Dear President Trump:
Sorry, I still choke seeing those words next to each other. Here is a tax checklist to Make America Mobile Again. Instead of taxing work, we tax spending and stuff we want less of.
1. End all taxes on income under a million bucks.
Income taxes are now a century old. We used them to pay for World War I, which was dumb as a rock. We need to let them die. We should not tax everyday incomes, which have not grown for most people since the 1970s. Kill them and you are a hero and probably guaranteed re-election. Tax incomes (including dividends) over $1 million at a flat rate of 15%, no deductions, Steve Forbes-style. Keep it simple and when they howl, remind them that they only pay on amounts over $1 million — the very definition of a first world problem. Nobody likes income taxes but they are only paid by the well-off anyway, so let’s call it what it is: an excessive income tax. BTW, you just eliminated the home-mortgage deduction and made houses more affordable. Thanks!
Not that Republicans care, but how would we make up the lost federal revenue?
Sell H1B Overseas Visas at Public Auction. There are 185 different US visas. The H1B is the one that tech companies use. 20,000 are set aside for graduates of US colleges – we should at least double this number and auction the other 65,000. Let individuals, people who are already here, cities, states, and companies all bid. At first, this looks dumb: why would we charge for a visa, when arguably we should pay talented people to come here since they add more value than cost?
First, we need to discourage the H1B mills like Infosys and Widpro. They crank out tens of thousands of applications and hire people at crappy wages. That’s not the idea – at all. Second, it ensures that companies use immigrants as compliments, not substitutes to domestic talent. Finally, it will not restrict immigration totals: there are still 184 other visas out there for all kinds of situations not covered by H1B.
Tax externalities like carbon and pollution. This is easy, smart, and not controversial – meaning both conservative and liberal economists like these taxes (sometimes called “Pigouvian” taxes after Arthur Pigou). These taxes are economically beneficial if they force companies to account for and pay costs that they would otherwise foist off on the public. They also tend to force the companies who can avoid polluting cheaply to invest in cleanup technology.
There is a progressive argument against carbon taxes, namely that poorer families commute further than wealthy ones do. Also, consumers do not really choose most of the miles they drive – but they do choose the vehicle. So tax vehicles heavily based on mileage. Make it revenue neutral if you like, and subsidize fuel-efficient cars. If a Hummer pays $10,000/year in fuel taxes and a Bolt gets a check for $10,000, we tax carbon without hurting people forced into long commutes.
Tax land. From the time of Ricardo, economists have liked land taxes because the supply of land is more or less fixed and its value is created by communities and public investment. As a result, the economic rents generated by land are a logical source of public revenue. Finally, we have a President who understands this! Taxing the value of land (sometimes called a “Georgist” tax after Henry George) is progressive since the wealthy pay the most. Denmark makes it work, as does Pennsylvania, Singapore, and Taiwan. BTW, when you tax the unimproved value of land, it becomes more affordable. This is helpful since the cost of a home in San Francisco is not the walls and the roof – it is the appreciation of the land.
Tax tobacco, alcohol, and recreational drugs. Use the money to a war on drug use, not a war on drugs. This is a public health campaign with spending on education, clinics, counseling, treatment, crackdowns on Perdue and other big Pharma, and ending the pill mills. If heroin or good substitutes are safe and widely available, the Mexican black tar boys will slink back home. No need to jail people for using drugs. It’s a free country – and that includes the freedom to make dumb choices.
Tax (or fine) criminals. This is pretty obvious. Break the law, pay a lot of money. But do not go to jail unless you are an out-of-control public menace (and we have a few). More on the case for closing prisons and taxing crooks here.
Tax consumption with a federal VAT. For now, ignore the theory. Just know that most countries that have found a way to retain a strong middle class and provide outstanding public services to offset big differences in income growth do it with a VAT. Combined with the EITC and non-taxation of groceries and health care, it is progressive enough.
2. Use taxes to promote social mobility
Eliminate corporate taxes for companies that compress salaries to help preserve a middle class. Use a 10-10-10 rule: if the average pay of the top 10% divided by the average of the bottom 10% does not exceed 10, you pay corporate income taxes. Truth is, taxing companies is emotionally gratifying but economically dubious and inevitably creates a large industry devoted to tax evasion. Income is more polarized between companies than within them, so companies could hit some good targets here – although they might need to raise the pay at the bottom to support the CEO. Fine.
Stop using local property taxes to stratify K-12 education. Use the DOE to fund schools on an even per-capita basis within each state and let parents pick their kid’s school. Break ties by lottery.
Enlarge tax credits for the poor. A good portion of the EITC goes to employers, so it is more of a wage subsidy than a replacement for minimum wage. Make it big and be fair to men, which the current system is not.
Tax nonprofit school endowments unless they a) replace tenure with renewable contracts not to exceed 3 years (the UK did it and it worked fine) and b) open campuses in counties with below median incomes. MIT Detroit, Stanford on the Mississippi Delta, and Harvard Appalachia are all good ideas.
Tax occupational licenses. Licenses have grown to about a quarter of all jobs. They make it very difficult to move to a new state. Forcing hairdressers, florists, scrap metal dealers, dental assistants, and lots of other jobs to get a state license now hurts many more workers than it helps. Taxing them will kill them, which is fine. Instead, we need to promote occupational certifications by funding community colleges. Certifications tell employers that a person is good at something. They do not create barriers to workers changing states or to hiring.