Money & The EconomyOpinion

The Busler Single Rate Tax Plan Ensures All Americans Pay Their “Fair Share”

President Biden wants to finance his huge spending plans by raising taxes mostly on the highest income earners. He argues he wants the wealthy to pay their “fair share.” He has never defined exactly what their “fair share” would be. In theory, though, most Americans would probably agree that all income earners should pay their fair share.

Biden’s proposal would end up over-taxing the wealthy. While he does not seem to be concerned about that, over-taxing the wealthy really hurts hard working Americans. The reason is simple.

The US economy is capital intensive. There are two basic inputs into the economy: labor and capital. For the past 50 years, our economy has been switching from labor intensive to capital intensive. Years ago, manufacturing was done with numerous workers on an assembly line.

Modern manufacturing is done with numerous robots on the assembly line and few workers. Companies need capital to purchase the robots. Even in the service sector, each worker’s productivity has greatly increased because of the technology they use. The technology needs to be purchased with capital.

Capital comes primarily from high income earners, whose income allows them to pay taxes, spend on their lifestyle and still have large amounts of income to invest. Their investments create new capital.

New capital also comes from corporations that pay their taxes and then pay dividends to stockholders. The remaining income creates new capital to be used for investments.

By raising the marginal tax rate on the highest income earners to almost 40%, less capital is created. By raising the corporate tax rate from 21% to 28%, less capital is created. Doing this at a time when the federal government is nearly $30 trillion in debt, which is financed by selling bonds that remove capital, means a capital shortage will be created.

Without capital, a capital-intensive economy cannot grow. That will lead to stagnation. Worse, since the federal government continues to deficit spend and the Federal Reserve continues to rapidly expand the money supply, excess demand is created.

When there is excess demand and restrictions on businesses’ ability to grow, inflation results. That means Biden’s policies will lead to inflation and a stagnant economy. In the 1970’s we called this stagflation.

There is a much better way to ensure that all Americans are treated the same and that every income earner pays their “fair share.” It is a very simple plan.

First, a livable minimum is determined. This is how much can be earned before any tax liability is incurred. This livable minimum should be two times the poverty level. That would be about $25,000 for an individual and about $50,000 for a family of four. Once income exceeds that, tax liability would be incurred.

So the Busler Single Rate Tax plan would be:

A 15% single rate tax on all income above the livable minimum with no deductions for anything. All income, whether wages, rent, interest, profit, dividends or capital gains is treated exactly the same. The corporate tax rate is also 15%.

This plan is approximately revenue neutral in the short term. In the long term, it would add ½% to 1% to the annual growth rate which would lead to greater future tax revenue.

For a family of four that earned total income from all sources of $80,000, their tax liability would be easy to calculate. They would simply subtract the livable minimum of $50,000 leaving a balance of $30,000. Then just multiply the taxable income of $30,000 by 15% to get a tax liability of $4,500. That’s as simple as can be.

Some would argue that a progressive tax system, where the tax rate increases as income increases, is fair. This system actually is progressive, although admittedly far less progressive than many would like.

The tax rate starts at zero and increases as income increases For a family of four earning $50,000 annually, the tax rate is zero. If income was $100,000, the family would pay $7,500 in taxes for a 7.5% rate. A family making $200000 would pay $22,500 in taxes for an 11.25% rate. If income was $1,000,000 taxes would be $142,500 for a 14.25% rate.

Therefore it is a progressive tax with the top tax rate approaching 15%.

This plan means that all income earners will pay their fair share. Every American is treated exactly the same regardless of how their income is earned or how that income is spent. Labor’s wages and investors’ capital gains are taxed exactly the same.

Additionally, this plan causes no market distortions, creates large amounts of new capital, is very easy to determine tax liability for each income earner and is (arguably) equitable.

Wouldn’t every taxpayer pay their fair share under this plan?

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Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.

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