Math for Life by Jeffrey Bennett

Author:Jeffrey Bennett
Language: eng
Format: mobi, pdf
Publisher: Big Kid Science
Published: 2014-11-13T21:00:00+00:00

How Should We Change Our Tax System?

When you look at the complexities of the current system and add in the issues of fairness, there’s no doubt that there has to be a better way. The more difficult question is deciding which of many better ways we should go.

The good news is that, as this updated edition of the book goes to press in fall 2013, a number of proposals for tax reform are on the table. Several high-profile commissions have proposed changes designed to simplify taxes and help with our national deficit/debt situation, and congressional Republicans and President Obama are both developing their own plans. The bad news is that, based on the recent history of major reform proposals, politicians are unlikely to approve any of these plans. We can always hope that this time will be different (and I’d certainly be very pleased if tax reform rendered this chapter out-of-date), but I’ll have to see it to believe it.

Current proposals aside, I believe that the quantitative reasoning we’ve applied to understanding our current tax system can also help point the way to a better system. Although I’m now delving into the realm of opinion rather than mathematical truth, I’ll list out five basic principles that I personally believe our tax system should follow.

First, I think we should couple tax reform with efforts to balance the federal budget, so that we will not continue to pass costs on to future generations. Better yet, we should seek a small surplus, so that we can gradually pay down the existing federal debt.

Second, I believe the tax system should be much simpler. With rare exceptions, it should be possible to fill out your income taxes on a postcard, and it certainly shouldn’t be necessary for the average person to need help from an accountant.

Third, I believe it’s important for people to perceive that the system is fair. To that end, I think we should strive for a system in which two people who earn the same amount of money pay the same amount of tax, regardless of the source of their income or of the personal decisions they make about how to spend their money. I would therefore eliminate the distinction between “ordinary” income and capital gains, since we’ve already seen that this system leads to bizarre consequences such as billionaires and trust fund kids paying lower tax rates than working people. (However, if long-term capital gains are to be taxed as ordinary income, it probably makes sense to index them for inflation.) I would also eliminate all tax deductions, which would have the side benefit of allowing us to lower overall tax rates. For those who worry that eliminating the mortgage tax deduction would hurt the housing market, look back at Chapter 1 and I think you’ll see that it’s just as easy to argue that this deduction helped cause many of our recent economic problems. For nonprofit supporters who worry about elimination of the deduction for charitable donations, keep this fact

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