Introducing: The Simple Income Tax

It’s that time of the year: time to begin to commence to think about gathering up information to give to your account to do your annual income tax filing. Not only does Uncle Sam take your money, he makes the process difficult and painful.

Allow me to present an alternative: The Simple Income Tax. It’s still an income tax, but it is far simpler, simpler even than most flat tax proposals. And unlike flat tax proposals put out by the political Right, The Simple Tax is more progressive than what we have today. Yet it is in many ways flatter. Bipartisan action is theoretically possible.

Paradox? Slight of hand?

Nope. It’s simply combing all the different income taxes into one. For an extensive explanation and lots of numbers read the full article:

The Personal Income Tax Made Simple.

Then, if you feel moved to comment, come back here to the blog.

5 Replies to “Introducing: The Simple Income Tax”

  1. Carl I found your proposal very interesting and plausible. I would vote for it… though you do not mention the driver that concerns me: oligarchy prevention — thwarting the human tendency to re-create the feudalism that ruined 99% of past societies. Because of that factor, I would go with the two tiered approach and keep a strong Inheritance Tax (the “tax that never has to be paid.”)

    To be plain, there are alternatives. For example, I would strongly consider a general wealth tax, accompanied by absolute transparency of ownership. This would not tax work at all. Indeed, it would force the wealthy to alter their strategies to keep a higher percentage of their assets working and less invested in what Adam Smith derided as passive “rent-seeking.” Thus, the lie called “supply side economics” might actually come true, if the wealthy sought to invest, instead, in productive capacity and innovation.

    But let’s step back. In today’s political climate, any major overhaul is simply impossible. Not till one end or the other of the spectrum becomes utterly radicalized and triumphant.

    Short of that, there is one approach that might let us incrementally approach your system! You’ve seen me mention it before. It is described here.

    Under “no-losers” we might year by year gradually simplify the tax system by removing say 10% of the lines of code in a way that raises little political steam. And I would wager over time the result would start to look like your system.

    Again thanks and good luck.
    David Brin

  2. This is an interesting idea. I really hope more people pay attention to it.
    I like the removal of income exemptions. I like the reduction of taxation tiers. I like the treatment of all earnings in the same way. I like the shift of responsibility to one party.
    The concept of the dividend payment is a topic worthy of analysis. I believe that it would reduce the need for a number of welfare programs, and encourage participation in the tax system.

  3. Hi Carl

    Very similar to the “Big Kahuna” proposal
    I would recommend reading it as Gareth has applied a bit more historical background
    (NZ history) and financial analysis

    Some of his ideas are NZ centric – but not all

  4. Hi Duncan. I’ll have to add that to my reading list. My inspirations for this glopping were Milton Friedman’s negative income tax (from reading “Free to Choose”), the prebate idea found in The Fair Tax, and Charles Murray’s “In Our Hands”.

    That, and actually calculating payroll by hand for a few months when I had a political T shirt business. To employ someone requires computing 8 different taxes. This does not count taxes on your business itself nor does it include sales taxes.

  5. You know what would be far easier and simpler than a federal negative income tax? Having the federal government take a flat tax on states themselves. That way people only have to worry about the State tax code. There is probably nothing simpler than that.

    As far as state taxes go tho, I’m all in favor of an offset flat tax like you propose. Tho I think that the offset should be set at the cost of living – people shouldn’t be paying taxes on money they need to live.

    Also, I have answers to your questions:

    1. Should gifts and inheritances count as income?
    Yes, why wouldn’t they be counted? Also, having inheritances flow freely down the family tree creates a class of privileged elites who haven’t earned their money, but still wield its immense power. It would make more sense to me for gifts and inheritances to be taxed *more* the normal income. Regardless, the answer seems to be a strong “yes”.
    2. How do we prevent people from deferring capital gains indefinitely?
    Don’t let people defer capital gains at all in any situation in which the appreciated capital is able to be liquidated into cash. In cases where an asset can’t be liquidated, it of course makes sense to allow deferral.
    3. Should corporations pay income tax?
    No. Instead, capital gains should be taxed as normal income. If the company reinvests all its revenue, it becomes more valuable and its owners pay taxes on those gains. If the company instead decides to pay its executives huge sums of money in lieu of reinvesting that in the company, the executives pay extra taxes. There wouldn’t be any way for a company to prevent their gains from being taxed.
    4. Do we treat social security payments as welfare to be replaced by the prebate?
    There will almost certainly still be a use for needs-based welfare programs, tho with the prebate set at a reasonable level, there would be much less need for them. I think the social security system where you get income based on the income you earned throughout your life isn’t the best way to handle things. A needs-based system is probably a better way to go.
    5. What about future retirees?
    See #4

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