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Jonathan Hoenig - Why Our Tax System Stinks

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April 12, 2010 – Comments (6)

I suppose you should be grateful, not grumble, as you prepare to send a check to Uncle Sam by April 15 this year (that’s Thursday, by the way). Regardless if it’s the elimination of the Bush tax cuts or new taxes on carbon or health care, your taxes will rise in the coming years even if the economy improves.

It’s a trend that actually started over a year ago when the president increased the federal tobacco tax on a pack of cigarettes by 62 cents to $1.01 (the largest bump in history), breaking a bedrock campaign promise that anyone making under $250,000 “will not see any of your taxes increase one single dime." The “tanning tax,” a 10% charge included as part of the health-care bill that will start being collected on July 1, also directly violates that pledge.

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6 Comments – Post Your Own

#1) On April 12, 2010 at 2:53 PM, JakilaTheHun (99.93) wrote:

Our tax system is terrible and it gets worse every day. Most of the solutions to the problem seem just as bad, though.  The "Fair Tax" has to be the absolute worst of them all.

The tax system should

(1) Pay the bills

(2) Create as small as burden as possible

(3) Be simple

(4) Be progressive [i.e. the lowest earners pay the least]

It's hard to met all those criteria, but I think the soultion would be this:

(1) Eliminate all complicated deductions from the Federal income tax system --- this would make the system simplistic

(2) Create one flat rate --- this would create simplisticity and also wouldn't punish people for being more productive; the rate should be no more than 30% and we should set a goal to get it down to 20%

(3) Create one massive standard deduction that should represent that expenses of an average middle-income lifestyle; then adjust it each year according to CPI inflation --- my ideal figure would be $30000.  You shouldn't pay taxes if you're not making an "excess profit"; $30K is just a reasonable middle income living.  You shouldn't pay taxes if you're just barely paying your bills.

 

I don't have much of a problem with the tanning tax or the cigarette tax or the gas tax or any other usage taxes.  In fact, we should start using usage taxes more frequently.  

I will say the author glosses over the absolute worst tax of them all --- Social Security.  It's a 12.5% tax that hits lower and middle income earners the hardest and serves no useful function.  All the funds simply go to a government fund that earns a paltry return and that fund will likely be bankrupt by the time many of us retire. Phasing out social security would be expensive for the first 10-20 years afterwards, but it would help small businesses enormously, lower the debt burden long-term, and increase GDP over the long-haul. 

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#2) On April 12, 2010 at 4:38 PM, Melaschasm (54.35) wrote:

Jakila, I agree that a flat tax with a large standard deduction would be a great improvement over the current system.  Shucks, even an increasing rate with the only deduction being a smaller standard deduction would be a vast improvement from our current system.

I am curious why you specifically dislike the fair tax proposal?

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#3) On April 12, 2010 at 5:53 PM, Option1307 (29.71) wrote:

You shouldn't pay taxes if you're not making an "excess profit"; $30K is just a reasonable middle income living.

I basically agree with this statement in theory, but doesn't this just encourage this portion of the population to vote for the "guy who promises the most stuff", longterm effect/debt be damned? Sort of like what we have now with ~50% of the population paying zero federal income tax.

I'm not saying I have come up with a better system, just curious if you've thought about this and what those thoughts were.

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#4) On April 12, 2010 at 6:05 PM, sevenofseven (< 20) wrote:

Hun, you dissed the fair tax, but most of your proposals mirror it.

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#5) On April 13, 2010 at 5:56 AM, JakilaTheHun (99.93) wrote:

Melaschasm,

I have a lot of issues with the "Fair Tax":

 

(1) It's regressive --- technically, I believe "Fair Tax" proponents have supported exemptions on food, but otherwise, it would hit lower and middle income earners the hardest

(2) It would create a large black market for goods --- by creating a 20%+ national sales tax (and realistically, it would have to be about 25%+ to be viable), the combined state and Federal sales tax would be about 30% - 40% in various localities.  That creates a huge incentive to sell goods "under the table" and hence, a large black market develops. It's much easier to collect income tax than a national sales tax of that magnitude. 

(3) It's unrealistic --- mostly for the reasons described above, but also because the people promoting it are claiming it will only be 16% --- it would have to be much, much higher than that to cover our current burdens. 

There are some arguments in favor of it, but I think it would be much simpler to move to a flat, simplified income tax system.  

 

Sevenofseven, 

My proposal doesn't mirror the "Fair Tax" at all.  The "Fair Tax" is a sales tax.  

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#6) On April 13, 2010 at 6:08 AM, JakilaTheHun (99.93) wrote:

Option1307,

I don't disagree with you. 

Of course, I think that's true regardless --- Social Security hits lower and middle income people the most right now, but most of the population currently supports it. 

Unfortunately, I think democracy tends to result in situations where people always want more services and lower taxes. 

 

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