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Tuesday, September 25, 2012

Why Conservatives Should Favor Even Fewer People Paying Income Tax

100 MillionReuters:  Actually, Conservatives Should Favor Even Fewer People Paying Income Tax, by Reihan Salam:

It turns out that the best way to address Romney’s underlying concern – that a large and growing number of Americans have lost sight of the real cost of government – might be to remove even more households from the income tax rolls and create a very visible new tax to make up the difference. That is why Republicans, Mitt Romney included, should give serious consideration to Michael Graetz’s Competitive Tax Plan.

Conservatives hate the idea of new taxes. But imagine if every time you bought a cup of coffee, it said on the receipt that you had also just paid a 12.3% consumption tax to the federal government. Instead of paying your taxes once a year, you would pay taxes every time you made a purchase. What better way to remind people of all of the money government spends, and all of the money government spends foolishly, than to make them pay for government several times a day?

That’s not all. Imagine also that the federal income tax only applied to income over $100,000 for married couples, $50,000 for single filers, and $75,000 for head of household filers. Households that earn less than this “family allowance” would be under no obligation to file a federal income tax return. In that case, the 12.3% consumption tax would pay for liberating millions of Americans from the IRS. According to a recent analysis from the Tax Policy Center, the tax policy rules in effect today will require 147,540,000 tax units to file taxes in 2015. Under Graetz’s CTP, that number would fall to 36,625,000. ...

There are, to be sure, huge obstacles in the way of Graetz’s Competitive Tax Plan, as he freely acknowledges. If a Republican gets behind it, we can expect Democrats to demonize it as a tax hike on the poor to fund income tax cuts for the rich, leaving aside the generous rebates and the family allowance. If a Democrat gets behind it, Republicans might wage war against the VAT as a diabolical foreign plot.

All the same, the CTP is the only realistic plan that will preserve progressivity while giving 100% of Americans the sense that they are bearing the cost of our federal Leviathan.

Update:  For a contrary view, see The Heritage Foundation:  More People Should Pay Taxes

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Comments

Under this plan the mass tax would fund the government and the income tax would indulge voters' envy of high earners. The latter is troubling.

This income tax could hardly be better designed to quickly morph into a confiscatory program. Just look at what has happened with cigarette taxes, another situation in which a tax hits only a small and unpopular minority of people.

Posted by: AMTbuff | Sep 25, 2012 4:49:28 PM

You know good and well that there would be some new federal giveaway / vote buying program to send checks to lower income people to make up for their consumption taxes. Then, the government would promise to phase out the income taxes for others while the consumption taxes phase in, but they would never get around to it because politicians would like the double-dipping.

Have you ever approved a local sales tax to roll back property taxes? How did that work out for you? See. Anyway, there's no way that politicians are going to give up control of people through the income tax code.

No, this conservative wouldn't favor that. That's one reason why the fairtax would be a problem, too.

Posted by: Woody | Sep 25, 2012 5:36:00 PM