Wednesday, April 18, 2012

Politics: Tax Policy

It looks like tax policy is shaping up to be a big issue this election year (which is rather typical, really), so I figured that I might as well address it. I’m long overdue for posting something around here, anyway.

I’m fiscally conservative in the sense that I don’t think the government has any business spending money that it doesn’t have. The US has been borrowing like crazy since the 1980’s, only running a surplus briefly during the late 90’s before going back to deficit spending after 2000. Based on that spending pattern, you can see why I don’t really consider the Republican party to be a bastion of fiscal responsibility.

I’m not particularly in favor of “soaking the rich” to fund the government. I do think everyone should be helping pay for the services we expect of the government. I think everyone should have basically the same tax rate, so there should be no need for a “millionaire surtax” or the like. If we’re going to have an income tax (and I don’t see that changing), we should have an income tax. I don’t care whether you get your income from a salary, selling widgets, collecting interest, or playing stocks; no matter where your money comes from, it should be taxed at the same rate.

On the other hand, I don’t see the sense in trying to get tax money from people who don’t have any to spare. Our current tax system recognizes that there are certain basic living expenses that should be deducted from your income before your tax is calculated.

So my idea of a fair tax is one where everyone’s income is taxed at the same rate, and everyone gets the same cost of living deduction. I don’t necessarily know what that should be, other than it should be the least amount you can reasonably expect to live on; it may even have to vary somewhat by location (although if you have more than one residence, you only get one cost-of-living deduction, for the lower of the two locations). Note that this means the effective tax rate for a low-income person will be less than the effective tax rate for a high-income person.

If you have a domestic partner (who can get “married” is another post), then you can effectively combine your two deductions, so you don’t take a big tax hit if one of you is a stay-at-home parent. I'm not sure how I feel about additional deductions for the children.

And that’s all: one tax rate for everyone, one deduction for everyone. What the rate should be and how much the deduction should be would both need to be determined based on the needs of the nation and what the people will accept; the main restriction being that the revenue should be enough to pay for all the services plus bring down the national debt. Both the rate and the deduction can be easily adjusted by Congress, if necessary.