Flat Tax
Negative Incentive
I was struck today by the negative incentive a progressive tax rate provides to the successful, or those who generate higher amounts of income each year.
32% National Tax
The progressive tax rate taxes you at a low percentage at low income and progressively raises the percentage of tax on your income above certain income thresholds until it gets to 32% for the highest rate.
- For example:
- |income floor|income ceiling|tax rate|
|10,000|20,000|10% |
|20,000|30,000|15%|
15% State/Provincial Tax
This is accompanied by a concurrent progressive tax rate at the state level, which starts once again low at 5% and progresses to a high of about 15% on all income above a certain income threshold.
50% Tax rate on all income over X-thousand per year.
Taken together, they tax all your earnings above a certain level at a rate of 50%.
And there is no limit for these taxes, every dollar you make to infinity is taxed. WHy?
Negative incentive
I am struck by the negative incentive this provides people to work harder. If you work overtime at your job, you make extra money, but must pay more taxes, so you make less money on the extra hours you work, so why work extra? It essentially lowers your effective hourly wage after taxes, so there's litterally no financial incentive to produce more or contribute more, because you are compensated less.
Tragically you quickly reach a level where basically half of your hourly wage goes to taxes, so your working overtime for one half pay. 50% of it goes to your State and National government in additional income taxes.
This tax rate is of course for earned income, or the income that employees earn. On investment income it's less, but that raises the specter of double taxation. Once on the earned income and a second time on the unearned income. I find this quite vexing and unfair.
Proposal
I would propose that we pay not a regressive tax of steadily increasing tax rates, but a truly progressive tax with decreasing tax rates, so that you actually earn more income by working harder because of a lower tax rate. I think such a tax would incentivises us to work harder and earn more. It would be simple to do actually, by reducing our taxes on our additional income, not increasing it. Plus at a certain income level no more taxes would be paid.
This to me would incentivize hard work, as at a certain point all extra income would be tax free! There would truly be no greater incentive to work hard, then to get to the point that all your income for the rest of the year was tax free.
Additionally, I think investment income shouldn't be taxed at all, because you were already taxed once on that income, which you used to invest. This would be a reward or incentive for investing, a habit that makes citizens productive and society progress economically.
If you think about it, people would work hard, and invest their earnings to make even more tax free income. The dream of being financially independent would occur much sooner for people, and they could choose to retire and would leave their jobs. Thus clearing the path for the next generation to enter the job market, while the older financially secure generation would move into different roles in society when they were actually young enough to be meaningful mentors for our young people or be productive in other ways.
I think this would have far reaching positve effects. And the citiens could take on more of the charitiable roles in their societies, which the government now fills.
I think I will found a DAO dedicated towards Tax reform, called the Tax Dao. Its token the IRIS, after the USA Tax Revenue agency the IRS. The goal would be to make the IRS un-necessary.
What do youo think?
