Some basic principles to keep in mind:
Fairness
In the commonwealth of Mass, the poor pay too much, and the wealthy, not enough. What’s poorly understood, or (more often) outright overlookd, is that the wealthy get more out of government than the most of the rest of us.
In order to amass great wealth individuals need be either engaged in criminality or have the support of large institutions. To gain, protect keep their wealth and keep it growing, they need the further support of large institutions. To protect their wealth from the unscrupulous, individuals require the support of everybody from the local police to the regulators, to the large network of financial services. This is not possible without an engaged government. Too little government involvement and the institutions never become strong, or large, enough to engender widespread wealth. Of course, it’s patently obvious that too much government, or (more often) the wrong kind (monarchies, oligarchies and totalitarion dictatorships) accrue to much wealth towards themselves and shred the feed-back/feed-forward/feed-through loop to the detriment of all, and ultimately towards their own downfall.
But the point is just this: being rich means so much more than having a pile of money; it means having the access to the infrastructure of the economy that is only possible with a great deal of government assistance. Or, of course, the wealthy could hire their own armies and manage their affairs accordingly. This experiment was tried in a place called “Europe” in a time know as “The Dark Ages.”
Consider, for example, that interest rates ultimately lie in the hands of the government. Recent ‘bubbles’, in concert with regulation and policy, have shown the governments ability to manipulate and create wealth
In Massachusetts we’ve recently embarked on large scale spending on ’emerging industries’ like ‘life sciences’ and ‘green energy’. This is merely governmental funding of the infrastructures and institutions that will define the contours of future economies. If we hold to our commitment to education (or even increase it…) we can expect todays 4th and 5th graders to be in a position to use these institutions and infrastructures to create companies that will make them vastly more wealth than they otherwise would… that is to say, they will be richer for the efforts of the government now, than had the state government not made these efforts.
From public schools and higher education support through subsidized loan programs to sufficient policy and regulatory efforts a great multiplier is added to an individuals ability to amass wealth: today’s wealthy benefit not just from individual effort but from a vast and tightly woven network of support and regulation made possible only by a government.
And today’s wealthy are wealthy beyond the scope of linearity. The richest people make so much more money than the next richest, who make much more than the wealthy on the scale just below them, who… Well, you get the idea.
So the rich pay comparatively less, but get so much more out of the the government that it is only right and fair that taxation reflect this. The role of the government in wealth creation, maintenance and protection is subtle and overarching. We have, it seems, succeeded wildly in our goal of ‘securing the blessings of prosperity.’
Flexible
A progressive marginal tax on income and cap-gains would present the most flexible means of revenue and feedback in the governments interaction with the economy. At the present time, the single brackets of 5.3% and 12% incur a great deal of inertia and are subsequently resistant to change. Multiple brackets, progressively increasing along the income spectrum presents opportunities for flexibility in revenue gathering and tax policy hitherto unavailable.
An eight bracket marginal income tax with the cap-gains folded into the top three brackets would look something like the table below. These numbers are a rough proposal to flesh out the ideas and to engender discussion and debate. 2% is added per bracket while income levels are doubled per bracket.
(proposed) M/E is “max effective rate” for top payers that bracket: the total tax paid against total earnings.
* The ‘KG’ bracket. Predicated on the assumption that the highest paid person in the Commonwealth of Massachusetts at the present time is Kevin Garnett. Probably not true… but anyways.
Eliminating the present cap-gains flat-tax of 12% and folding the cap-gains into the top three brackets introduces a max effective rate (the rate paid against all taxes) of 13% which is a small increase.
A great deal of flexibility is inherent in this system. The government can raise and lower, within certain bounds, the rate on a per bracket basis to cope with revenue shortfalls or budgetary surpluses. The numbers can be tweaked.
Responsible
Adequately funding the government is the means we’ve chosen to adequately fund our priorities. More money for the government means more money for priorities like public schools, health care, police and fire protection and, perhaps most importantly in our day and age, adequately protected financial markets: it’s against everybodies interests for the markets to fail.
feedback
Ownership in a society is a combination of the voting franchise and the taxes one pays. It’s just that simple. A progressive taxation on income and cap-gains provides
Second, in reaction to the objection that “its not fair” to make the wealthy carry the can for that public interest, its also true that the wealthy are disproportionate beneficiaries of public goods such as transport systems, our accumulated technical knowledge base, the productivity of the workforce from public education, and so on … so in addition to being the preferable policy for the economy as a whole, shifting from the present overall flat tax to an overall progressive tax would also be fair.
