuts the very rich paid a higher percentage of taxes.

He’d like everyone to pay at least some tax, and posts a reader’s comment that we need a flat tax with no deductions.

I disagree.  Better would be a flat tax, one universal deduction, and nothing else. Let’s say a $5,000 deduction. If you averaged less than $95 a week you’ll have to file the same one-page tax form as everyone else, but won’t have to include a check, money order, or CC number.

Now, my tax code is more complicated than Glenn’s.  If the rate was 15%, his would be (income x .15) = your tax bill.  Mine is [(income-$5,000) x .15] = your tax bill.   His requires one mathematical operation, mine requires two.

Both are somewhat less complicated than the current arrangement. 

Each would save a few hundred million man-hours of friction each year.  Especially in the early days, much of that time will be spent in rejoicing and not a few parties.  But some will be spent in productive activities that increase income (thus taxes).  Billions will be shaved from the I.R.S. budget. 

It’ll be bad, briefly, for professional tax preparers.  But they’re productive monetary experts who’ll find their rewards elsewhere in the newly energized economy.

My universal deduction is completely defensible.  It falls squarely under “general welfare”.  All non-universal ones, by definition, are “specific welfare”.  Congress has never been constitutionally authorized to use the tax code for social engineering.  Its authority is to raise revenue for the general welfare.

And the deduction doesn’t have to be large.  But at some point the transaction costs of cashing a dinky check will exceed the tax bill itself. 

And Glenn, we must set the universal deduction above this point, because otherwise double-u tee eff?  Anything below the break-even point means more I.R.S. bureaucracy, not less.  And if it’s not at least twice break-even, over 50% of the revenue goes to administration.    

And I really want that deduction.  Because it makes the overall tax code (not the rate) progressive.  Somewhere between very very slightly progressive to very very very very very slightly progressive.

So the system is both “progressive” and utterly fair.  It shows political progressives that, unlike them, we are willing to compromise.  But not on general welfare.

Oh, let’s throw them a bone.  When sustained fusion is perfected and generates most of Earth’s electricity, and the inventor is making a trillion a year, every dollar above that we tax at 16%.  There.  Some unfairness to satisfy the class warriors.

I do have one non-negotiable demand.  

No one under the age of 18 files a tax form, much less pays income tax.  Nor do they or their employer pay any sort of tax on any of their income.  If you insist on making 16-year-olds pay tax, I insist on them voting. 

But then, based on Obamacare provisions, Democrats don’t think Americans can reliably take care of themselves until age 26.  Fine.  If they’re not fully adults, we stop taxing them too.

Of course, if they’re not capable of taking care of themselves they’re not competent to  meddle in adult business.  They no longer get to vote. 

So, any of my Spinal Tappian (very select) readers care to weigh in with their preferences?

A) Flat-rate tax?

B) Flat-rate tax with a sizable universal deduction?

C) Flat-rate tax with a tiny deduction set just above the transaction cost?

or,

D) Something worse?

About wormme

I've accepted that all of you are socially superior to me. But no pretending that any of you are rational.
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24 Responses to A rare occasion where I disagree with Insty.

  1. I choose D) something worse, because I’m a practical lady who doesn’t see getting A, B or C at this juncture.

    I’d hope to land somewhere between “way worse” and “way way way worse,” and no where near “the worstest of the worst ever.”

    • wormme says:

      Aw, Linda, I have no hope either. I’m trying to generate good policies for whatever freedom-loving society arises from America’s ashes. Newmerica, governed by the Constitution 2.0.

      So care to give it another go? Which of the unattainable options would you favor?

  2. D.J. says:

    Three questions to throw into the mix. How do you handle:

    1) U.S. Citizens living (and working) abroad and subject to taxes in other countries. Current treatment: As long as the other country has a tax treaty with the U.S., the citizen can count taxes paid to another country as a deductible(?) tax credit.

    2) Non-citizens living (and working) in the U.S. and currently subject to taxes, though they cannot vote.

    3) People who live in Washington, D.C., which was expressly not a state (and so no representation in Congress) so that there would be no state with a concentration of power that the capitol city would bring. (I get the feeling that the founding fathers wanted the national capitol to be less important than the states.)

    So as far as 2 and 3 go, I think they are good, narrow (part of being good) notions where taxation without representation is permissible, and perhaps even good. (Are there any electoral college votes for D.C.?)

    • wormme says:

      Nice! You went right to the discontinuities. A man after my own heart.

      1) The loss of revenue from Americans abroad has to be a very small percentage, right? Let our foreign friends have the income, up to what our citizen would owe us. But if foreign taxes are higher we’re not going to make up the difference! That’s on the worker.

      2) By the same token, I have no problem collecting taxes from foreign workers here. No hidden or grandfathered charges, of course. If they don’t want to pay American taxes while earning American dollars, they can choose not to work here. If their government insists on getting paid regardless, I’d be willing to forego our tax. Just to prove America’s better than wherever they come from. (EDITED–bad idea, on second thought. Why encourage other governments to rip us off? Better their expatriates emigrate away entirely.)

      3) Good grief, D.C. is such a headache. But the city government happily makes up for the lack of state taxes. I’m less concerned with how we tax the Beltway Bunch’s money than with their power. As long as they don’t exempt themselves, they can pay what the rest of us do.

      • D.J. says:

        Re: #1. I just looked on the 1040…the foreign tax credit is non-deductible, which means it can help reduce tax liability to 0, but cannot generate any money coming back. So it’s already handled the way you want it to be.

        Re: #2. I believe that tax treaties are reciprocal, so that the country of residence gets first bite on tax dollars. If we don’t have a tax treaty with another country, then that opens up a whole other can of worms.

      • D.J. says:

        Re: #3. AFAIK, congressmen are considered residents of the state they represent. Perhaps the President and Vice President are considered residents of the states they had residency in before taking office. No, I’m talking about the people who actually live in D.C..

      • wormme says:

        Yeah, if you’re in a country with which we’ve not formalized tax concerns, you’ve probably got bigger worries.

        I don’t know about the D.C.ers. Maybe…you don’t have to live in a state? Though that would probably seem strange to the Founders. “Who are to be their representatives, then?” Answer: lobbyists.

        My biggest problem with D.C.’s local government is its outrageous violations of the 2nd Amendment. Given the power, I’d Sith out on all that urban rebel scum.

  3. D.J. says:

    As for what option, I’d say Flat Rate with Sizable Deduction:

    I’d go with 20%, $20,000 deduction, with income and deduction pooled together for a married couple. I.e.: say one spouse is making $45,000 a year, and the other spouse is a homemaker with $0 income. Then tax is ($45,000 – $40,000) * 20% = $1,000. (If they were not married, then the homemaker would owe no tax, while the person making $45,000 would owe $5,000 in tax.)

    • wormme says:

      I’m opposed to married/not-married because it’s still using the tax code for social engineering. It’s specific, not general welfare. Let the states experiment if they want. Yes, your plan is superior to the byzantine maze we’re in, but it’s still giving them an inch. They don’t stop at that.

      Of course we’re exploring the optimal, not the currently possible. Optimally Federal taxes would be less than half their current levels with vastly less pressure on the married and single alike. Then let state and local governments decide how “family friendly” they want to be.

      The Fed has no constitutional reason to care whether someone’s married or not. Letting them pretend otherwise helped get us into this mess.

      • D.J. says:

        Here, I’m going to the tradition in English Common Law founded in Judeo-Christianity that when people wed, they’re considered one in the eyes of the law. This is why a spouse has a 5th amendment right not to testify against the other spouse. Therefore, I lump both the income and deductions together, not because of social engineering, but due to the belief that a husband and wife are joined together.

      • wormme says:

        Sorry, I thought I’d read your comment properly, but hadn’t. You’re exactly right. Combine incomes and deductions. It makes no real difference to dual earners, and considering how hard housewives (or househusbands) work, why should low-mid income families lose the deduction?

        But I’m sure glad of that legal precedence.

        Oh, and though I don’t approve of gay marriage personally, as an American I’d have to think seriously about the Full Faith and Credit Act should people complain about inequality under the law.

        Then the polygamists will pile on. If Solomon could have a thousand wives, why shouldn’t a rap star making $20,000,000 a year do the same and pay no taxes?

        Wheeeeeeee! It would still be better than what we’ve got.

  4. Billy says:

    great topic, and I plan a response, but in St Croix now and, well, don’t want to go down the rabbit hole from here. Catch you in a week.

  5. DiogenesLamp says:

    Hmm… How to respond….

    I have always advocated that people get votes in proportion to their contributions. (i.e. one vote per dollar tax paid.) Everyone screams at me every time I bring this up, but the concept seems reasonable to me.

    I have become convinced that Democracy is simply unworkable. It suffers today from the same thing that was wrong with it when it was invented by the Greeks. People vote themselves money from the government till the government is broke. The only reason it took us so long to reach this sorry state is because we started out as a Just and Moral Republic formed from the remnants of a Monarchy, and then the Democrats came along.

    Without thinking it through more carefully, I have to say your idea has a little merit. The simplicity of a Flat tax with no deductions has an advantage in that there is NO TAMPERING with such a simple concept. Your idea to tamper a bit opens the door to tampering, but it seems reasonable to think that not everyone will be able to afford to give 10% (or whatever) of their income to the government.
    On the other hand, what is wrong with making sure people (even the weakest and poorest amongst us) are EXPECTED to contribute? By creating a lesser group of non tax-payers, are you not creating a sort of social subclass? Should we not promote the notion that contributing to the common necessity of government is a duty that should not be shirked except by the completely helpless?

    hmm… I think I have persuaded myself away from your idea for the moment. I’d like to hear your response to these concerns.

    • D.J. says:

      I am reminded all of a sudden of the Jewish temple tax (Matthew 17:21-27).

      Perhaps have the tax be the greater of $100 and whatever the main method of calculating taxes is?

    • wormme says:

      Obviously, to me what I’m doing isn’t tampering. The basis of my argument is “general” versus “specific” welfare. No income deductions available to some people that aren’t to others. Any such proposal means inequality under the law.

      And of course we’re all conditioned to think of income taxes as a natural means of tax revenue. America’s had it for 97 years, but didn’t have it for 137. Somehow we survived.

      • DiogenesLamp says:

        The Flat tax (no deductions) is simple. It’s like a circle in that it has no blemish or end. People “Get it” instinctively.

        Now when you say you want a flat tax BUT with an exception, you no longer have a perfect concept. If a circle must have one break, then why not two? Or Three? or an infinite number.

        Sometimes people just like a concept that is pure and resonate.
        Destructive interference is not a feature, it’s a bug.

    • wormme says:

      D-Lamp,

      To me, your approach seems guaranteed to bring about an oligarchy. Pretty darn quickly, too. Why corner the silver market when you can grab the government one? The only hope is that rival factions cancel each other out. But they’ll never stop trying.

      I don’t regard a univeral deduction as tampering because it’s universal. General welfare. Equality under the law. Nobody gets a federal deduction unavailable to others. How is it tampering if no one is getting singled out?

      I agree that the best possible government is an enlightened monarchy (as long as it breeds true).

      I also agree it’s best if everyone contributes. That’s why option “C” on the list is my choice. But I don’t want someone who made a hundred bucks sending in fifteen, if admin costs are $25. It defeats the very purpose of taxation. I’d try it where administration costs of the payment are 10%, like a decent business or charity. That won’t be a large deduction. Let people below that level spend it on clean clothes and a good grooming for their next job interview.

      Of course, I’m now reconsidering income taxes entirely. We got along without it fine until 1913.

  6. Mazzuchelli says:

    Flat tax, low.

  7. SDH says:

    W.O.R.M., I have to disagree, DiogenesLamp and Mazzuchelli get it right.

    Flat Tax on everyone, no exceptions.

    Everyone contributes the same percentage of their money to the government.
    This ensures that everyone has an interest in keeping government spending as low as possible, and also sorts out how to deal with granting suffrage to the citizenry: you pay taxes, you get to vote.

    • wormme says:

      I thought Mazzuchelli meant “flat tax, low deduction”. That’s what the “hooray!” was for.

      I hope he did, because that means two against two and more debate. Since I’m learning so much from this discussion, let’s keep egging it on.

      I’m not saying I don’t see your point of view. I almost entirely agree, and would swap all but one thing for it it.

      That being a flat tax with a relatively small, universal deduction.

      Look at nooneofanyimport’s preference above. She ain’t a progressive. Likewise, D.J. is no socialist. But they do prefer a (slightly) progressive tax code. Not a tax rate. They’d like a floor, and above that floor everyone pays the same. They’d like a much higher floor than I do. Because you and I are (possibly) more aware of perverse incentives.

      You guys opt for simplicity and purity, which I greatly respect. But consensual government can’t accommodate it. So where are you willing to compromise? Linda and D.J. want some compassion, which I greatly respect. But governments can’t do that either. They’re tools, not moral actors.

      So I opt for compromise. Somebody has to, right?

      But it’s a sneaky compromise. One voice tells me of course everyone must share in the expense of a shared enterprise. “Skin in the game,” as it goes.

      But another says, “What moron would accept a check that costs him more than it’s worth?”

      So I want a flat rate. Plus a deduction large enough to ensure no tax payments are received which cost more to process than to ignore. I freely acknowledge: this argument is not my primary reason for the deduction. I want that deduction to laugh in the face of “progressives”. Hey, buds, we are progressive. Look at the tax code!

      But to you rational folks I say, “why collect taxes when the expense exceeds the benefit?”

      Whoop, it’s well after midnight. The only thing left is to acknowledge that apparently I’m trying to have my cake and eat it too. I told Linda I was looking at exploring theoretical options. Now here I am arguing practicalities. It wasn’t intentional. You guys have me switching back and forth between modes.

      It’s very invigorating. You’re welcome to join in.

      • SDH says:

        I thought he meant low flat rate.

        If I actually thought that a flat tax could be implemented I wouldn’t care what the deduction was, and I would be quite happy, however, I don’t really think it will happen, so I’m sticking with my ideological purity.

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