Listening to Myself

Monday, November 15, 2004

Taxes, continued...

My favorite paragraph from a NY Times article in today's online edition:

Both the president and Congress now use the income tax the way my mother once employed chicken soup: as a magic elixir to solve all the nation's economic and social difficulties. The result is extraordinary complexity. In 1940 the instructions to the Form 1040 were about four pages. Today they are more than 100 pages, and the form itself contains more than 10 schedules and more than 20 worksheets. The complete tax code totals about 2.8 million words - about four times longer than "War and Peace" (and considerably harder to parse).

The author of this article thinks we should add a 14% national sales tax, with no income tax for people who make less than $100,000. People who make over $100,000 (AGI) would pay a 25% rate, but would retain many of the current basic deductions for things like charities, mortgage interest, and state/local taxes. The author argues this would continue to be a progressive system, and I suppose it would... but that 14% VAT would add up fast, and would be particularly painful in states like California. I don't relish the idea of paying 22.75% extra on every purchase I make, even if it would mean that I wouldn't have to file at the end of the year. Even if the amount of tax paid is less overall, there is a huge psychological barrier there in this system and I wonder if that would suppress consumption.

But on the other hand, perhaps that wouldn't be the worse thing in the world... with the US comsumption rates so high and our savings rates so low. I can't imagine it would do good things to the world economy though, at least in the short term!

I like that people are thinking about all of this though, I think it bodes well for some sort of change.


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