Back Stateside

Holy shit, Jeff got married? My gift:

jdub
Outside LCA, Friday

It has been brought to my attention that I have not made an irrelevant and unqualified post on economic issues for some time now. Crap, sorry.

For various reasons, the United States badly needs tax reform. Among them: To reduce complexity and thus compliance costs, favor taxation of consumption over investments, and eliminate the wellfare trap. The stratifying complexity of the current code and crap such as the AMT are but two obvious problems.

A negative income tax is a flat tax coupled with a credit given to all citizens and the abolishment of basic wellfare. A negative income tax solves several problems with the current system, including the wellfare trap. As an example, consider a flat tax rate of 25% and a credit of $10,000. An individual with no income would walk away with $10,000. Consider a person making $4,000. They would pay $1,000 in taxes, receive a $10,000 credit, and thus net $13,000. An individual earning $40,000 would break even, paying the same amount in taxes as the credit. As income approaches infinity, the tax credit becomes a smaller and smaller percentage of total income and thus these individuals end up paying close to the full 25% tax rate.

Guinness
They etch little shamrocks into the Guinness

The system eliminates the wellfare trap, as there is always an incentive to earn more money, since a dollar earned is always worth the same.

Some also view a negative income tax as a social dividend or subsidy on employment, allowing for the removal of minimum wage, thereby resulting in a long-term reduction in unemployment with no change in net wages.

A further step would be a move toward a consumption tax. I do not believe that a national sales tax is a viable replacement for our current income tax system, the least of which because it would require a rate over 50% in order to remain revenue-neutral. Current US tax deferment programs for savings are not really the right answer either, as studies show they do little to encourage savings--instead, they just shift savings from one asset to a tax-sheltered asset. One plan would be to allow the deduction of all savings, thereby taxing only consumption. Such a system would be easy to implement, encourage savings, and avoid the issues arising from taxation of investments such as of dividends.

The flat tax rate can, of course, be set to any value, allowing the government to remain revenue-neutral. The credit can also be set to any value, including one high enough to provide a guaranteed minimum income.

Eastern Europe--Estonia (24%), Latvia (25%), Russia (13%), Slovakia (19%), and Ukraine (13%)--has had recent success with a flat tax. We should follow their lead.

If it is not clear, my taxes were a bitch this year.