A Modest Proposal On Tax Day

This year, as last-minute filers are struggling to figure out how much you owe the federal government, we’d like to offer a proposal that is so nutty it just might be worth considering.

Today, the tax code is built on the idea that “progressive” is good. And by progressive, we’re talking about tax brackets. The idea that the more you make, the higher percentage you should pay on the extra dollars you earn.

Right now, there are seven tax brackets – 10%, 12%, 22%, 24%, 32%, 35%, and 37%. For single filers, every dollar of taxable income over $11,925 is taxed at 12%. You owe the federal government 22% on every dollar over $48,475, and 24% on income over $103,350, etc.

Yet, despite the fact that, thanks to this scheme, the richest 1% end up paying 47% of federal income taxes and the bottom half of income earners account for less than 4%, the left never gets tired of screaming about how the rich don’t pay “their fair share.”

But as economists well know, the current tax code is an enormous drag on the economy. The higher the tax rate is on the rich, the less incentive they have to earn that next dollar. Tax avoidance and even evasion become worthwhile because the savings can easily outweigh the costs of paying tax attorneys and hiding money.

Every year, there are proposals to simplify the code. But all of them are premised on the same idea that the rich should pay a bigger share of their income than the poor.

There’s one idea that never comes up in these discussions.

Do what Robert F. Kennedy Jr. did with the government’s misbegotten food pyramid, and turn the tax code upside down.

Make the tax code regressive, instead of progressive.

Insane, right? But hear us out.

Let’s say the lowest bracket, instead of 0%, starts at 20%. Lower-income families are far more likely to be the beneficiaries of government programs, so it seems only fair that they pay more of their money back to the government.

As your income goes up, your tax rate goes down. Not just on the extra dollar you earned, but all your income. So, if you make, say, $20,000, you’d be taxed at 20%, and owe $4,000 in taxes. But if you make $20,001, your tax rate falls to 18%, which means you’d owe only $3,600. And so on up the income ladder.

When you start making real money, your tax rate would bottom out at, say, 10%. So, a millionaire would owe $100,000 in taxes.

What sort of incentives would this create?  The race would be on to make more money. People would be declaring every penny they legally earned. They’d be eager to take on that extra work. They make sure everyone in the family who is able has a job. Hiding income wouldn’t do anyone any good. People at the bottom would be clamoring for tax cuts. Businesses would face pressure to make sure they account for all wages paid, and then to increase them.

It’s crazy, we admit. Unworkable and a complete political non-starter. But how much crazier is it than the current system?

A system that is so complicated that it costs Americans nearly 7 billion hours and more than $477 billion each year just to figure out how much they owe, and that requires at least five hours to fill out the woefully mislabeled “1040 EZ.” A system so difficult to enforce that about $500 billion in individual income taxes go unpaid every year. A system so incomprehensible that even the poor have to pay tax consultants to help them with their taxes?

And it’s a tax code that seriously hampers productivity, economic growth, and has a variety of other adverse economic and societal effects, the pain of which is felt most acutely by lower-income families.

Yes, there are more realistic solutions, such a flat tax or a national sales tax, either of which would be far less damaging and far more fair than the current code.

The one singular benefit of a regressive tax code, however, is that it would make the heads of leftists like Bernie Sanders explode.

— Written by the I&I Editorial Board