The Theory Behind a 10% Income Tax

Let's be honest. No one likes paying taxes, but in the modern world they are a necessary evil to keep society running.

When a majority of Americans lived a homesteading lifestyle there wasn't such a massive cost for public goods like roads, schools, emergency services, and other general services maintained by the government. People kept to their own farms and properties except when trading or congregating with their neighbors.

As society grew, people became less rural, began living and using the same spaces more, and maintenance costs increased on shared resources. A reasonable and fair system is required to upkeep our public goods, but does our current income tax system live up to those expectations?

A Brief History

It is no secret that the American colonies rebelled against British rule due to heavy taxation of goods. For a long time following the American revolution, most U.S. federal income came from tariffs used to protect American industry and manufacturing.

Our first federal income tax wasn't introduced until 1861 to fund war efforts. The constitutionality of an income tax was the subject of great debate and was legally challenged until the 16th Amendment was ratified in 1913.

The amendment officially gave Congress the power to impose uniform taxes across the United States. Soon after, the top tax rate soared to 77% to fund World War I, and income taxes were cemented as a primary source of federal funding. Since then the top tax has varied between 94% and 24%.

What Determines the Rate?

It all boils down to what is needed to run the government, maintain the safety of our country, and keep society operating.

The numbers may look like a drunk politician threw a dart at a board to choose an amount at random, but really the rate soars when we need money for things like war, and drops when the funds are not needed.

Granted, the numbers are odd and can seem unplanned, but that can be solved. It doesn't help much that tax regulations have ballooned out of control to over 74,608 pages of legal jargon.

So How Do We Fix This?

It might be challenging, but we need to simplify the law, get rid of endless tax loopholes, and create a fair and honest system that everyone can understand.

My proposal is to set up a 10 percent tax that can be applied as needed and in a predictable way.

How It Will Work

First and foremost, income taxes should only be calculated against income in excess of a person's cost of living.

If you cannot afford to keep a roof over your head, the lights on, and food in your belly, you certainly do not have money to give to the government. You also shouldn't pay a federal tax on income that you have already spent on other taxes. 

It Has to Be Simple

There shouldn't be a lot of complicated math involved.

Estimates put the average cost of living for a single American at $20,000 a year. Subtract that and any other taxes paid from all of your income sources, and that is what you should be taxed on.

Additional deductions should be added for spouses, children, and other dependents. A family of 4 can have a cost of living totaling over $40,000.

If you live below the average or in a place with a lower cost of living, you come out ahead. If you live above the average you are paying for the luxuries that you enjoy.

A 10% Tax that Increases Intelligently

Now a flat 10% on all income above the cost of living will not cover all government debts and expenses in our current economy. The base tax should be 10%. Every time you jump a significant income gap, the tax should increase by 10%.

The highest rate should be determined by congress and capped to not exceed the needs of the nation.

For example, after taking out the costs of living, the first $10,000 dollars of income would be taxed at 10%. After $10,000 your marginal tax would increase to 20% until you make over $100,000. Then 30% until you hit $1 million, 40% until 10 million, 50% until 100 million, so on and so forth.

Whatever is within reason.

Have a family of 4 with a cost of living of $40,000 and an income of $46,000? Pay 0% on the first $40,000 and 10% on the next $6,000 for a total federal tax of $600 (about 1.3% overall) .

Single with a cost of living of $20,000 and make $150,000 a year? Pay 0% on the first $20,000, 10% on the next $10,000, 20% on the  $100,000 after that, and 30% on the remaining $20,000 of your income. You'll only pay $27,000 in federal taxes (effectively 18% overall).

Why Treat All Income the Same?

There are many ways to make money and everyone has to eat and sleep. Wall street bankers shouldn't pay less than a middle class worker doing good old fashioned labor.

To be fair and just, all forms of income need to be considered equal.

Will this Fix Everything?

No. Aside from closing loopholes we need to get our government's spending under control. A 10 percent tax simply outlines a sane and just way to establish an income tax. It is a model or a tool that can help solve the problem.

Should We Apply a 10% tax to Corporate and Business Earnings?

It is a good idea, but businesses are complex. There are a lot of costs to running a business, and which costs should be deducted from a business' income to determine their taxable income is up for debate.

It will take a lot of hard work to close tax loopholes so we can hold multi-billion dollar corporations to the same standards as your local mom and pop store. 

Will an Increasing 10% be Enough?

It should be. We might have to play with the numbers a bit to balance it out and make it work.

Maybe the first 10% should be considered against your first $1,000 of income after costs of living, with increases beginning afterward.

Let the government and economists do the math, set the levels, and determine the caps; that is one of things we pay them for.