Thursday, September 01, 2011

Our Current Tax System

The following was written as part of a comment on one of my facebook statuses. It concerns only my thoughts on the tax code (spending is a separate issue for another post).

Our current tax system is a horrid thing that is riddled with loopholes purchased by lobbyists, most for corporations or entire industries. Our tax system is fragmented into different kinds of taxation to benefit one group over another. Our tax system is set up in such a way that for taxes on earned income, the more you earn, not only the more you pay, but the greater percentage. Lastly, our tax system is set up in such a way that it is possible that through write-offs, grants, subsidies, etc. it is possible to "pay" negative taxes, and actually receive tax money instead of paying it.

Corporations do not pay taxes. They never have and never will. They may be taxed, but those taxes are passed on to the consumer in the form of an increase in the cost of the products and services provided by the corporation.

The fragmentation of our tax system allows for politicians and political speakers to represent the facts in such a way that while technically true, conform to whatever they need the facts to say for their purposes. Things like saying that Warren Buffet's secretary pays a higher percentage of her income than Mr. Buffet does. This is -technically- true, but this is because Warren Buffet does not pay earned income tax. The vast majority of his income is through capital gains.

Speaking of the earned income tax, as I mentioned above, the more you earn, the more you pay, but also the greater the percentage. This kind of taxation discourages productivity. Maybe not much to most folks, to some maybe not at all, to some others a good bit. Telling people you are going to take a bigger chuck of their money the better they do does not encourage them to do better. There are levels of income in our tax code that getting a raise actually means taking home less money.

It is ridiculous that you are able to write-off, subsidise, credit, etc. to the point that the money you are returned from your income taxes is more than you paid in. It is free money for those that make it happen, be they wealthy, corporations, or poor. Even if you feel that these entities should get the money from the government, negative income tax is not the way to do it.

Now, how I think we should fix the tax code, I'm going to work backwards here, from my previous writing:

End negative income tax possibilities. A refund should never be greater than the amount paid.

Tax everyone at the same rate. I'm not talking about income vs. sales/consumption here. I'm just saying it should be the same for all.

Other means of taxation should be taxed at the same rate as well. This means that if we are going to have separate taxes for people who get a paycheck and people who make money from capital gains, tax them at the same rate.

Quit taxing corporations, these taxes get passed on to the consumer anyway. This allows for more transparency at all levels.

I'm going to say it again, but this time with a different emphasis: tax everyone at the same rate. Drop all the loopholes, all the write-offs, all the exceptions, all the subsidies. Do not allow them back in. Simplify the tax code to the point that a child could understand it. (this one step would bring in a good deal of money, piss off a number of corporations, and probably cause some to fail - business is a risk, and failure is an option).

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