Taxing and Spending

TAXING AND SPENDING….Jacob Levy responds today to my outrage annoyance over his defense of the Wall Street Journal and their odious “lucky duckies” editorial. His response is too complex to try and summarize, but basically he seems to agree that the WSJ’s editorial was deceptive. However, he also says they did have one good point to make, and that happened to be the point he felt like addressing.

Fair enough. And he might be surprised to know that I agree with much of his post. I think taxes should be transparent, so that people know how much they’re paying; that everyone should pay taxes; that there should be both federal and local taxes; and that it’s generally a good thing to make taxes nondistorting (although that’s a subject so complex as to be nearly impenetrable).

What’s more, I also agree that Social Security should be viewed as simply a program to fund old age pensions, not some special quasi-investment vehicle. We should get rid of the hideously regressive payroll tax and simply fund Social Security and Medicare out of the general fund.

One place where I pretty clearly disagree with Jacob is his preference for a consumption tax rather than an income tax. In the interests of nondistortion (and fundamental fairness), I think that all income should be treated roughly equally, and that includes wages, dividends, capital gains, gifts, inheritances, etc. I very much doubt that this adds all that much complexity to the tax system. (Although I should point out that despite what Jacob says, it’s actually perfectly easy to have a progressive consumption tax. In fact, we’re getting very close to that in the United States these days.)

So how about if we put this all together into the magical Calpundit impossible-but-very-cool tax plan? Here it is:

There is only one tax in the entire country, the federal income tax. However, all localities are allowed to specify their own percentage to be added to the tax returns of people who live there. Thus, Irvine might decide that the tax rate here will be 1.2%, and this would then be added to my taxes and disbursed directly to the city of Irvine with no federal oversight. Ditto for the County of Orange, the state of California, and any other miscellaneous localities I might belong to.

This would prevent local authorities from creating their own specialized tax regimes based on local conditions, but maybe that’s a good thing. And it would certainly make taxes far more transparent and far easier to administer: I’d only pay one tax, and once a year I’d get a statement telling me just how much I’d paid, something that I can only vaguely guess at today.

Once that’s done, we can then argue about what the tax brackets ought to be, what the lower cutoff for paying taxes is, and other genuinely interesting and substantive questions. And of course we still have corporate taxes to think about, which are a whole different question.

Anyway, there’s nothing really serious here, and there are a million reasons why a single taxing authority would cause problems, but it seemed like a pleasant diversion for a Friday afternoon. After all, don’t you like mulling over tax policy as a bracing little end-of-the-week stimulant?