A Citizen's 2% Solution

How to Repeal Investment Income Taxes, Avoid a Value-Added Tax, and Still Balance the Budget

Our Current Tax Debate is Intellectually Dishonest

I believe we cannot and will not make progress on tax reform as long as our leadership allows the conversation to be framed by the intellectually dishonest claim that “nearly 50% of Americans pay no taxes”. 

Whether it is self-delusion, or willful distortion, the only way that allegation is true is if you close your eyes, hold your nose and pretend employment taxes aren’t taxes.  Instead of using smoke, mirrors and semantic nonsense to hide the fact the rich pay lower marginal tax rates than the working middle class, we need to confront that reality head-on.  If we would, I believe we could find a more equitable alternative. 

If the investment class paid tax rates comparable to what the working class now pays – we would have a balanced budget today.[1]  Make that your new perspective, and suddenly the challenge changes.  It is no longer, “How do we hide (or justify) the fact the rich are paying less?”  Or, “How do we raise taxes without affecting the investment classes and thereby slowing growth?”  It becomes, “Is there a different tax structure we could use which would allow us to normalize tax rates between labor and investments without resulting in recession or slow growth?” 

I believe there is such an alternative structure, one that taxes accumulated wealth with a nominal constant assessment – effectively taxing its earnings potential at a rate consistent with existing earned income tax rates.  It removes the subsidies paid for non-productive or lower return investments and rewards the most efficient and profitable allocations of capital – thus, hopefully, stimulating more rapid growth.  My proposal may not be the best solution, but at least it addresses the challenge.  But so long as our major reform efforts are guided by insiders who seek to hide the inequities that now exist – don’t expect them to either embrace my proposal or discover a better solution. 

I’m not surprised that our political class is unresponsive to my attempts to stimulate a new perspective on this critical challenge.  We do not reward politicians who change their mind.  We have made politics a competitive team sport.   Once the participants pick a side they put their future in jeopardy every time they diverge from the approved party line or daily talking points. 

But where are the media and academic thought leaders who should be actively seeking out potential new lines of reasoning and alternative solutions to our widely acknowledged fiscal challenges? 

Effective fiscal reform cannot be achieved by focusing on just the expense side of the equation.  We must demand Congress address the revenue side of our tax policies, not just because we need to generate more revenue, but more importantly because our current policies are deeply inequitable and riddled with misguided incentives.    

I would welcome any reply, observations or rebuttal you might care to offer, either publicly as a comment to this post, or privately through the nearby contact form. 

Douglas Hopkins

Author – A Citizen’s 2% Solution:  How to Repeal Investment Income Taxes, Avoid a Value-Added Tax, and Still Balance the Budget. ISBN 978-0-9828328-0-6 

[1] House Speaker John Boehner and Wisconsin Congressman Paul Ryan are half right.  We do have a very serious spending problem.  But denying the fact we have a revenue problem, regarding the magnitude of legitimate needs, the inequitable distribution of the burden, and the misguided incentives imbedded in current policy, is dangerously irresponsible. 

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