Tax Reform: Immediate Feedback
Do people behave more responsibly when they feel the consequences of their actions immediately?
Matt McIntosh proposes a tax system based on this idea
Here’s a tax reform proposal to try on for size: start with a graduated income tax (or consumption tax with negative income taxes a la Arnold Kling, either works) without any special loopholes, deductions or exemptions. Index the tax to an equation so that there’s a smooth curve rather than these idiotic “leaps” in marginal tax rates which are the cause of much frustration and economic distortion.
So far it’s sensible enough (though not very interesting), but now here comes the smart bit: the equation for the tax will have two variables, one being the individual’s income (or consumption) level and the other variable being indexed to the size of the federal budget. The tax will automatically slide upward or downward every year according to the budget, getting lower when spending is down and higher when spending is up. Thus the tax rates will be directly tied to Congressional spending, increasing automatically for everybody when Congress spends.
At first this may have you aghast, but stop and think a minute about what it would mean: every time Congress wanted to spend on something, they’d have to immediately consider the negative effect this would have on their popularity, since everyone’s taxes would go up with spending. It would make the voters directly feel the pain for the federal spending they support. Ceteris paribus, over the long haul this should lead us to precisely the amount of spending that most of the public wants, which I’d guarentee would be less than we have now once they feel the costs of it immediately.
Now of course, this is not my ideal world. But it’d be a damn sight better in the long run than what we have now, and is really the only way to get government spending down and keep it down. It’s all about installing a fast-acting feedback loop, making people feel the cost of things quickly rather than diffusing the costs and kicking the can down the road all the time. I introduce this idea because 1) the graduation of the tax should make the lefties happy, 2) the fiscal responsibility it would impose should make the righties happy, 3) it’s relatively simple to explain, and 4) just about everyone can agree that it’s better than the current ludicrous tax scheme.
In theory, at least. In practice, well, nobody ever went broke betting against common sense winning out on Capitol Hill…
Matt McIntosh proposes a tax system based on this idea
Here’s a tax reform proposal to try on for size: start with a graduated income tax (or consumption tax with negative income taxes a la Arnold Kling, either works) without any special loopholes, deductions or exemptions. Index the tax to an equation so that there’s a smooth curve rather than these idiotic “leaps” in marginal tax rates which are the cause of much frustration and economic distortion.
So far it’s sensible enough (though not very interesting), but now here comes the smart bit: the equation for the tax will have two variables, one being the individual’s income (or consumption) level and the other variable being indexed to the size of the federal budget. The tax will automatically slide upward or downward every year according to the budget, getting lower when spending is down and higher when spending is up. Thus the tax rates will be directly tied to Congressional spending, increasing automatically for everybody when Congress spends.
At first this may have you aghast, but stop and think a minute about what it would mean: every time Congress wanted to spend on something, they’d have to immediately consider the negative effect this would have on their popularity, since everyone’s taxes would go up with spending. It would make the voters directly feel the pain for the federal spending they support. Ceteris paribus, over the long haul this should lead us to precisely the amount of spending that most of the public wants, which I’d guarentee would be less than we have now once they feel the costs of it immediately.
Now of course, this is not my ideal world. But it’d be a damn sight better in the long run than what we have now, and is really the only way to get government spending down and keep it down. It’s all about installing a fast-acting feedback loop, making people feel the cost of things quickly rather than diffusing the costs and kicking the can down the road all the time. I introduce this idea because 1) the graduation of the tax should make the lefties happy, 2) the fiscal responsibility it would impose should make the righties happy, 3) it’s relatively simple to explain, and 4) just about everyone can agree that it’s better than the current ludicrous tax scheme.
In theory, at least. In practice, well, nobody ever went broke betting against common sense winning out on Capitol Hill…