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Friday, July 22, 2011

An idea

Our tax code is riddled with loopholes for those who can afford it to escape taxation and undermined what is supposed to be a progressive structure of taxation. We need something much simpler and Robert Frank's idea of a progressive consumption tax http://www.democracyjournal.org/8/6591.php is the best idea I have seen to do this in the simplest way possible.

I would want to supplement Frank's proposal in an even more progressive way by still providing incentives for work, savings and socially constructive investment without all the paper work. Why not give everyone a Resident Earned Income Tax Credit Voucher (REITCV) card. The amount on your card would be progressively dependent upon your earned income. Let's say your first $25 K of earned income from the previous year would be matched at a rate of 40%, the next $50K at 30%, the next $100K at 20%, the next $200K at 10%, the next $400K at 5% and all earned income above that at 1%. These margins could, of course, be modified.

There are several advantages to such a system. Among these, work would be encouraged as well as the full reporting of all earned income. Incentives to do positive things like get an education or buy a home could continue and even if politicians invented esoteric items for purchase with your REITCV card, there would be an absolute limit based on your earned income as to how much one could purchase with higher income persons having a smaller percentage of income allowed on their REITCV card. With a robustly progressive consumption tax, this is bound to increase revenue as it encourages honest reporting of all income, reinforces the incentive to work and provides lower paid workers with greater income to use for purchasing products and services which will strengthen their ability to earn and save more.

Much more could be said but just think of how politically popular these would be with the American people who are sick and tired of the headache of spending much needed time and money to find out how little they are worth and how much they owe. Why not relieve them of this burden while rewarding them for all of their hard work with substantially raised purchasing and saving power?

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