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Having income taxed different encourages evasion/fraud, distorts economic activity, and raises compliance costs

• AnthonyMouse 2y ago
  The notion of having graduated rates is also from an era when the government operated very differently. Once upon a time, quite a long time ago, most government spending was public services, e.g. roads and constables and teachers. Government assistance was not a major expenditure. Maybe they would have operated a homeless shelter but there were no food stamps, no social security, no EITC. Then you were faced with the government needing to pay the constable but if you took the money from someone who was already close to starvation, they would starve, so the proposal comes to take more of the money from doctors and lawyers. Okay, sure, so make the marginal rates lower on the poor then. Progressive rate structure. Then we added food stamps and all the rest of it. Now, most of these programs would be better as cash, but either way they have phase outs so you're not giving food stamps to Jeff Bezos. Except that phase outs and marginal tax rates are really the same thing. So we built a whole complicated system to impose lower marginal tax rates on lower income people, and then a separate whole complicated system to impose means testing and phase outs for government benefits, and these systems cancel out because one of them lowers the marginal tax rate of lower income people and the other one raises it. This is dumb. Get rid of both complicated systems, make the benefits simple unconditional cash and then use a uniform tax rate.