Fair Tax Proposal

I became interested some years ago in the concept of a ‘negative income tax’ after reading a book by Milton & Rose Friedman, Capitalism and Freedom.  He wrote a defense in the attached paper.  He states these advantages:

• gives help in the form most useful to the individual, namely, cash.
• is general and could be substituted for the host of special measures and programs now in effect.
• makes explicit the cost borne by society.
• operates outside the market.
• like any other measures to alleviate poverty, it reduces the incentives of those helped to help themselves, but it does not eliminate the incentive entirely.

I would add these:

• Better preserves individual’s dignity.
• Eliminates non-productive bureaucrats
• Reduces the power of the Executive branch, especially the Administrative State.
• Replaces the flawed Social Security, Medicare, and Medicaid systems.
• Eliminates poverty.

The basic outline:
> Allocate an annual amount to every citizen
–> $5,000 children under age 18
–> $10,000 adults up to age 70
–> $42,000 over age 70 or disabled
> Tax every dollar of earnings at 28%, no deductions or exclusions

The family of 4 would, thereby, be allocated $30,000. If the parents earned, say, $20,000 they would pay $5,600 in tax for a net of $44,000. Their total tax rate would be $5,600/$50,000 = 11.2%. If they earned $200,000, they would pay tax of $56,000 with a total tax burden of $56,000/$230,000 = 24.3%. The result is progressive taxation in total, but flat marginally.

You can play with the numbers using this spreadsheet.