A Tax Proposal President Biden Should Consider

Empowering Citizens Will Improve Government

President Joe Biden’s tax plans have been in the news lately and so I thought I would throw out an idea for a new tax system that could address the priorities of both the left and the right as I understand them. By the way, wouldn’t it be nice if politicians spent 95% of their time on considering potential solutions and 5% of their time on identifying problems (and 0% on character defamation of opponents)?

For the left, the primary focus seems to be on providing a robust set of social programs (social security, Medicare/aid, healthcare, education, etc…) and fairness (e.g. the rich not paying lower percentages on taxes through loopholes). For the right, the primary focus seems to be on efficiency, transparency, and accountability in government and market-based approaches that honor freedom of choice by individuals. These are of course broad-stroke characterizations of vast groups that have wide spectrums in them, but I think they lay out at least the principles that most moderates from both parts of the spectrum could fairly easily align on. I.e. what reasonable human doesn’t want to live in a society where people are treated fairly and have ample opportunity to achieve their dreams and receive some support when they struggle? And who doesn’t want whatever money is allocated to those two things to be spent wisely so that it does the most good for those in need?

With that in mind, here is the idea. There are three broad buckets the government spends money on:

1. Defense (I am counting military and police/fire here even though police/fire tends to be at a local level),
2. Social Services (mentioned above), and
3. Regulatory (courts and various enforcement agencies).

First, what if we set a simple low tax rate (e.g. 5%) for all types of income that goes to defense and the courts? This would be fair in that a simple flat rate across all income brackets and types of income prevents loopholes. Also, a fixed cap on spending on these activities also forces efficiency. I think a lot of the left and right could get on board with this part and these are functions that require one provider given they involve direct physical force and competing providers would lead to instability and conflict.

Second, we set another rate (e.g. 20%) for all types of income that goes to social services (social security, Medicare/aid, education, hospitals, roads, etc…). But for this part it just goes into an escrow account like a donor-advised fund and we all individually choose how much to allocate to each service. This again promotes fairness/eliminates loopholes and ensures we have a high level of services, perhaps higher level because there would be competitive market forces between non-profits seeking to provide those services. Those organizations achieving better outcomes for those in need would receive more capital and those achieving less would receive less.

Also importantly this encourages each individual to consider carefully what’s most important in their community to fund and gives each of us an opportunity to practice charitable giving regardless of income level. I think this point is important — it’s a beautiful thing for all of us to be actively engaged in supporting the world around us, and not only does centralized government tend to be inefficient at achieving outcomes, it also deprives individuals of the experience of choosing how to spend their resources to help others.

Third, I’ll leave regulatory aside for another day as I think that’s a trickier area to get alignment between the left and right on given different views on economics and liberty.

Anyways, I’m not suggesting that a 1-page blog post can capture all the details of a new tax system, but I do think a high-level architecture like that above could satisfy a vast majority of our needs as a population and be aligned on by many of our citizens.

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