I’m barely watching the Cain/Gingrich debate tonight, but I see the talk is mostly about government programs, spending and taxes. That’s fine. Cain is not great with foreign policy questions anyway. If the deficit is a problem, (which is another can of worms with some people) the solution is to take in more or spend less. Congress has reached the limit of what spending they’re willing to cut.
What’s the plan for revenue? Do we “enhance” it, as George H. W. Bush called it, with more taxes or do we increase revenue through a better tax system? We’ve never really defined what the ideal tax rate should be. Conservatives talk about the Laffer Curve, a bell-shaped distribution where 0% and 100% tax rates will yield no revenue. The problem is, we don’t know where the top of the bell is. Liberals are even more vague. If balancing the budget were legally required, the tax rate would increase on the top tax bracket until it was 100%. Then someone would go for 101%.
I am pretty satisfied with the concept of a progressive income tax structure. Even with basic deductions, you just shouldn’t require a poor person to lose the same percentage of taxable income as someone who is well above necessity spending. That’s not really the issue, anyway. Hauser’s Law shows that the top marginal tax rate, which accounts for something like 20% of federal revenue, has little impact if it’s 91% or 28%.
In fact, the biggest decline in percentage terms is corporate revenue. It has been dropping steadily for decades, and only stabilized in the late 80s with the drop of corporate tax rates from nearly 50% to an eventual 35%. Large corporations have the ability to incorporate anywhere in the world and the US has the second highest tax rate.
The status quo solution would be to just jack up the rates themselves. The biggest companies would pay the lowest rates, while the smallest corporations would likely be the only ones to pay those higher taxes, just like now. GE is still going to pay $0 if the rate is 35% or 45%. The answer is to flatten the tax code, not the tax rate. It means some companies will pay more in taxes, to match their actual incomes. Some might even leave the country, but a more equitable tax structure will give their competitors a real chance.