Monday, January 30, 2012

The Best Fix for Our Tax System? Replace Income Taxes with Sales Taxes

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The Best Fix for Our Tax System? Replace Income Taxes with Sales Taxes

It would mean simpler compliance, less cheating, and a lighter carbon footprint. It would even be an offshore-resistant job creator.

615 income tax alan cleaver flickr.jpg

Alan Cleaver_2000/Flickr

This week's Working it Out question was, "What one change would you make to our taxation system?" Readers' most frequent ideas were versions of "soak the rich." For example, "Eliminate tax breaks for the wealthy. We have been waiting for the 'trickle down' for almost ten years now and it hasn't happened." Or this: "Is investment really going to dry up if the capital gains rates are higher for the wealthy?"

Calls to soak the rich aren't surprising in light of the ubiquitous narratives attacking candidate Mitt Romney paying "only" $6.2 million in federal taxes over the last two years. A Google search on the term "Romney tax return" yielded 448,000 links that were posted in the last week alone! (In fairness, Republicans don't have a monopoly on mining tax loopholes. For example, John Kerry's wife, Theresa Heinz Kerry, has a net worth of $500,000,000, 10 times that of Romney, yet in the year Kerry ran for president (they filed "married, filing separately,") she paid a lower rate than Romney.)

Part of me is sympathetic to further taxing the rich. After all, the rich-poor gap is very wide. (Although in fairness, according to studies reported last week in the New York Times, the rich in the last two years are getting poorer and forecast to keep getting poorer.) In addition, no matter how smart, hard-working or innovative someone is, or how many jobs he or she creates, it seems cosmically unjust that some people have a mansion (or two), yacht (or two) and more money than they could spend in Methuselah's lifetime, while other people must eat ramen in hovels. Also making me sympathetic to squeezing fat cats is that the poor spend rather than save a larger percentage of their income, so by redistributing dollars to them, more money gets quickly pumped into the economy.

On the other hand, I am not immune to opposing arguments, for example, those made in The Economist, which points out that, as of ...

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