A taxing experience

Okay, as threatened, I dug out that outline of a revised tax system I came up with 32 years ago - more specifically, June 1972. What brought it up originally was that the McGovernites in the Democratic Party, at that point in control of the nominating process, began to have public hearings to encourage wide input into what the party platform would be. The group I was involved with at the time, Jersey Shore War Resisters League, submitted a statement on Vietnam, arms, and foreign policy to which the tax proposal was appended. As I said at the time, I can't guarantee the particular numbers would work, but I think the organizing principle works well.

One major but often-overlook fault of our current system is that the tax rates are the same everywhere. That is, the IRS in effect assumes that the cost of living is the same everywhere. But at any given level of income - in fact, tell you what, in order to avoid arguing about relative poverties, let's use 150% of the federal poverty level as a base. At any given level of income beyond that, a family of any given size simply will be better off living in Mississippi than in Boston. They simply will be able to afford more stuff. Despite the differences in the standard of living implied by that fact, the IRS taxes them both the same.

So the first step is for the IRS to divide the US into "zones" based on the cost of providing adequate food, clothing, shelter, and health care to families of varying sizes in those areas. This information for the most part already exists, broken down even by zip code, in the databases of the Census Bureau and the Bureau of Labor Statistics. However, some adjustment may need to be made to make sure the IRS figures refer to net rather than gross income, i.e., they should reflect that actual amount of cash necessary for the purposes of family support.

Second, because households operate as a single economic unit, income should be reported that way. That is, household income as one amount, dropping such categories as "married filing separately."

So each household could be looking at a chart with several local "zones" across the top and family size down the side. The figure where your zone and family size cross gives a figure for net income required for family support. I'll note here that one thing that could be discussed is what level would constitute "adequate" support. I'd be willing to start by proposing an amount equal to 200% of federal poverty level (again, allowing for local costs of living and family size), but I'm certainly not tied to that.

The figure obtained from that chart is not taxable. That is, it's deducted from the household's gross income - I'll call it a "living deduction." Only that part beyond what's needed to provide for your family is subject to taxation. So if you're, say, two parents with three kids whose gross household income is $40,000 in an area where the federal poverty rate for a family of five is $14,000, your deduction (if we assume 200% of the poverty rate) is $28,000, leaving $12,000 subject to taxes.

The last principle I'd advance is that all income should be treated equally. Since all dollars can be spent the same, all dollars provide the same benefit, so they all should be taxed the same. Getting money by having money (i.e., investments) should not be treated more favorably than getting money by working. So all income beyond the living deduction is taxed equally and with no exemptions.

Those with taxable incomes up to $50,000 would be taxed at a rate of 30%; those with an income between $50,000 and $100,000 would pay $15,000 (30% of $50,000) plus 50% of the amount over $50,000; those with an income in excess of $100,000 would pay $40,000 (30% of the first $50,000 plus 50% of the next $50,000) plus 75% of the amount over $100,000. Remember, these figures are what's left over after your family is provided for. And again, I'm certainly open to discussions about the particular numbers - it's the principle I'm interested in.

I'm sure people can come up with "well what about this particular case" arguments, but that will be true of any tax system. No one system can guarantee complete fairness to everyone in every condition. But I'd still say start by throwing out all the special case deductions and exemptions. If any are to be put back in, they need to be justified from scratch.