This is my proposal for what the income tax code should be. It’s as simple as it is egalitarian.
What if there was a way to cut taxes for 98% of households while revenue from income taxes is increased by 15%? I’m looking for a simple tax that I can send in on a postcard-size piece of paper—one for which the entire tax code could be reduced to just a few pages, but which would be progressive and help to reduce income inequality while providing the free-market economy with a stimulus shot like nothing its seen before. It will have simple deductions and one formula that does away with all of the IRS forms and schedules.
The flat tax is a formula: tax rate = .2 (Income). But I think that is kind of dumb. For one thing, it would raise taxes on everyone with income below $80,000, while lowering taxes on everyone making more than that. I think instead that it is the households making less than $80,000 who can use the money most and that it is their consumer power and savings rate that drives the economy forward.
Instead of a flat tax, I propose the following formula be permanently substituted for the current income tax system:
tax rate = (9*log(“taxable income”)-85)/100
The log is a natural logarithm. If you want to place it into excel, you would use: tax rate=(9*LN(income)-85)/100. No one has to do the math themselves of course. The IRS will have an online calculator that will do it for them.
Amounts owed less than $500 are forgiven so you won’t see federal income tax until about $18,309.00 in taxable income. Capital gains are tax free up to $50,000, and then taxed at as normal income above that. This provides a nice incentive for investment and the wise use of capital, but places a healthy limit that will serve to address the serious issue of wealth inequity. Here is a sample online calculator:
For those who are interested in the amount of revenue that the Smooth Curve tax will generate, I’ve done a calculation based on the number of households at each income bracket. It turns out that the Smooth Curve tax actually increases the revenue that the government collects from income taxes by 15%, netting about $1.9 trillion each year (not counting additional capital gains revenue).
That makes sense! Now we can start to be fiscally responsible, invest in infrastructure for the 21st century (how about a 100% post carbon economy!), provide excellent public services, free education, give the vast majority of Americans more money in their pocket, and enhance all of the social benefits that create a healthy society and a powerful economy.
Below $13,300, the equation produces a negative rate. That means that those households would receive a check from the IRS for up to $500 each year in addition to the EITC which should remain in effect, unless it could be replaced with a minimum basic income program (which we could afford with the additional revenue).