RE: [LandCafe] A Flat tax
- Ed Dodson responding...
Fred Foldvary wrote:
>The idea of a flat tax stumbles on the impact it could have on peoplereceiving low incomes.
>To raise the personal allowance for income tax payers to a high enoughlevel
to take these people from income tax all together requires an alternative
income for Government.<
I'm not arguing for a flat-rate income tax, but the flatness includes
eliminating almost all deductions, credits, and other loopholes, and this
extra revenue would offset the loss from reducing the higher rates. For
example, in the US, mortgage interest and property taxes can be deducted
from taxable income. These deductions would be eliminated.
Inasmuch as all of our societies raise revenue via the taxation of income,
the rate structure -- it seems to me -- ought to be progressively applied to
unearned income streams. The simplicity of a flax tax can be combined with
progressivity in a way that exempts income earned by producing goods and
providing services, then imposes an increasing rate of taxation on ranges of
income above the exempted amount. Such a structure I refer to as a
"graduated flat tax," which could work roughly as follows:
* Individual income up to the national median would be exempt (I'll use
$50,000 U.S. for purposes of example). Thus, half of all working people
would be fully exempted from paying taxes on their income. Even without an
extensive analysis this would benefit all lower level workers and many
* A rate of 5% would be applied to incomes greater than $50,000 up to
* A rate of 10% on incomes greater than $100,000 up to $250,000
* A rate of 15% on incomes greater than $250,000 up to $500,000
* A rate of 20% on incomes greater than $500,000 up to $1 million
* A rate of 25% on incomes greater than $1 million.
The exact tax rates and ranges of income subject to those rates would be
determined during the budget process. Here, I also suggest that we press for
balanced budget legislation that mandates the replacement of outstanding
government debt with fully amortizing bonds as existing debt matures and is
to be refunded. Amortizing bonds repay both interest and principal to
investors, so that the debt is fully repaid upon maturity. Governments would
need to adjust the tax rates above in order to fully service the debt.
I argue that the above structure effectively captures via taxation a high
degree of incomes that are rent-derived. However, this does not substitute
for the necessity of capturing rent by the direct taxation of land values.
The more revenue raised by taxing land rents, the amount of unearned income
flows subject to taxation will fall.
With balanced budgets, a diminution of land speculation and an economy more
likely to generate sustained full employment without inflation, the national
median income is certain to increase. Thus, the level of individual incomes
exempted from taxation will also over time increase.
That, at least, is my thinking on the dynamics at play.