(Readers: Please note this blog is constructed as a story about the 5th revolution in the United States. While not all chapters are linked, I think the story will be more meaningful by starting at the beginning. Read a couple of sections per day and you will catch up quickly.)

Scene: Jordan’s Office. Report on taxes as follow-up to an earlier assignment.

Jordan: “Well, well, well. Look who’s back – Queeny and Cleopatra. All well with you two?”

Cleo: “Yes, everything is fine. And look who we brought along – Caesar.”

Caesar: “I’m here to help interpret some of the findings of the workgroup. But I have been informed by these two economic mavens to stay quiet until called upon.”

Jordan: “So what else is new? Don’t they always tell you to stay quiet, Caesar? By the way, are we meeting next week on your recommendations for defense and national security?”

Caesar: “Yes, this week we have a couple of more internal reviews and then we’ll be ready.”

Jordan: “Queeny, any word from King George III?”

Queeny: “Apparently OK health wise but still has not come around. He is being stubborn…and I think stupid. But being stupid is his decision, not mine.”

Cleo: “May we get started, please? We have a lot of ideas to present.”

Cleo: “The first proposal is about the income tax rate. We selected a rate based on four criteria: #1 the rate must be progressive. A flat tax is regressive because those in lower income brackets have such limited discretionary income.

Caesar: “Do you understand what you just said?”

Cleo: “Pardon me, but did anyone ask for your opinion? Yes, I understand. Discretionary income means income left over after paying for such necessities as food, shelter and clothing. If you don’t make much money, you have very little left over. So there.”

Caesar: “An economics professor and I didn’t even know it.”

Cleo: “#2 criteria — the tax rate must be easy to understand. No complicated formulas. #3 is no deductions.”

Jordan: “Did I hear that right? No deductions?”

Cleo: “No deductions. Deductions allow people to game the system. What starts out as a logical deduction gets distorted over time. #4, we need some adjustments for inflation.

Jordan: “What are the proposed tax rates?”

Cleo: To start with “$1-20,000, 0.0%; $20,001-$50,000, 5.0%; $50,001-$500,000, 10.0%; $500,001-$1,000,000, 20.0%, above $1,000,000, 25.0%. With these brackets, most everyone will pay something. Remember all income is subject to tax – payroll, interest, dividends, even Social Security benefits.”

Jordan: “What else?”

Cleo: “No other income taxes. For upper income people, the tax rates are lower than the current rate so the incentive to earn more is increased, not decreased.”

Jordan: “Are there any deductions?”

Cleo: “You know, Jordan, sometimes you are as bad as Caesar. You just don’t seem to listen. I said no deductions. None. Nada. Zero. Understand?”

Jordan: “Interesting proposal. Caesar, as a high-income earner – well, former high-income earner – any thoughts?”

Caesar: “I cringed when I first read the proposal. But it does make sense. The proposal is simple and easy to understand and everyone is treated the same way. You do not have the shenanigans like hedge-fund managers paying a lower tax rate than the clerical staff.”

Jordan: “I’m not sure about eliminating the mortgage deduction.”

Caesar: “I was concerned, too. But the current system is so screwed up we have got to make a change. Besides, house prices seem more aligned with interest rates than tax deductions.”

Jordan: “Keeping interest rates low and keeping inflation low will help the economy more than a tax deduction. As you said Cleo, tax deductions create distortions.”

Caesar: “We also discussed whether people with incomes less than $20,000 should pay some tax. But Queeny and Cleo reminded me this group pays sales tax, property tax as part of their rent and other miscellaneous taxes. I was surprised at how high the effective tax rate really is for lower-income people. They convinced me the brackets make sense.”

Jordan: “I remember seeing this chart before. I was astonished at the effective tax rate for lower incomes. This proposal should help fix the inequities. What’s next? Queeny, you’re at bat.”

Cleo: “May we take a 5-minute break, please?”

Jordan: “Caesar, has she always been like this?”

Caesar: “Always. And you learn to go along with it. We’ll restart in 5.”

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