If you’re a flat-tax advocate, then you may want to stop reading this one now; it won’t be good for your blood pressure to continue.
‘Cause progressive-rate systems are fairer.
OK, now that they’re gone: progressive-rate income taxes are more fair than other forms of tax for a few reasons:
- by taxing only income, they adjust regularly to stay within each taxpayer’s ability to pay
- by adjusting the rate as income rises, they assure that those who benefit most from the State pay the most to support it
- by taxing income in brackets, they preserve the benefit of achieving higher income (i.e. actually having more money than you would otherwise)
That’s really it; a tax system can’t be fair without those attributes.
But a stock progressive-rate system alone isn’t enough.
Current U.S. State finance is a mess, largely because the income and expense sides of the system are disconnected.
Congress sets tax rates, and Congress allocates the funds, but even though the same body does both they do them separately.
State finance is also a mess because Congress keeps fiddling with it.
What we need is a system where the tax rates adjusts automatically to cover spending, but are otherwise static.
Step one would be to choose a formula for the tax rates that rises with income, to make it progressive. If you graph the formula, it should give a curve that rises as it moves to the right. This curve would then be broken apart into brackets (say) $10k wide.
This is roughly how the system could work now, rather than setting the brackets directly.
This part of the formula should be very hard to change, since it sets the relationships between the tax brackets.
It should probably be set in the Constitution.
And we also need the formula to have a minimum, so we can set a level of income below which there are no taxes assessed, and a maximum beyond which the tax rate stays the same regardless of any additional income.
These attributes should probably be linked to something like median annual income, and then made very hard to change as well.
But we also need a formula that can be adjusted with a single variable, to raise or lower all the tax rates but without changing the curve.
Now, sadly, I am not enough of a mathematician to suggest a final formula.
Seriously, that’s something you’d want an actual professional to devise.
The parameters I’d start with would be something like:
- a basic curve, starting at 0 on the left and rising to the right
- the minimum taxable income equal to 1/2 the median annual income
- a gradual growth in tax rate until around 10x the median annual income
- the maximum rate should be hit somewhere around 100x the median annual income
- a maximum-bracket tax rate of 75%
I do know it would be a graph of an exponential function of some kind, so if you’re inclined here’s a page you can play with to see how different functions do.
That would set the basic tax structure, and it should be difficult to change.
Maybe even require a referendum to mess with it.
After that, there should be a single multiplier applied to make the total taxes collected approximately equal to the total money to be spent in a given year. And that multiplier should be chosen by the Congressional Budget Office each year after Congress has passed the budget.
This would place the responsibility for the actual tax rate directly on the budget, where it belongs.
Because, frankly, Congress shouldn’t be wasting its time fiddling about with the details of the tax system every year.
They have other things to do.
