A modest proposal for the tea party: Endorse the 'head tax'
If every American pays exactly the same amount, $8,666 – known as the 'head tax,' as it is charged per head – the budget will balance and there will be no marginal tax rate. Sound good, tea partyers?
The Tea Party is about to have more say over actual public policy. Will we see a shift in the tax code? There are 300 million people in the United States and our annual budget runs at around $2.5 trillion a year . Will the Tea Party advocate for a head tax to replace our current federal income tax? If each person (regardless of age) contributes $8,666 then we have a balanced budget. There would still be state and local taxes. http://en.wikipedia.org/wiki/2010_United_States_federal_budget
A marginal tax rate of 0% would have some attractive incentives effects on work and savings and new investment. I recognize that this is a sharp shift in the marginal tax rate. The marginal tax rate under this proposal is 0%. What happens to you if you can't raise this $ for your family? The top 1% of 1% of the income distribution would now have a lot more money and this would yield a test of whether charity is a normal good. The Internet would offer a way to connect those who want to give and those who have a need.
Health insurance would no longer create job lock. Firms would no longer have a reason to bundle health insurance into the job's compensation unless they hire so many workers that they can negotiate a better rate with insurers.
So, at the start of the year --- you would write a check for $8,666 for each person in your household and you would be done with your federal income taxes. If you don't have the money, society would need to come up with a way for you to provide this level of services back to society. You could volunteer your time.
Would environmentalists support this Tea Party policy? Paul Ehrlich and Jared Diamond might feel that such a head tax would soon reduce the number of heads and thus shrink population and slow the Population Bomb that they fear.
Would corporations like this new policy? They would face a tax of zero for their profits and this should increase their desire to hire new workers and invest in new capital. As their profits rise, the stock market would rise (reflecting the expected present discounted value of future dividends) as incomes rise, the housing market would stabilize and default and foreclosure would slow.
UPDATE: I see that before the Tea Party was brewed up that the bloggers have been talking about very different http://www.theatlantic.com/politics/archive/2006/11/mankiws-head-tax/40650/ taxes.
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