Getting rid of tax envy II

In the previous blog entry, I wrote about the people who want high earners to pay higher taxes.  I alluded to that kind of thought as tax envy - that the low earners want the high earners to pay up more.

Here are some things that will never fly: total confiscation of income above a certain level (communist!); national income taxes (regressive!), flat taxes (super regressive!) and value added taxes (double secret super regressive!)  Income redistribution raises a lot of hackles, and sometimes ends up being entirely circular, defeating the purpose (i.e. the money taken from the high earners goes to the low earners as some form of "social justice" payment, and the government charges sin taxes, paid by the poor earners, and spirits it back to the government).

Rob Sama has a fantastic outline of what he'd do with the current tax code, but I have some ideas to eliminate (or at least reduce) tax envy is as follows.

1. Keep the progressive tax structure, but adjust the tax rates and broaden the income levels they fall under.  The rates would be as follows:

- 5% absolute minimum tax (deducted from any refunds; explained below)
- 10% (income $15,600 and under)
- 20% ($15,601 to $78,000)
- 30% ($78,001 to $390,000)
- 40% ($390,001 to $1,560,000)
- 50% ($1,560,001 and above).

For head of the household, multiply by 1.25; for married filing jointly, multiply by 1.5.

Also, $15,600 is the minimum wage per year if you work 40 hours a week and 52 weeks a year, not including holidays.  If the minimum wage increases or decreases, the structure also increases.

2. Everyone who works pays something - no ducking the IRS.   I would propose an absolute minimum tax of 5% for people who have $100 or less in taxable income - and it's deducted from your refund.  If you earned $20,000 in a year and had no tax liability, yet you had $3,000 withheld, the IRS will take $150 from your refund, leaving you with $2,850.  If you earned $100,000 in a year and had a tax liabillity of $50, and had $15,000 withheld for the year, your absolute minimum tax would be $5,000 and would be deducted from your refund of $15,000, leaving you with $10,000.

The people who claim zero tax liability at both ends of the earning spectrum is part of the reason for tax envy, and curing that is as simple making sure no one escapes the IRS.
   
3. Change the Alternative Minimum Tax into the Alternative Income Tax, with a flat rate of 55%.  However, unlike the current alternative minimum tax, which has rates of 26% and 28%, filers can choose to this higher tax, but there would be no exceptions, deductions or deferments allowed.  The AIT would be applied to gross income, including income, stocks, bonds, investments, and other items.  This would give those who truly want to give more a chance, but at a steeper rate.

Example: You've earned $1 million in a year.  You decide to file the AIT instead of paying at 35%.  You pay the government $550,000.

These ideas might not satisfy everyone, but it's a start.