Taxes
While many people are frustrated about out nation's tax system, too much of the debate is focused on the marginal tax rates rather than the system itself. The reality is that the entire system needs to be redesigned so that it is:- Simpler,
- Less intrusive,
- More fair,and
- More advantageous for international trade
The complexity of the tax code directly damages our economy. Our nation spends hundreds of billions of dollars each year in dealing with the tax code, roughly 3% of our economy. As a result, our nation ends up using mathematical experts to prepare and track needless paperwork that does not add any real value to our economy while we are constantly complaining that there is a shortage of math and science expertise. It also results in an intrusive process where the government not only monitors how much each person earns, but also how they spend their money through a variety of tax incentives that must be separately documented and claimed. I will fight for a less intrusive system that will require less effort.
The left likes to claim that the rich need to pay their fair share while the right typically responds by pointing out the fact that half of all workers do not pay any federal income tax at all. The reality is that there is truth to both arguments. As shown in Table 1, the effective tax rate in this country is highly progressive, until you consider the uber-rich. I will fight for a relatively flat tax rate after a defined base. This type of system will retain a progressive structure while ensuring that the wealthiest among us do not reap a windfall due to special tax provisions.
| Income Level | Marginal Tax Rate |
| <$15,000 | 1.78% |
| $15,000 - 30,000 | 2.88% |
| $30,000 - $50,000 | 5.67% |
| $50,000 - $100,000 | 8.41% |
| $100,000 - $200,000 | 12.61% |
| $200,000 - $250,000 | 16.91% |
| >$250,000 | 23.09% |
| Top 400 taxpayers | 18.11% |
Finally, our income-based tax system also makes American-made goods less competitive. Income taxes become embedded in the price of goods where they are made, whereas consumption taxes increase the cost of products where they are sold. This has a huge impact on international trade. As an example, consider a sample "one-dollar" product made in two different countries labeled "US" and "ST". The only difference between the two countries is the tax code. The US collects all taxes through income taxes while the ST collects all taxes through sales taxes.
| Sold in US | Sold in ST | |||
| US Made | ST Made | US Made | ST Made | |
| Base Price | $0.77 | $0.77 | $0.77 | $0.77 |
| Embedded Taxes | $0.23 | $0.00 | $0.23 | $0.00 |
| Wholesale | $1.00 | $0.77 | $1.00 | $0.77 |
| Import Duties (1) | $0.00 | $0.08 | $0.10 | $0.00 |
| List Price | $1.00 | $0.85 | $1.10 | $0.77 |
| Nat'l Sales Tax | $0.00 | $0.00 | $0.33 | $0.23 |
| Checkout Price | $1.00 | $0.85 | $1.43 | $1.00 |
| Total Taxes | $0.23 | $0.08 | $0.66 | $0.23 |
(1) Import Duties vary widely but are assumed to be 10% in this example.
Due solely to the tax policy, the ST-made good is sold for less in both countries meaning that businesses will migrate to the ST country over time. It is also worth noting that the net government revenues will always be more for the ST country than for the US.
Typically, the complaint against a sales tax is that it is a regressive tax; however, this can be overcome with a proposal such as the Fair Tax. While I do not claim that the Fair Tax is the perfect solution, it offers to drastically improve our current tax system while protecting three key elements that most people are concerned about:
- 1. It maintains a similar distribution of taxes by charging a flat rate above a certain baseline of expenses.
- 2. It protects the value of existing homes and ensures that mortgage payments are not taxed (only improvements are taxed).
- 3. It ensures that charitable donations are not taxed.
I will fight to implement a tax system that respects these three principles while moving towards a vastly simpler system, such as a fair or flat tax system.
