Submitted by Edward J. Dodson, Feb 7, 2008 12:55

To achieve both efficiency and equity in how our government (at all levels) raises revenue for public goods and services, we ought to be considering a movement away from the taxation of earned income flows and actual capital goods (e.g., buildings, equipment, other physical assets) and to those essentially unearned and the result of speculative (i.e., rent-seeking) behavior. For example, government ought to be collecting the full annual rental value of locations in our cities and towns and for control over natural resource-laden lands, the broadcast spectrum, and rights of way (in the air, on land, and over water). There are others, as detailed by land economists such as Mason Gaffney (at the University of California, Riverside).

The Federal (and state) taxes on individual income should be restructured into what amounts to a graduated flat tax, under which there would be no deductions. All individual incomes up to the national median (and in the states, the state median) would be exempt. This would effectively exempt a high percentage of individual incomes earned by producing goods and providing services from taxation. Above the median income, higher ranges of income would be subjected to increasing rates of taxation (determined for each budget cycle to achieve a balanced budget).

Assume, for purposes of illustration, a national median income of $50,000. A graduated flat tax might look as follows: (a) incomes above $50,000 to $100,000 are taxed at 5%; (b) above $100,000 to $250,000, at 10%; (c) above $250,000 to $500,000, at 15%; (d) above $500,000 to $1 million, at 20%; and (e) above $1 million at 25%. This structure combines simplicity with progressivity without being over confiscatory. And, as the ranges of income get higher, the portion of income derived from rent-seeking activity is almost universally the greater portion thereof.

A similar approach could also work with regard to replacement of the business profits tax with a low, graduated rates of taxation on gross revenue, exempting all businesses with revenue up to, say, $500,000. The starting rate of taxation could be as low as 0.5%.

A secondary step that will allow for the gradual reducation of the national (or state) indebtedness is to replace maturing bonds and any new debt with fully amortizing bonds. Such bonds would repay both interest and principal to investors. The amount required to fully service the debt payments annually would be included in the annual budget and determine the above tax ratees and ranges of applicable income.

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