Flat Tax and Carbon Tax
With the elections coming up, everyone is thinking about taxes. Will they raise? Will they fall? Will they get more complex? Will they fix all the crazy loopholes? Will they put in a carbon tax?
Well, I’ve got a few ideas about how the system “should” be set up. I’m no economist, but I do support a few interesting policies that I think are worth noting.
First, I think that the current tax system is WAY to complex. With increased complexity, you increase the likelihood that large corporations will use that complexity to their advantage and benefit from the system more than the lower income brackets. This complexity also requires a lot of government employees review all of that mess and requires the need to enforce it as well. The more complex the tax system, the more resources are required to regulate it. In effect, complex taxes are a mess.
Progressive Taxes can also stunt economic growth. I remember when my mother and father got better jobs, which bumped them up into the next tax bracket (but only just barely). They actually ended up making a slightly higher amount for a disproportionately greater amount of work. I am convinced that the current system discourages economic growth by “punishing” people for earning more.
My solution is not a new one… but I am going to put a twist on it. I am a firm believer in the flat tax. Basically, a flat tax system is a very simple and easy to understand tax. It is a tax on income that is the same percentage no matter how much you earn. Likewise businesses will all be subject to the same taxation of profit. Every company, no matter how much they earn, or how big or small they are will pay the same percentage of their profits to the government. Up to this point, this is just like any other flat tax system. However, I don’t believe that there should be caps for the poor. I think EVERYONE should have to pay.
However, there is the twist I mentioned. I believe that an alternative to making the system more complex by adding exemptions and allowances for dependents and so on… would be to simply have a rebate system that is designed to redistribute a percentage of the nations wealth. Basically, if everyone payed 20% on their income taxes (no matter how much they made or how big their family is), it would make it all very simple to understand. Then the government takes 30% of the total taxes collected, divides that money up evenly, then give it back to everyone as a tax rebate. If we exclude the taxes paid by businesses (for simplicity’s and demonstration’s sake), you can estimate that the average income for an American household is around $45,000. This means that the average tax rebate would be $2,700 (which is equal to the amount payed for those making $13,500 per year). Basically, What this does is encourage growth from those making less than a third of the national average without punishing people for making more money. Because there are no “brackets”, there is no way that making more money could result in you actually earning less because of extra taxes.
The only problem produced is that it might encourage moochers, or poor people who intentionally earn less because they’re getting paid to be citizens anyway. The good news is that the tax refund will be paid yearly and they will likely need more than the average of $2,700 per year in order to survive. Also, if people do decide to mooch, they will bring down the national average income which will then reduce the amount they earn every year.
This little twist simplifies the system and has a few other benefits. It will help close the gap between the rich and the poor instead of widening it. It will not encourage or discourage people from getting married for tax reasons. It will not encourage the poor to have more kids for tax reasons. The last one is very important because the ever-increasing population is a huge burden on this planet and personally, I would rather see a progression towards the middle class rather than a progression towards the poor. Essentially an increase population of the rich (because they can afford to have more kids than the poor) would cause their wealth to spread out, causing them to move towards the middle class. All while the poor are discouraged from having large households while providing them the economic assistance they need to move into the middle class.
The other cool effect is that it will boost the economy. Small businesses will have the same opportunity as the big guys. This will increase an individuals opportunity to compete and prosper. Also, because the refund checks will be issued yearly, it actually encourages people to go out and spend it fairly quickly, injecting money back into the market and ultimately benefiting both the consumers (because they get more stuff) and the producers (because they’ll sell more stuff).
The only problem then is the issue of “Marginal Utility”. Basically this means that the more money you have, the less it effects your survival. If a retail worker earning $15,000 had to give up $3,000 in taxes, it would be a very big deal and would certainly effect their livelihood. However, if a CEO of a major corporation earning 10 million had to pay 2 million in taxes, they’ve still got 8 million to live comfortably on. Also by removing deductions, you can discourage the small businessman from working because a large percentage of his profits might be spent on items necessary for his business (which are deductible). Granted, the big businesses will have the same issues but they’ll have much more money to throw around. Graduated tax rates are supposed to compensate for this by taxing the rich more. However, the result is that the rich hire professionals to figure out how they can pay the smallest amount possible (something the poor cannot afford). The end result is often that the rich pay a smaller percentage of their wealth than the poor because they can use the complexities of the system to weasel out of paying what they owe. A flat tax would make it impossible for these big businesses to get out of paying. Additionally, using the money gained from the flat tax to fund programs to help provide relief from poverty would offset this major issue.
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Besides the flat tax, I also support a carbon tax. This is basically a tax that forces companies to pay for polluting. In its most basic form, it is a tax on oil and coal. Companies will have to pay more for these products and would be rebated if they manage to reclaim/capture carbon or otherwise do not release it into the air. For instance, plastic is made from petroleum products, but much of the carbon from these products is stored in the resulting plastic. These companies would get money back from the taxes they paid on the petroleum they used based on the amount of carbon that is fixed in the end result.
The cap and trade system is just too complex and would cause the market to become extremely volatile. It is also far too complex and will encourage big polluters to find loopholes and cheat the system. I really don’t want my power bills or my gas prices to be going all over the place just because they managed to complicate the market. I want things to be simple and easy to understand. I want the system to result in stability and sustainability. The cap and trade system just doesn’t seem like it could do that.
It is suggested that the carbon tax would put an increased burden on the poor. If it became more expensive to drive our cars or power our homes, this could indeed cause much more hardships in lower income homes. However, the more affluent rich tend to spend more on carbon emitting products such as gas and power. If you use a percentage of that tax to help lower other taxes, then the benefits will be felt most by the poor, especially if in a flat-tax system. If 50% of the carbon tax went to lowering other taxes or was added to the yearly tax rebate (as discussed earlier), it would significantly lower the impact of the carbon tax on the poor. If you put the remaining 50% aside specifically into incentives, grants, and compensations for producing or using zero carbon energy sources, you could drastically increase the rate at which we shift to green energy. Imagine that more green energy research could be performed because more government grants will be available to them. Imagine that installing solar cells on your roof will be cheaper because the government will refund a percentage of their cost.
The carbon tax will have several effects. It will begin reducing carbon emissions immediately. It is simple and easy to implement. It will encourage energy companies to research less carbon expensive methods of energy production. And it would encourage the general public to be more carbon conscious, because carbon emitting products will be more expensive.
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The system I’m propsing is simple and easy to understand. It may be flawed (simply because I’m not economist). However, I think it would work fairly well. All I know is that the current system is broken and current efforts to fix it are like putting duct tape on a crack in the Hoover Dam. Something drastic needs to be done soon before the entire economy collapses.
Read more about the flat tax by clicking here.
Read more about the carbon tax by clicking here.