If all tax deductions were eliminated and every American had to pay a flat rate of, say, 5 percent, then that would be a tax plan I could support. Not because I believe the government is entitled to 5 percent of every American’s income, but because it is demonstrably better than the current system. – Laurence Vance
The federal income tax is based on the ability to pay principle. This means as your income increases the tax rate you will pay on the additional amount of income increases as well. The justification for this tax system is that upper income earners are better able to pay for government expenditures and therefore they should shoulder most of the burden of paying to keep the welfare-warfare state afloat. This is unfair, not just to the high earners, but also to the rest of society. It siphons taxes at an exorbitant rate out of the pockets of the minority of high earners. At the same time, it deludes the lower bracket taxpayers into believing they aren’t hurt by this, so they keep voting for tax and spend Democrats and Republicans. In reality, some of that money taken from the “rich” would otherwise have been invested in job-creating enterprises or donated to charitable causes, benefitting the poor.
The tax code is becoming steadily more progressive, which shouldn’t surprise anyone who understands power politics. It’s always easier to force sacrifice on an unpopular minority than it is to ask the majority to pony up. – Tucker Carlson
Just before Christmas, President Trump signed the Tax Cuts and Jobs Act. The Act continued the decades old practice of rewarding some taxpayers and punishing others. It reduced the number of brackets, reduced tax rates for some, and put limits on certain deductions. The $10,000 limit on SALT (State And Local Taxes) particularly hurt many New Jersey residents who pay property taxes alone that often exceed that amount. These small changes and rate adjustments did not fix a badly flawed system.
So what should be the optimal tax rates to foster sustainable economic growth?
Libertarians see things quite differently from Democrats and Republicans. From a Libertarian perspective, the optimal top marginal income tax rate is zero. Libertarians argue that there should not be progressive tax brackets that are perceived to punish “the rich” and favor “the poor,” because in reality these brackets hurt rich and poor alike by diverting money from the productive economy to the government, where it is misspent on foreign wars we should not be involved in and domestic programs of questionable constitutionality. I contend there should be no tax on any American’s income in the first place. If the federal government would limit its role to what is mandated in the Constitution, it could be funded by existing excise taxes, rents paid for use of government property, and other sources of federal income, with no federal income tax!
As Frank Chodorov explains in his book, The Income Tax: The Root of All Evil (1954), the income tax means that the state says to its citizens, “Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide…. The amount of your earnings that you may retain for yourself is determined by the needs of government, and you have nothing to say about it.”
The difference between Libertarians and everyone else is that Libertarians view the optimal top marginal income tax rate from the perspective of what is optimal for the taxpayer instead of what is optimal for the government, and the optimal rate for the taxpayer is zero!