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 |  Subject: Want A 70 Percent Tax Cut? A Libertarian Government Could Deliver It  Fri Apr 11, 2014 5:22 am | |
| As we approach April 15, the dreaded tax filing deadline day, many people are facing the reality of how much they actually pay in taxes to the federal (and, in most cases, state) government. It is also an annual exercise in realizing how much impact the tax system and those pesky tax rates have on our economic decision making. Should one accelerate income, defer it, make extra charitable contributions, or sell some stocks for a tax loss? So many possibilities.
Imagine the possibilities if government scaled back to only what it should be doing. Would you like a marginal tax rate of 9 percent instead of 28 percent? How about 3 percent instead of 10? What if on top of those really low rates there were no payroll taxes to pay, would that be a nice treat on tax day and every payday? It would certainly make a lot of tax avoidance schemes less important.
If we had a libertarian government in Washington, D.C., one focused on the actual constitutional duties and powers of the federal government, many of these decisions and much of the pain of tax filing would go away because the tax rates we all pay would be so much lower. After all, we put so much time and energy into minimizing our tax liability partly to save money but mostly because taxes feel so high to so many of us. Tax compliance, in fact, drops when the tax system is seen as unfair.
Thus, this week seems like a good time to imagine what our taxes rates would be if Libertarians ran the government in Washington, DC. In other words, what if the government concentrated on public goods where there is a legitimate constitutional role for government and got out of the income redistribution business? What if the federal government did not meddle in so many markets and sectors of our lives in which it really has no business? Not surprisingly, your taxes would be a lot lower.
In my imagined, generous Libertarian government I am including some things that maybe could be left out, but let’s see where we end up with them included. We can quibble over specific items later. Also, I am not going to cut waste or parts of many agencies; it is pretty much all or nothing based on the function and sticking to the latest official budget numbers.
First, defense spending remains since national defense is a proper role for the federal government minus the cost of foreign wars. That gives us $570 billion in spending. Veterans’ benefits add another $140 billion. Transportation spending is another $94 billion. Employee retirement benefits have a net annual cost of $46 billion. Then we get some smaller categories: foreign affairs ($16 billion), science/space/technology ($38 billion), natural resources and environmental protection ($38 billion), agricultural research ($5 billion), justice and law enforcement minus the war on drugs ($45 billion), and a proportionally sized general government ($11 billion). The grand total for this libertarian government is only $1.22 trillion or about one-third of current federal spending.
Now you may have noticed that Social Security, Medicare, Medicaid, and all the welfare programs are missing from the above list of spending. These are all programs currently operating on the principle of taking money away from one person in order to hand it to another. Libertarians are not in favor of forced income redistribution, so in this vision of what libertarian government might look like they are all gone. All the corporate welfare payments have also disappeared. I am in no way suggesting that such a diminution of government is politically feasible, at all likely in the near future, or could be accomplished without some sort of transition period. The point is simply to see what our taxes would look like if we had never added all of these programs that the Founding Fathers would have declared unconstitutional on a moment’s inspection.
The IRS is very slow to release data on taxpayers’ incomes and taxes paid, so I have to extrapolate a little from 2011 data, but in general the numbers reported below are reasonably accurate and I have made them too high where I am uncertain. The true tax rates under the following tax reform plans would be as stated or lower.
In the simplest case, if we keep all corporate, estate, and miscellaneous taxes in place (collecting about $600 billion), we could eliminate all payroll taxes (no Social Security or Medicare, so no taxes to fund the programs either) and then lower all the income tax brackets by equal proportions to give us a balanced budget (that’s right; revenue would equal spending in the proposals in this column). The current income tax brackets are 10, 15, 25, 28, 33, 35, and 39.6 percent of taxable income in the appropriate income range. These could be replaced under a libertarian government with brackets of 3, 5, 8, 9, 11, 12, and 14 percent.
Think about that for a minute, particularly for the famous “working class” family. No more payroll taxes, saving them 7.65 percent. People might see a raise thanks to employers saving an equal amount. Then top it all off with a tax cut of about 70 percent on their income taxes. Amazingly, this is actually a more progressive income tax system than we have now, thanks to eliminating payroll taxes.
Another alternative would be to eliminate all other taxes, including corporate income tax and payroll taxes, and implement a flat tax. If levied on all income, the rate would be 14.7 percent for everybody; if on taxable income with the same deductions and exemptions as we enjoy currently, the rate would be 21 percent. Again, remembering there would be no payroll taxes, these rates would be lower than the current ones for almost everyone.
To keep the personal income taxes lower, if all the corporate and miscellaneous taxes remain in place, we could use a simple 7.5 percent flat tax on adjusted gross income. Because the 7.65 percent payroll tax would be eliminated, nobody would face a tax increase and anybody paying income taxes would be getting a tax cut.
These are just a few possible ways that tax rates could be constructed to produce a balanced budget under a libertarian-sized federal government. The particular system of taxes chosen is not the most important thing, what matters is that taxes would be much, much lower under any of these possible reforms. So if taxes are on your mind during this tax filing season, perhaps you ought to find out more about libertarians. After all, if somebody offers to cut taxes by two-thirds, it certainly seems worth at least listening.
http://www.forbes.com/sites/jeffreydorfman/2014/04/10/your-libertarian-tax-rates-hint-they-would-be-low/
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“The state calls its own violence law, but that of the individual, crime.”-- Max Stirner
"Remember: Evil exists because good men don't kill the government officials committing it." -- Kurt Hofmann |
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