LESS BREAD, MORE TAXES

...The justice of the system of tax collections is only one side of the story...

...Thus Gabriel Kolko claims that all classes pay a total of about 32 percent, including all forms of taxes...

...All these problems can be solved if there is the will to devote real social effort...

...The large incomes that are subject to top income-tax rates are generally the result of investment and, obviously, nobody will make such investments if the government is going to get 70 percent of the proceeds...

...I would propose that we not simply oppose the value-added tax (VAT), as a sales tax, which it is...

...This sort of erosion of the tax exemption by inflation does not occur with the sales tax, because its exemptions (food, rent, etc...

...Even at present, the personal exemption is far more important than deductions in reducing the ordinary person's tax burden (Pechman, op...

...If this system were extended to include the idea of the negative income tax (that is, cash payments to those whose income falls below their exemptions, and who are in a sense cheated of the benefit of the exemptions), then it becomes equivalent to paying everyone $600 (i.e., 37.5 percent of $1600, or, if lower ex emptions were applied to minors than to adults as mentioned above, $525 for minors and $675 for adults), after which all deductions including exemptions are eliminated...

...These proposals may startle a radical public...

...Aside from any objective criticisms that may be made, I suggest that this surprise, even indignation, is the result of factors such as these: (1) Radicals, like other Americans, regard any tax as an outrage...

...tax collections were 28 percent of the national income, a ridiculously low figure compared to Sweden's total of 46 percent (see J. A. Pechman, Federal Tax Policy [New York: Norton, 1971], p. 290...

...Nevertheless, he has moved into a higher income-tax bracket because of his nominally higher income...

...For each link in the chain of production is eager to report the VAT payments he has made to previous links in order to receive credit for them on the tax he must pay...

...THE PROPOSALS I have in mind concern the personal income tax and the value-added tax...

...But the bill will be high, hardly less than that for a socialized medical plan...

...Any possible cuts in military expenditures, and I assume we will not propose to disband the army, are insignificant compared with these amounts...

...Even if he exaggerates in degree, he can hardly be wrong about the tendency...

...All deductions should be eliminated except for personal exemptions, which should be high enough (say $1,600 a head, or possibly $1,800 for adults and $1,400 for minors, to benefit very small households) to relieve earners of modest incomes...

...The value-added sales tax could be made progressive rather than proportional by exempting other, carefully chosen items...

...This assumes that VAT replaces some other form of internal taxation that may not be refunded on export, such as part or all of the corporate income tax or part or all of any future increase in the corporate income tax that might otherwise be necessary...

...2) The tradition of corruption in politics is so deep that the reaction, partly correct and partly self-serving, is "what, give those crooks more money to steal...

...In practice, and to permit the system to work, all kinds of loopholes (above all, capital gains) are permitted...

...Similarly, most other social expenditures will be financially progressive in their effects...

...Instead we should concern ourselves with the details of this tax in order to eliminate its regressive aspect...

...Prescription drugs, medical expenses not covered by a medical plan, and clothing are natural choices, but the difficulty with clothing is it includes luxury expenditure that should not be exempted...

...This proposal, with the negative tax feature, somewhat resembles the McGovern proposal, but is considerably less extravagant and so may be a valid political possibility...

...This study shows that, when food is exempted from taxation (as it is in New York State, for example), the tax is generally proportional up to incomes of about $15,000 (in 1965...

...Another effect of sales tax such as VAT is its relation to inflation...

...Such attitudes can only hinder a reasonable settlement of the tax question, which is absolutely essential if the country is to be pulled out of its long slide into economic misery and social bitterness...

...It is one of the advantages of a sales tax such as VAT that it is largely self-policing...

...This and several other considerations give rise to a number of ideas I would like to propose concerning taxes...

...The rate should be placed somewhere between the low capital-gains rate and the higher income rates—say, between 35 and 40 percent...

...the question of tax disbursements, i.e., of social expenditures, is quite another...

...Radicals and liberals have always championed progressive income tax as the ideal form of taxation—though its potential of placing the burden of social costs on the rich has never been more than window dressing...

...This effect is best shown by an illustration...

...For no matter who pays, for instance, the taxes to support a medical plan—both the rich man and the poor man have only one appendix to be removed, and in all probability the rich man will continue to consult a private surgeon and thus derive no benefits from the plan...

...A study quoted by Joseph Pechman demonstrates that a sales tax is not necessarily regressive...

...There are critical problems in housing, care of the aged, urban decay, education, social dislocation resulting from shifts in technology and natural resources (especially energy), and there is the associated question of pollution...

...are in kind, not in dollars...

...The progressive income tax, so far, has failed to actually obtain large amounts of money, uniformly and fairly, from the well-off and the rich...

...Consider a workingman ten years ago who earned, say, $100 a week and earns today perhaps $150 a week—yet his living standard is the same...

...In 1966 total U.S...

...1) We need much higher taxes to reverse the social and physical deterioration of the country...

...This exemption, like those of food and medical expenses, would have a powerful political appeal if pushed energetically by the liberal and labor movements, but this appeal cannot be mobilized with a policy of blanket opposition to VAT...

...Finally, I would suggest that a substantially higher tax level is the only way to reduce unemployment without serious inflation...

...Eventually it will surely be adopted, as indicated by the example of Europe—where even the progressive Scandinavian countries have adopted very high VAT rates (15 percent in Denmark) —and because VAT constitutes a powerful export subsidy, for international agreement allows it to be refunded on export...

...q NOTEBOOK...

...3) The assumption may linger, unstated, that the pre-World War II situation can somehow be recreated, when only the well-off paid any income tax (and when the government rendered very few services to the badly off...

...Blanket opposition means that one will have no influence over the kind of VAT that is finally adopted...

...As a result, the government can keep tabs on every nickel in the economy, which helps in the collection of the corporate and also the individual income tax, as well as of the sales tax itself...

...With or without the negative tax feature, the flat tax rate would eliminate any excuse for not withholding the tax from interest and dividend payments, including those to foreign residents...

...A high personal exemption in itself introduces a considerable degree of progressivity into the tax system...

...A decent health plan alone will cost about $100 billion a year, and that is only the beginning...

...This is not surprising when we remember that such major budget items as income and other taxes, rent, and interest are also free of sales tax...

...For the personal income tax, I would propose that the present graduated tax be replaced by a fixed rate, which cannot be evaded, and that the distinction between income and capital gains be abolished...

...3) We must simplify the tax system and wherever possible eliminate evasion...

...E.g., a family of four, with a total exemption of $6,400 and a flat rate of 37.5 percent above this exemption would pay nothing on an income of $6,000, and 13.5 percent on $10,000, 21.5 percent on $15,000, 29.4 percent on $30,000, and 35.1 percent on $100,000...

...This would reduce the widespread atmosphere of cynicism that surrounds the tax issue...

...218 An excellent suggestion I have heard is to exempt children's clothing...

...It is essential to eliminate the citizen's distrust to gain his support for higher total taxation...

...cit., p. 69...

...2) We must cease to expect a revolution via the Internal Revenue Service and settle inNOTEBOOK stead for a fair count in tax collections...

...This means that after a workingman pays his income and other taxes, rent or mortgage interest, and food bill, he hasn't got much left to spend on items subject to the sales tax —a situation quite different for the well-off...