Thursday, October 17, 2013

What Is Tax Policy All About?

   I don't think there's much disagreement that one aspect of tax policy is to fund government.  There are all sorts of arguments about how to do that and how much to do that but that funding is one aspect isn't really argued.  There is another aspect that is frequently forgotten, that is to encourage or discourage various things economically.

   If you're going to fund the government you have to decide how to get the income needed.  One element that has been in operation for a long time is progressive taxation.  That name has nothing to do with political labels, it refers to the concept that the tax burden increases as income climbs.  Two ideas underpin this concept, one is that some can better afford the funding process than those poorer and the second is the recognition that a system like capitalism vastly better benefits capital (a nice way of saying wealth) and those most benefitted ought to pay for that.  (despite moocher/taker propaganda, high income levels get much more usage of the governmental system than lower)  What is discussed right here has nothing to do with encouraging/discouraging behaviors, it is simply about funding government.

  There are various proposals for tax structures with some of the most prevalent ones being flat tax, VAT tax, and some variations of sales tax.  The difficulty with these is that they shift the tax burden down onto those least able to afford them and least benefitting from what they pay for.  The claims that these systems are more fair totally ignores what capitalism is and how it works.  It also ignores what progressive means in taxation of actual dollars.  Each segment of income is taxed exactly the same whether you make a little or billions, you only pay a higher rate on the dollars above the preceding bracket.  You can argue about what a government ought to do, but you cannot argue that it must be paid for.

   Things start to get sticky where taxation is used as the blunt instrument of behavior modification.  This is also where abuse starts to factor in, particularly the abuse of access to political power.  The government would like to discourage cigarette smoking by taxing the product at a high rate to increase its cost and purportedly cover increased health costs.  As a cigarette smoker (Camel straights) I don't much like paying that, but I find it hard to oppose, other than the inequality of such taxation in regard to more favored provably harmful products like alcohol.  That inequality is an example of access, not that tobacco didn't once have it.  Corporations  are handed behavioral tax treatments that can result in them not only not paying taxes, but actually being paid.  The idea that investment must be especially encourage results in a tax rate on capital gains that is less than one half the top rate for wage/salary. 

   Now I'm going to propose something that hasn't a snowball's chance in hell, thanks to who owns government, but isn't real complicated.  First the tax brackets should be tied to the national median income and be set at multiples of that number in each year.  Those multiples would start as fractions and move in to whole numbers with ALL income forms treated under the same regimen and remove a top on tax brackets.  It makes no sense to treat a couple hundred thousand dollar income the same as multi-million dollar income in a tax bracket.  The final part is that a top bracket should be in the 90% range to discourage the taking of every last bit out of the economic system.  The lowering of the top bracket has resulted, understandably, in large income groups taking everything they can extract.  There was a simple reason CEO pay used to be single digit multiples of a company's average wage rather than double and triple digit multiples - the high tax rate discouraged it and that money stayed in the company system, meaning wages and re-investment.  It is simple enough to understand that if you tell people they can take anything they have the power to take, those without that power will lose it to those with it.

  It would take a lot of pages to cover what income is and this isn't a good forum to do it, I'd like it not to be so long nobody will read it.  If you have something to add other than insults and stupid name calling, use the comments here and I'll engage.  

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