Introduction to fair tax methods
I’m no tax expert. I’m not an economist. And like most people, while I don’t enjoy paying taxes I do want the government to do things and that generally requires money. One of the general agreements on both sides of the aisle in Washington and across America is that our tax code needs changing. That’s about where the agreement ends.
I’m not about to attempt straightening out our primary source of government revenue. Instead, I want to discuss what ways we can tax and what is fair. “Fair” can be a very elusive concept. Individuals have an infinite number of ways to define fair. More on that later, but suffice it to say that most of us know we are paying too much and that “they” are not paying enough—“they” being defined as pretty much anyone other than ourselves.
Let’s consider Federal Income Taxes, for example. The way I see things, there are three possible “fair” methods of determining who pays what. I’ll call them flat, sliding-scale, and top-down.
First, flat tax. Flat is the easiest to understand. You simply figure out how much income there is out there to tax, how much revenue it is you want the government to have, and then charge a percent of everyone’s income to get the money transferred. Flat implies that the percentage is the same for everyone. Let’s say that the percentage ends up being 18% then everyone pays 18% of their income. If you earn $50,000 a year you pay $9,000; if you earn $150,000 you pay $27,000.
The more you earn the more you pay when taxed on a sliding scale, as well. Exactly how the sliding works is the devil-in-the-details of this type of tax. How quickly does the scale go up? How high does the scale go? Our current tax system looks a lot like this, but isn’t purely this way. Instead of a slide, ours is a stair-step. But, simply put, the more you earn the higher percentage you pay in taxes.
The top-down approach, which I’ve never seen credibly suggested in the United States, is an acknowledgment as with the sliding scale that the more you make the easier it is to shoulder your tax burden. But there’s no sliding scale. Instead you tax 100% of all income above a certain level. Let’s pretend that it is determined we can pay our Federal bills by taxing away any income above $180,000 a year. So anyone earning less than that pays nothing and anyone earning more than that pays Uncle Sam every penny they make above that number. Crazy-sounding, yes. But certainly doable.
So there you have it: flat, sliding, and top-down. Which do you like better? That’s what we’ll look at next week. Well, not what you like the best since I’m not sure who you are, but we’ll look at the pros and cons of each, and what your favorite says about you.
This article was published under the title "Choose a position on taxes" in the Wichita Falls Times Record News on February 8, 2015.