Al_U_Card, on Jan 17 2008, 11:16 PM, said:
First $10,000 is tax exempt
Next $90.000 is taxed at the rate required to balance the budgetary expenditures.
Anything above $100,000 is taxed at the rate to pay off the deficit at a rate to reduce the deficit to $0 by 2064
You pay your taxes such that at the end of the year, you write down your income, your tax owed, your tax already paid and how much you owe or are owed.
First off I'll say that I'd prefer to tax wealth to income since a wealthy person with out income can still afford taxes and a person who is usually poor but has a windfall year doesn't deserve to get hit with the top rates necessarily. But if we imagine no wealth tax and instead continue to focus on income then I'll say a rough sketch of a better tax policy would be as follows (most people pay far less than in today's situation - some people [those who can most afford it] pay far more):
I'd say the first inflection point is an income*1 say triple the poverty line*2. I'd say anyone with income less than triple the poverty line should get 1/3 of the way between their income and triple the poverty line in negative taxes (therefore if you have no income you get a refund for the poverty line). I'd say the next inflection point should be, say, five times the median*3 (not mean) household (not family) income. For income between inflection point 1 and inflection point 2 say 50% of it should be taxed. The final rate I'd have would be, say 2/3 of income above inflection point 2. I'd want all of these points to continue to move as the underlying basis moves [and exact percentages could be adjusted as we balance budget or to make the numbers work].
I'll also say that my tax rates here assume no other (at least federal) taxes are needed (I.e., no payroll taxes, no sales taxes, no estate taxes [although if you could add a wealth tax, which the estate tax is, I'd gladly take it and lower the rates above a corresponding amount]) and also assumes you can lower the numbers some because no other Federal programs (I.e., welfare, foodstamps) are needed (although realistically you'd want those other programs and just count them either as 3X income for folks (3X to balance the 1/3X they get back) or as just an advance on their refund).
income*1 - I'd want to count as income anything that increases (- for decreases) wealth plus any consumption but I'd floor income at 0. Obviously this includes salary but also tips, gifts, capital gains, stock options, etc. Also, obviously, this is where most complexity comes in tracking what is income and/or tracking consumption plus tracking changes in net worth (depending on how you calculate what should be the same number).
poverty line*2 - I'd want a moving poverty line (I.e., adjusted each year) and I'd also want it adjusted for status of the filer and location of the filer. I.e., a single person in rural Alabama has a different poverty line than a family of 4 living in San Francisco. I'd also want a poverty line that accurately measured the costs of living inputs and that didn't overly rely on underreported CPI to adjust or assume that those in poverty have access to costco like prices.
In the US currently the poverty line for a family of 4 is $20,650. This poverty line would mean a family of 4 would get cash back from the gov't if they made less than $61,950. So if one family (the Albert's) of 4 make $0, another family (the Baker's) make $15,000, another family (the Cook's) make $20,650, another family (the Davis's) make $60,000, and the last family (the Elliott's) make $75,000 then the gov't would give: the Albert's $20,650 which would make their total income $20,650; the Baker's $15,650 for $30,650 total; the Cook's $13,766.66 for $34,416.66 total; the Davis's $625 for $60,625 total; the Elliott's would get nothing from the gov't (they'd actually owe).
median income *3 - Here I'd want to use the most basic household information as correcting to the reported family information or to the mean distorts things upwards too much. The median household income in the US is $48,201. Five times that is $241,005. So for a family of 4 all income between $61,950 and $241,005 would be taxed at 50%. So the Elliott's from above would owe $6,525 in taxes. If you pull down $100K you'd owe $19,025 in taxes. Pull down $200K and you'd owe $69,025 in taxes. Pull down $241,005 and you'd owe $89,527.50.
Once you go over that last threshold things go up more. So pull down $500K and you'd owe $262,190 in taxes. Have an income of $5M and you'd owe $3,262,190.83 in taxes (but you'd still have more than $1.7 M in after tax income, a much better situation to be in than any of the other families).
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