Charlie’s Tax Plan

The title ‘A Modest Proposal’ was already taken

Recently I began thinking about what a truly fair tax plan might look like. Fairness and equity in a real sense is in many ways a pipe dream when it comes to taxes, and all the news about the most recent White House tax proposal goes beyond solidifying that point. Due it part to the regressive impetus of that very ‘plan’, if you can call it a plan at all, I want to publish what I think would work well for all Americans, I’ll warn you that it’s truly populist and very, very liberal, Bernie might even approve.

The first thing to understand is what taxes do. Only one part of a tax is the generation of funds. A sales tax or property tax is primarily concerned with this aspect and those generated tax dollars are normally funneled into paying for infrastructure, public schooling, or other endeavors that generally benefit everyone. Alongside generating revenue for the government, taxes also serve to reduce incentives or even administer penalties on activities with negative externalities. A tax on cigarettes, often called a ‘sin tax’, is an ideal example. Making cigarettes more expensive than they otherwise would be via a heavy tax on their purchase reduces the use of them, but is ultimately not intended to generate revenue. A hybrid of the two presents itself in something like a gas tax or registration tax like we have here in the State of Washington. Unlike with cigarettes, the government’s goal isn’t to reduce gas consumption to 0, but they know the burning of fossil fuels has a negative impact on the environment and that more cars on the road means more traffic, so they increase the cost of gas and car ownership slightly, and funnel the money into road projects and public transit.

My proposal deals with neither of these, and indeed includes many, many holes. For example, as I know nothing about taxes aside from what can be learned listening to a few podcasts, I have not fully considered the implications of this policy, and have done nothing to address anything aside from personal income taxes. For some context, federal tax revenue apparently goes to Defense, Social Security, Medicaid, other government safety net programs, and paying down our debt. The federal government collects more than just personal income tax, it accounts for around half or $1,800,000,000,000 ($1.8 trillion) of federal revenue. Payroll taxes are the other major source at around $1.2 trillion.

Reducing the burden of being very poor is the primary goal of this plan, and it’s achieved three ways:

1. Remove income taxes on all income below the “Desired US Median Household Income”.
2. Excise a tax, following an upward sloping curve, on taxes above Desired US Median Household Income.
3. Give tax dollars to households below the Desired US Median Household Income with the goal of moving them closer to that income level.

I have graphed out a small portion of what it would look like, which I hope illustrates the goal more clearly.

Representing the first goal of this policy are the matched blue and yellow lines for all incomes under ~$100K, which was roughly decided on as the “Desired US Median Household Income”(DUMHI). Area below the blue curve and above the brown curve represents taxes collected, with the brown curve specifically representing after-tax income for those household who earn more than the DUMHI, this is the second goal. Third, the area above the yellow curve and below the brown curve represents payments made to families that earn less than the DUMHI. On the brown curve is the new effective income of households earning less than the DUMHI.

Behind this is a desire to flatten incomes and increase income inequality across all US households, and it does so without creating something like a mandatory minimum wage, which not only does potential damage to employers by placing the burden on them, but does nothing to reduce incentives in the very highest levels of income to earn even more. Predicating this outcome is the knowledge that greed is in fact not good. Greed as a philosophy has permeated the US culture over the past few decades and has led to unrepentant wealth grabbing by the wealthiest. They do this by squeezing as much as they can out of those who have the least, and this behavior must be corrected in order to have a fair an equitable society. There exists no argument for the necessity of an income in excess of 500 times the income of the poorest person in the US, yet we tolerate it and somehow exalt it as proper. If we lived in a society where more than a few of the very richest were interested in helping the very poorest, perhaps there would be no need for such a measure, but that’s not the society we live in. Furthermore the government providing cash income stipends is a more efficient way to deliver aid to those who are struggling than any other single way.

Households pushed closer to the DUMHI would find themselves with enough income to avoid the personal economic collapse that looms around every trip to the doctor. Emergency rooms would find themselves with fewer truly destitute patients, and health insurance firms would find a new group of customers who can afford their premiums and stabilize the market. Health outcomes would improve across the board. Perhaps the greatest outcome would be the effect this has on our current drug epidemic. Arguably the ACA brought more people into doctors’ offices than ever before, and overwhelmed offices and clinics relied on relatively inexpensive pain medications they had been told would have no lasting effects. They were told bad information and now that many people who went to have a bum knee looked at are addicted to pain pills. Maybe it was unavoidable, but maybe they could have been prescribed physical therapy in a nearby city. Instead of having money only for medical expenses, and therefore no money for car repairs or gas, they could have attended those appointments and would now be back at work.

Employment would likely not go down. The graph shows rather clearly that earning more base income still increases adjusted income across all income levels. There exists no “sweet spot” where you can make a certain amount and have enough income from government issues cash stipends to earn more than if you went for a promotion. It would in fact encourage people starting their careers in traditionally non-lucrative careers like the arts, social work, and education, to pursue those careers instead of moving toward higher earning sectors too early. It would allow those who have lost their jobs to attain higher levels of education or retraining without the assistance of specific government programs.

Overall the goal is a forces leveling of incomes across the board, by definition reducing income inequality. The long term implications of achieving real income inequality and creating a middle class by such direct means are very difficult to predict, but in my next few entries I am going to go through just a few potential outcomes. First, the return of Main Street, USA, and the movement away from large, national chains leads to smaller communities proudly returning to church and other institutions, returning dignity to the American small town. Second, a renaissance in US public education fueled by more talented young teachers and the long term effects of more robust schooling at all levels brings us back to the position of leaders in education. Third, a green revitalization of urban areas and near suburbs around the country leads to near-universal positive outcomes and an elevation of American culture around the world and once again makes the United States the envy of the world.