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This is part of a longer project I've been working on, but I thought I'd go ahead and lay out the intro ground work and invite responses/suggestions.
Currently our tax system costs us $431 Billion annually - just to figure out how to comply with the blighted thing. Thats' $431 Billion wasted on paperwork - fully 3% of GDP that could be plowed right back into growth instead wasted on compliance, avoidance, and paperwork. Our tax structure provides all kinds of incentives and tax loopholes for people to engage in economically unproductive behavior; shifting income, investment, wealth, and location around so as to minimize tax exposure rather than maximize productivity. To be blunt, it diverts massive amounts of wealth from more productive to less (or simply ‘non’) productive uses every year.
Our tax code punishes people for saving and investing (which is economically beneficial) and rewards them for going into debt in order to consume (which is economically harmful). It punishes people for getting married and forming stable families in which to raise children. It discourages new business formation and investment. It encourages malinvestment and helps to feed bubbles. On top of all that, it costs us a huge amount of money to maintain. We could fight four wars the size of Iraq and Afghanistan, and still have enough left to fund the Department of Education, the Department of Agriculture, the Department of Energy, NASA, and the EPA; just on the cost of compliance alone.
Furthermore, our Tax Code currently turns American against American. Our political classes, eager for power, quickly seize and exploit perceived disproportionate treatment and use it as a way to rally followers behind them who will not ask enough questions about where they are headed. Politicians can take advantage of people who are convinced that Someone Is Out To Get Them, and they can take advantage of people who think that They Can Get Something For Nothing; but it's harder for them to take advantage of people who are convinced that What We Need Is To Come Together To Have Responsible Governance. And so we turn on each other and form opposing blocs seeking to suck each other dry rather than fostering a sense of national unity and a belief that we are each helping to pay for the necessary costs of government. Our tax code doesn't just hurt our poor (who stand the most to lose from the economic losses it encourages), it doesn't just hurt our national pocketbook, it hurts our soul. It encourages greed, grift, lying, and cheating in the average man and woman. People who would never steal from their neighbor's house are tempted and encouraged by the complexity and messaging of the system to steal from him by taking advantage of the tax code to minimize their burden and increase his. It weakens what it means to be American, to be in something together, to take care of your own costs and be responsible for your own self. It weakens our sense of community by setting us against each other and putting us into a zero-sum game of I-win-You-lose; it harms our sense of ourselves as a unified nation even as it weakens our ability to project peace and stability in the world abroad.
In addition, the current structure of our welfare state is deeply flawed. Benjamin Franklin famously wrote that the better way to aid the poor was to encourage them out of poverty rather than make them comfortable in it, but we have done worse than that, and now actively encourage the poor to remain so. When the income and monetary worth of social services are calculated, the poor can lose net income by increasing their earnings from the work we should be encouraging. As an example, a single mother who makes $29K begins to see a loss in total income as soon as she makes $29,001, and she does not recover her previous standard of living (including accounting for taxes) until she earns more than $69,000. Given the low probability of a single raise of $40,000 a year, this single mother who does not wish to lower her childrens’ standard of living is trapped in the below-$30K zone for as long as they continue to live with her.
Similarly, the welfare state provides fiscal incentives against family formation. Getting married can cost low-income households (who can ill afford the loss) thousands of dollars in government transfers and benefits. The results of broken families are children raised in poverty, with all the disadvantages that confers. They achieve less in school (and will continue to do so no matter what education reform we try), they are more likely to drop out, they are more likely to get pregnant prior to marriage, they are more likely to never form stable families and they are far more likely to live in poverty themselves. They are not “trapped” in poverty the sense that they cannot escape. They are trapped in the sense that we make it harder for them to do so and seem to punish them if they try.
There are three things that any tax/welfare reform in America should accomplish. 1. It should not place undue burden on the poor or provide them with incentives to engage in self-destructive behavior. 2. It should retain a progressive approach while eliminating the ability of politicians to take advantage of it to set bloc against bloc in a cynical search for power, and 3. It should encourage growth that raises all boats and provides opportunities especially to the poor to escape their station.
Currently our tax system costs us $431 Billion annually - just to figure out how to comply with the blighted thing. Thats' $431 Billion wasted on paperwork - fully 3% of GDP that could be plowed right back into growth instead wasted on compliance, avoidance, and paperwork. Our tax structure provides all kinds of incentives and tax loopholes for people to engage in economically unproductive behavior; shifting income, investment, wealth, and location around so as to minimize tax exposure rather than maximize productivity. To be blunt, it diverts massive amounts of wealth from more productive to less (or simply ‘non’) productive uses every year.
Our tax code punishes people for saving and investing (which is economically beneficial) and rewards them for going into debt in order to consume (which is economically harmful). It punishes people for getting married and forming stable families in which to raise children. It discourages new business formation and investment. It encourages malinvestment and helps to feed bubbles. On top of all that, it costs us a huge amount of money to maintain. We could fight four wars the size of Iraq and Afghanistan, and still have enough left to fund the Department of Education, the Department of Agriculture, the Department of Energy, NASA, and the EPA; just on the cost of compliance alone.
Furthermore, our Tax Code currently turns American against American. Our political classes, eager for power, quickly seize and exploit perceived disproportionate treatment and use it as a way to rally followers behind them who will not ask enough questions about where they are headed. Politicians can take advantage of people who are convinced that Someone Is Out To Get Them, and they can take advantage of people who think that They Can Get Something For Nothing; but it's harder for them to take advantage of people who are convinced that What We Need Is To Come Together To Have Responsible Governance. And so we turn on each other and form opposing blocs seeking to suck each other dry rather than fostering a sense of national unity and a belief that we are each helping to pay for the necessary costs of government. Our tax code doesn't just hurt our poor (who stand the most to lose from the economic losses it encourages), it doesn't just hurt our national pocketbook, it hurts our soul. It encourages greed, grift, lying, and cheating in the average man and woman. People who would never steal from their neighbor's house are tempted and encouraged by the complexity and messaging of the system to steal from him by taking advantage of the tax code to minimize their burden and increase his. It weakens what it means to be American, to be in something together, to take care of your own costs and be responsible for your own self. It weakens our sense of community by setting us against each other and putting us into a zero-sum game of I-win-You-lose; it harms our sense of ourselves as a unified nation even as it weakens our ability to project peace and stability in the world abroad.
In addition, the current structure of our welfare state is deeply flawed. Benjamin Franklin famously wrote that the better way to aid the poor was to encourage them out of poverty rather than make them comfortable in it, but we have done worse than that, and now actively encourage the poor to remain so. When the income and monetary worth of social services are calculated, the poor can lose net income by increasing their earnings from the work we should be encouraging. As an example, a single mother who makes $29K begins to see a loss in total income as soon as she makes $29,001, and she does not recover her previous standard of living (including accounting for taxes) until she earns more than $69,000. Given the low probability of a single raise of $40,000 a year, this single mother who does not wish to lower her childrens’ standard of living is trapped in the below-$30K zone for as long as they continue to live with her.
Similarly, the welfare state provides fiscal incentives against family formation. Getting married can cost low-income households (who can ill afford the loss) thousands of dollars in government transfers and benefits. The results of broken families are children raised in poverty, with all the disadvantages that confers. They achieve less in school (and will continue to do so no matter what education reform we try), they are more likely to drop out, they are more likely to get pregnant prior to marriage, they are more likely to never form stable families and they are far more likely to live in poverty themselves. They are not “trapped” in poverty the sense that they cannot escape. They are trapped in the sense that we make it harder for them to do so and seem to punish them if they try.
There are three things that any tax/welfare reform in America should accomplish. 1. It should not place undue burden on the poor or provide them with incentives to engage in self-destructive behavior. 2. It should retain a progressive approach while eliminating the ability of politicians to take advantage of it to set bloc against bloc in a cynical search for power, and 3. It should encourage growth that raises all boats and provides opportunities especially to the poor to escape their station.