My Tax Proposal

I've been reading some of Milton Friedman's Capitalism And Freedom and, although I disagree with a lot of what he says, he does have a few good points. In reading some of his suggestions for a good system of taxation, I have gotten a few ideas and come up with a system of taxation that I like:

\begin{equation*} T = (I - C_{1}) * C_{2} \end{equation*}

It's a very simple system, \(T\) is how much money you have to pay in taxes annually, \(I\) is your annual income, \(C_{1}\) and \(C_{2}\) are constants to be determined by someone more understanding of economics than myself. In essence, you can earn up to \(C_{1}\) without being taxed and then anything beyond that is taxed at rate \(C_{2}\). Key issues with this system are that is must be taken as it is exactly and there must be no exceptions made; it does not matter where your income derives from, how many children you have or anything else, just your annual income.

One could also consider a different approach to the under \(C_{1}\) realm and use a negative tax scheme where individuals are paid a fraction of the amount they need to reach \(C_{1}\). For example, take \(C_{1}\) to be $50,000 and \(C_{2}\) to be 50%: individuals making more than $50,000 are taxed half of what they make beyond $50,000 and individuals making less than $50,000 are given half of the difference between their income and $50,000.

I would say that the second interpretation is a more "liberal" or "socialist" approach and can be taken or left based on that fact alone but that the first interpretation would make for a very good tax scheme that would be well liked by quite a few people. Personally, I'd like a \(C_{1}\) of $200,000 and a \(C_{2}\) of 50% but that's just me.

Comments

I actually like that idea. I also like the notion of a two-way, somewhat distributive system of taxation. Although I firmly believe in principle that taxation is wrong, in practice it's ridiculous not to have taxes, social programs paid for by taxes, etc. Still, social programs don't do all the good they could do because of poor management, ignorance on the part of the intended recipients, etc. And most of nobody *needs* more than $100,000. We all just want it.