Let me start by saying that I
believe in progressive taxation, and at the end of the day, I don't really get that upset when money's taken off of my paycheck. Society has needs that only government can meet, and that means people need to pay to play. That said, our current tax code is a monstrosity. I'll give you the bottom line before the rest:
it's my job as a citizen to pay taxes, but it should not be my job to make an arcane set of calculations to do so.
Could I really be agreeing with Bush that we need tax reform? Read on.
My story is like that of many techy types, I started doing contract programming for an employer (in PA) outside of my "state" of residence (DC). There are a number of pieces that add burden for people in this situation:
- Self-employment
- Multiple jurisdictions
- Overall federal tax complexity
- Estimated taxes and return filing
Let's look at these individually.
1) Self-employment
As we know, payroll taxes are flat, meaning that the propoportionate burden on low-income earners is heavy. When you're self-employed, this doubles, as you pay the employers half of all these taxes. Speaking from experience, someone making less than $20K a year can end up paying 30% or more of this income to the feds and city/state. That's a lot of money, particularly if you're taking all the business risks on yourself. I don't know how you reconcile it with robust Social Security and Medicare systems, but I'd love to hear good ideas.
2) Multiple jurisdictions
While this may have been the exception a decade ago, it's increasingly the norm, particularly for people doing small-contract work like web design, hosting, programming, graphic design, etc. Any information-based work is pretty easy to do this way, and with lowered cost of hardware and software, we ought to be encouraging enterprising people to look for work all over.
3) Overall federal tax complexity
This needs no explanation for any current taxpayer - suffice it to say that the federal tax code does not need to be complex to be progressive.
4) Estimated taxes and return filing
This really drives me nuts. It is really government's job to figure out and explain what taxes I owe - that's the obligation that goes with a government's constitutional right to collect taxes. As such, government should make it very, very, very easy (did I mention very easy?) for citizens and institutions to calculate and pay their taxes.
Others have remarked on England's Pay-As-You-Earn system, which calculates and deducts taxes on the fly. We should be moving towards this as fast as we can, and making sure to structure it flexibly enough to accomodate entrepreneurial ventures and non-wage income in general.
So why should progressives get behind this?
a) Making taxes easy and transparent removes a lot of popular frustration with them and deflates the arguments of anti-tax hawks. Anyone who believes that Bush is really going to try to put tax reforms in place without tax cuts or nonsense schemes like flat taxation, raise your hand.
b) The monetary tax burden is heavy on lower-income people, but the legal and recordkeeping burden is absolutely brutal. I'm well educated and comfortable with numbers, and I have easy access to record-keeping software, advice from lawyer friends, and other resources that spare me the brunt of this frustration, and it's still unbearable.
c) Tax complexity encourages oligarchy
How can we encourage the kind of small-business growth that revitalizes neighborhoods and keeps youth out of trouble if it requires a CPA and JD just to do your business' taxes? And if you're not the holder of those titles, you have to pay these professionals - presto, a nice advantage for bigger fish, and a nice incentive to dodge taxes. We should be making the barriers to starting small local businesses as low as possible, and that means a light burden of tax complexity.
So progressives need to get behind tax reform ASAP, and own this issue. It is a key step towards making the argument we all know the Democrats have to articulate to win:
a healthy government is necessary and can do profound good.
Some simple things we could do:
a) present our own version of tax simplification, built around progressive taxation
b) present a design for a Pay-As-You-Earn recordkeeping infrastructure that does your taxes for you, and send you the bill with full transparency (even down to the source code level) and redress.
c)eliminate penalties for all but the most obvious examples of gaming the system, as these feel to honest taxpayers like insult to injury. Focus instead on collecting actual taxes owed and tracking down and prosecuting the real cheats. Note how distinct this is from the credit card penalty points game.
d) Demonstrate how this infrastructure could easily pay for itself in recovered work hours, productivity, and improved support for progressive taxation
e) market the hell out of "fair and transparent taxation"