I've been ranting a bit about the Estate Tax (not to mention inadequate plans to address the deficit/debt), and a reasonable person might ask:
OK, Mr. Smarty-Pants, so how should we tax people to raise money for government?
Well, a reasonably snarky person might ask that. ;-)
So I thought I'd begin a series of topics about specific tax-related proposals... the "World According to David", if I was making the rules. I'm hoping this sparks some discussion not only of the current way of doing things, but the whys and the hows for what we do now.
For starters, let me state clearly that I am not anti-tax, per se. I believe that government has a role to play in the lives of its citizens, and obviously that role must be funded somehow. I'm not of the infamous "drown government in the bathtub" school of thought by any means.
However, I do think there are limits to what government can and should do. In particular, government should refrain from promises to "make life better" for people. Government should provide an environment where people can make their own lives better.
Government should also strive to treat people fairly. By this I do not mean "equally", for equal treatment often is not fair. But I mean that government ought not make arbitrary distinctions between citizens for the purpose of regulation.
So, given those principles, I believe that our tax policy should be dramatically restructured to sensibly collect those revenues needed to pay for the limited scope of government in as fair a manner as possible.
STEP #1: Eliminate FICA taxes
Put simply, FICA is the tax for Social Security and Medicare. It is technically a payroll tax rather than an income tax, and thus FICA does not "count" towards your income taxes. Half of the FICA taxes are paid by the employer, and half by the employee, up to an annual income limit (for Social Security, no limit for Medicare).
The "dirty little secret" of federal income taxes is that for many working people, FICA takes a bigger bite out of their paycheck than income taxes do. For 2006, a single person making only $8000 would owe nothing in federal income taxes -- but would still have to pay over $600 in FICA taxes.
Social Security and Medicare financing is a very complex topic, but the bottom line is that both Social Security and Medicare are essentially forms of federal welfare. Money collected via FICA taxes is used to pay current beneficiaries, and (historically) any excess was placed into a trust fund reserve to cover future expenses.
The point here is that the money that is contributed via FICA taxes is not, as commonly misunderstood, placed in an account for the benefit of the worker making the contribution. The entire system relies on current workers funding current retirees, and future workers funding future retirees, without end. It is classic income redistribution -- welfare.
Given that reality, is there really any good reason to treat it from a budgetary standpoint as any different from any other form of welfare?
It should be merged into the regular federal budget, paid for via regular federal revenue (largely, personal income taxes), and those tax rates adjusted accordingly. As it stands now, it is merely an effectively regressive accounting scam of epic proportions. By transferring that burden from a separate FICA tax to a comprehensive income tax, and especially by eliminating the income cap that applies to FICA withholdings, we can more clearly and fairly fund our social welfare programs.
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