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What kind of tax system is most effective?

Dinesh D

The most effective tax system is to choose a number, preferably a fairly low number in the range of 15%, and have people fill out their taxes on a postcard. They would list the amount of money that they earn, then calculate and send in 15%, and keep the balance.

It’s most effective for two main reasons:

The first reason is that it’s simple and so the paraphernalia of a lengthy tax process is avoided. There would be no forms, no deductions, no ways to dodge taxes and no need for accountants or attorneys. This method is so simple that anyone could do it.

The second reason is that it relies on the principle of proportional taxation, which means that the rich guy pays more, but he pays more at the same rate. If somebody makes $1,000 they would pay $150, if somebody makes $10,000, they would pay $1,500 and if someone makes $1,000,000, they would still pay 15%. The rich still would pay more, but they don’t pay a higher percentage, which I think appeals to an intuitive sense of fairness.

In addition, this flat rate percentage doesn’t have the distorting effect which a progressive rate does. For many people, if they’re taxed at a higher rate when they make more money, it makes sense not to work as hard, or to be as creative or to show as much initiative, because they’re not going to be rewarded for it. If earning more money will only push a person into a higher tax bracket where they end up paying more, in effect, they’re actually working for somebody else, in this case, the federal government.

So the flat tax of this kind is reasonable, fair, and simple and it probably will produce about the same amount of revenue as the government takes in now.

Author, Commentator and President of The King's College, Dinesh D'Souza

Ben Shapiro

I think a flat tax or a national sales tax in the mold of the fair tax would be most effective. Either one of those two options would be fine with me as long as the rate is somewhere around 20%.

The truth is that if you talk simply in terms of effectiveness, the most effective thing is to not tax the upper end of the income bracket very much at all because those people are the ones actually earning money, producing products, providing services and hiring people. A flat tax is the best balance between equity and efficiency. I think it's perfectly equitable because by nature percentages are perfectly equitable - it's not a flat sum, it's a flat rate. If someone has a smaller pie, a smaller piece will be taken out of the pie.

In terms of efficiency, a national sales tax is probably slightly more efficient, because it allows consumers to buy products based on their actual needs and desires, and to decide for themselves how much they want to be taxed. If they don't want to be taxed very much, they don't have to buy luxury items.

Syndicated columnist and author, Ben Shapiro

Mike Connolly

Taxes should not exist to more equally distribute resources. Government has a certain set of functions it must perform, and it obviously needs a certain amount of money to perform them. But beyond those basic functions and services, government should do and tax very little.

So, taxes should not be raised or lowered according to ideological notions of “fairness.” Fairness dictates that people should keep the fruits of their labor, period. Government doesn’t deserve any share of your income, property, or wealth, and thus should not determine its budget based on how much money it can confiscate. That’s backwards. Instead, government should determine what it must do and go about collecting the necessary taxes to do it, through a transparent and flat rate of income, consumption, property, or what have you.

In terms of economic efficiency and job creation, taxes should be as predictable as possible. Businesses, families, and individuals should be able to plan for the future without fearing massive tax increases to suit the whims of a political elite.

Communications Director, Club For Growth, Mike Connolly

Peter Schiff

The absolute worst type of tax is an income tax because, in effect, it's a tax on people for working, producing and investing, based not on what they take out of an economy, but what they put into it. The problem with this is twofold: Firstly, taxes levied against a particular behavior end up discouraging that behavior, in this case, working, producing and investing. Secondly, because an income tax makes no distinction between, for example, income used to buy luxury goods and income saved and invested in starting or growing a business, it naturally reduces the amount of money which is available to be invested. The best alternative is to tax people based on what they spend, in the form of sales taxes which are levied against goods that individuals consume. Not only is this better for an economy, it's easy to implement because businesses - who already keep records - can simply pass on the cost directly to consumers.

Economist, investment advisor, author and commentator, Peter Schiff

Star Parker

The purpose of taxation is to fund the activities of government, so defining the proper role of government will naturally determine the amount of money required to fund these activities and the kind of tax system necessary to generate it. Under the United States constitution, the role of the federal government is to act as an impartial, neutral broker whose responsibilities are to protect life, liberty and the pursuit of happiness, which means administering justice, enforcing contracts and ensuring national and individual security.

Because government is run by people, money creates power and power tends to corrupt, the government’s ability to tax should be limited and the tax system impartial, something like a flat rate income or sales tax. The more power that the government wields, the more corruptible and corrupt it becomes, communism and socialism being the obvious examples. So the problem with a progressive tax system is that the government becomes a tool of social engineering by rewarding groups and behaviors which it favors with tax breaks and subsidies and punishing those it disfavors with high taxes and penalties.

President of the Center for Urban Renewal and Education, Star Parker

Carrie Lukas

One of the problems we have in talking about tax reform today is that we start with an enormously complicated, deeply flawed, existing tax structure.

If we were starting from scratch, it would be easy. You would want to keep the tax system as simple and unobtrusive as possible while avoiding the elements which discourage the behaviors that spur growth. Income taxes and taxes on investment, for example, discourage the very behavior -- work and savings -- that are essential to a growing, dynamic economy. Therefore, a consumption tax (a Value-Added Tax or sales tax) would be a better system, and could be designed so that those with lower incomes receive additional support or exemptions from paying those taxes.

However, given what we have today at the federal level--a highly progressive tax system on income, investment, and corporations—we'd be better off focusing on simplifying the code by removing loop holes and then lowering the overall tax rate.

Independent Women's Forum director and Goldwater Institute senior fellow, Carrie Lukas

Tim Robinson

Economists look foremost for efficiency in the tax regime. Efficient taxes are those which have the least effect in diminishing output as a result of their disincentive effects. Unfortunately, the most efficient taxes are often the most inequitable so governments must seek a compromise. They must also consider the ease of avoidance of taxes and the costs of collecting them. With the rise in importance of adverse environmental effects of human activity there are increasing opportunities for taxes which unequivocally increase well-being because they both raise revenue for government and, at the same time, discourage environmental damage. A good example would be a tax on carbon emissions.

Professor & Head of QUT's School of Economics and Finance, Tim Robinson

Grover Norquist

If by effective one means consistent with a free and prosperous society the answer is: a single rate income tax that taxes income one time and does not double-tax savings and investment.

A single rate tax, either an income tax or a sales tax means that every single American has the same relationship with their government. Graduated or progressive income taxes allow the government to divide Americans into different groups and mug them one at a time.

President of Americans For Tax Reform, Grover Norquist

Tad DeHaven

I'm a budget guy so I put the spending before the taxes and if the federal government were a size that it should be, in my mind, we wouldn't even be discussing which kind of tax system we would need because it could probably be conducted on user fees alone. But that's not the country we live in and if I had to pick, I'd favor taxing consumption rather than the income tax which penalizes savings and investment. It's inevitable, though, that they would all end up looking like the mess we have now because politicians like to use the tax code to spend money and to engineer certain outcomes. At the end of the day it's more important to reduce the size of government at which point how you tax becomes increasingly less important. If the money's there, they're going to spend it.

Writer and Cato Institute Budget Analyst, Tad DeHaven

Steven Malanga

The simpler the tax system is, the better, otherwise it quickly become a vehicle for social engineering or other schemes (through the use of things like tax deductions and tax credits), rather than simply a way to raise revenues for the government.

Naturally, every government program, especially one as large as a tax system, influencing everybody, is going to have some unintended consequences because it’s impossible for the average person or even the average genius to understand and predict all of the different ways that a program will change the entire society. But a simpler tax system, by virtue of the fact that it has fewer working components is likely to produce fewer unintended consequences.

Contributing editor of City Journal and Manhattan Institute senior fellow, Steven Malanga

Pete Sepp

Clearly current tax law is too detrimental to the health of our economy. For more than 10 years, NTU has tracked this problem through our study, A Taxing Trend.

Our Tax Code should stress several principles, including simplicity, neutrality toward types of economic activities, sustainability in support of basic government functions, and transparency to the citizens who will pay the levies.

Here are several recent NTU testimonies and commentaries on tax reform that better outline our position:
1, 2, 3, 4 and 5.

NTU advocates for either a flat-rate income tax system or the so-called “Fair Tax” retail consumption tax, although a great deal of progress toward simplifying the system could be made in other ways. For example, in 2010, Senators Ron Wyden (D-OR) and Judd Gregg (retired, R-NH) proposed a fundamental restructuring of the Tax Code that would help to enhance the nation’s economic competitiveness while reaching goals that both the political right and the political left profess. NTU supported several elements of this plan. Even before then, NTU joined in an effort to outline the basics of tax reform that could serve as the foundation for a bipartisan effort, see 1 and 2.

Vice President of the National Taxpayers Union, Pete Sepp

William Niskanen

The flat rate consumption tax would have the least distortive effect per dollar of revenue raised. The problem with something like that is that it leads to making government look less costly and so the historical experience, particularly in Europe, is that the absolute size of government is very much a function of what their flat rate is and I think if we move toward a flat rate consumption tax (VAT) that we would need to have an independent process to approve an increase in the size of government that requires a larger approval, maybe two thirds of the vote in Congress or approval by number of states. Given the nature of our current tax system in the United States, cutting tax rates increases the amount of money that people want to spend (and the relative size of government) because it reduces the visible taxes on the current generation of voters.

Cato Institute Chairman Emeritus and Senior Economist, William Niskanen

Ira Stoll

One in which marginal tax rates are not so high that they distort incentives, and one that is not so complex that it micromanages behavior or creates inordinate burdens of compliance.

Editor of and author of "Samuel Adams: A Life", Ira Stoll

Michael J. Boskin

The broadest base with the lowest rates to raise only enough revenue to fund the necessary functions of government passing stringent cost-benefit criteria.

Professor of Economics at Stanford University, Michael J. Boskin

David Ranson

The simplest possible structure with the lowest possible rates.

President of H. C. Wainwright and Company, Economics, David Ranson

Jonathan Alter

All prosperous societies require a government willing to invest in infrastructure, education, medical and scientific research, and nascent technologies, as well as prudent regulation of markets and industries related to health and safety.

Author, commentator and lead Bloomberg View columnist, Jonathan Alter

Steve Deace

The tax and monetary system that was in place in this country prior to 1913 helped encourage the greatest growth of human freedom and prosperity the world had ever known. Since abandoning that foundation we have increasingly become a debtor nation/people. I may have gone to public school and not the Von Mises Institute, but even I'm smart enough to know to go back to what worked before.

Talk radio host and author, Steve Deace

Stephen Golub

A tax system must balance among several competing social objectives: 1) raise sufficient revenue to pay for essential government services, 2) limit the disincentive effects of taxation on work and investment, and 3) mitigate inequalities of income and wealth. The first and third goals suggest that rates should be highest on high-income households, i.e., the tax system should be progressive. On the other hand, the taxation of wealthy individuals should not be so high as to discourage them from working and/or to encourage socially-wasteful tax evasion.

Prior to the Ronald Reagan’s tax reforms, the top marginal income tax rate in the United States was around 70 percent. Such punitive rates are likely to create massive distortions and tax avoidance efforts. It was therefore appropriate to bring down tax rates in the 1980s. President George W. Bush’s income tax reductions, however, are much less defensible, because marginal tax rates were already moderate. Moreover, inequality has worsened dramatically in the United States in the last thirty years, with income gains concentrated in the top 10 percent and especially the top 1 percent of the income distribution. Taxation of the wealthy should therefore be bumped up on equity grounds but not all the way back to pre-Reagan levels.

Professor of Economics at Swarthmore College, Stephen Golub

Rabbi Aryeh Spero

One that does not see its role as redistributing wealth, but having the funds to defend the people from external and internal attack, facilitating an infrastructure that allows commerce to thrive and people to live safely, and acknowledges the need for stable families, and takes care of the truly infirm and sick as well as a floor of dignity for the elderly.

Columnist and commentator, Rabbi Aryeh Spero