1. Taxes should be simple and fair. (controversy about the definition of “fair”)
2. Taxes should be conducive to economic prosperity and market efficiency.
(controversy about what stimulates economic growth)
3. Taxes should raise sufficient revenue to cover the “appropriate “level of
Government spending w/o unduly compromising freedom and privacy.
The 'Canons of taxation' were first developed by Adam Smith as a set of criteria by which to judge taxes. They are still widely accepted as providing a good basis by which to judge taxes. Smith's four canons were:
1. The cost of collection must be low relative to the yield
2. The timing and amount to be paid must be certain to the payer
3. The means and timing of payment must be convenient to the payer
4. Taxes should be levied according to ability to pay (“Wealth of Nations”- "The subjects of every state ought to contribute towards the support of government, as nearly as possible, in proportion to their respective abilities..." )
Modern economists have added three more canons to these to update and extend them:
5. A tax must not hinder efficiency or should involve the least loss of efficiency
6. A tax should be compatible with foreign tax systems (in the UK's case, with Europe's)
7. Tax should automatically adjust to changes in the rate of inflation (particularly important in high inflation economies)
8. The best taxes will tie in with all these. The worst taxes won't!
Maya MacGuineas wrote an article in The Atlantic
Radical Tax Reform
Imagine a "progressive consumption tax" levied not on individual purchases but on total spending, as measured by the difference between what you earn and what you save. It might work like this:
• no tax at all on the first $25,000 you spent,
• 10 percent tax on spending from $25,000 to $100,000,
• 15 percent tax on all spending above $100,000.
In effect, basic necessities would not be taxed, and luxuries would be taxed at higher rates. This plan would be simple to execute. Each year taxpayers would calculate their total income from wages, investment income, and other sources, just as they do now. But then they would take a second step, subtracting the value of all their savings that year—such as savings accrued in a bank account, through a 401(k) plan, or through an investment fund (all of which are easily tracked, meaning that it would be hard for cheats to escape detection)—from their total income. The resulting figure would be the base amount to which the consumption tax would apply, at progressive rates. The less you spent, the lower your tax rate would be. Low-income earners would for the most part be taxed less onerously, since they spend less; and middle- and high-income earners would have an incentive to save their money, preparing for retirement and bolstering the country's long-term economic prospects.
I don’t know whether the 0 – 25k = $0 taxes; 25k – 100k – 10% and 15% above 100k is the correct model. If you think about it you could have several more marginal tax rates. Complexity is in deductions not multiple rates.
I would do economic models to make sure:
• Poor pay fewer taxes.
• Middle Income up to 80% of tax payers pay relatively the same tax.
• 80 – 95% (including ME) should have a modest tax increase.
• 5% should pay more… (You could even do further splits like the top 1% or .5%)
• MORE REVENUE WOULD BE GENERATED! The current Revenue percent is somewhere around 14.5% of GDP while the US Government is spending 25% of GDP. In normal times Revenue should = Expenditures (we are not in normal times…)
Remember in the modeling you are gauging consumption not income so the upper income groups could either conspicuously consume or save.
Maya would suggest taxing like ordinary income. I disagree. I think some sort of Inheritance Tax is in order. The level and percent are subject to negotiation.
In addition, I would include an Asset Tax which is much like a state property tax. Many countries such as the hated France have some type of Wealth or Asset Tax. The tax should only be created for the wealthy and not be onerous which will be in the eyes of the beholder.
As far as Corporate Taxes go, if there was some way to prevent or punish Corporate workers (or leaders) from cheating i.e., people using corporate funds for personal use, there is really no need for Corporate taxes. Frankly, I don’t know how this could be accomplished. (Maybe some combination reporting by Corporations and Tax Law may be able to enforce compliance like triple fines and jail for tax fraud. Note enforcement may be complicated but not impossible.)
Many of the other “hidden taxes” could remain or be increased such as the gasoline tax. I would convert to a Carbon Tax. The onerous effect on the poor (Note The Poor are the MOST important to me – Mitt Romney) could be reduced by changing the 1st zero ($0) tax rate to a higher level.
Obama needs to come up with some tax reform where those with the ability to pay who can afford the burden which would include many of us in the so called middle class (I heard some politician saying the lower 95 % are the middle class which is ridiculous).