We should consider tax alternatives

Wednesday, October 14, 2015

A few presidential candidates have proposed changes to the tax code that would either eliminate or vastly simplify the income tax.

A national sales tax proposal has been referred to as a "Fair Tax" (I capitalize this to indicate it is a title given to the tax rather than an objectively determined description).

A Flat Tax is a vastly simplified income tax with no or only one deduction per person and no progressively higher percentage of tax at higher income levels. Variations include a two or three tiered rate with the higher tiers kicking in beyond a certain level.

There are many politicians who have championed the idea of a simpler tax code but would retain some deductions. Once debate commences over which deductions can go and which stay, the whole concept falls apart and you keep a terribly complex tax code.

Perhaps the Fair Tax would be better than even a simplified income tax, allowing for the elimination of the IRS and the millions of hours spent each year, not only by regular taxpayers but also by highly paid professionals, to navigate the labyrinth of our tax code.

The problem with the Fair Tax is that it is highly regressive. The poor cannot afford to pay as high a percentage of their spending as those better off. The poor cannot actually afford to pay anything.

Perhaps unprepared food and medicine should be exempt to at least shelter some spending on essentials from taxation.

The discussion over tax reform has been going on for a long time and it is unlikely that anything significant will happen in this area anytime soon.