Free Money for the Rich??

Browse through your user friendly tax manuals and you will find all sorts of deductions which phase out after you reach an upper middle class income level. It’s Congress’ schizophrenic way of imposing higher marginal rates on the reasonably well off without simply creating a new tax bracket.

We don’t pollute the tax code with such petty nonsense here. Free money for all means just that: every citizen gets the same amount of free money from the government. Even Bill Gates would be eligible for his monthly check.

“Holy plutocracy, Batman! Can’t we add a few lines to the tax forms to make sure Bill Gates and Warren Buffet aren’t on the dole?”

No.

That would defeat one of the main purposes of this program: to simplify the tax code while still taking care of the poor. Even if we set our dividend to a generous thousand bucks a month, the amount is trivial for a dot com billionaire or a Hollywood star. As for your family doctor, this free money would simply offset the loss of some lucrative tax deductions we’d like to get rid of.

Free money for all is a net transfer from the rich to the poor and middle class. If we merge the income and labor taxes together into a flat 30% rate and give every adult $1000/month, then a single adult would have to earn $40,000/year before becoming a net federal taxpayer. The 2010 median household income is $52,000 so we are looking at nearly half the population receiving more dividend from the government than they pay in taxes – unless we go to a less generous benefit or throw in a regressive tax to offset the dividend a bit.

Given this rather large wealth transfer, we need not be petty and deny the rich equal benefits. They will be paying for them and then some. One might ask how the rich will pay without jacking up the top tax brackets.

The answer is simple: close the loopholes. Treat ordinary income and capital gains the same. Eliminate the charitable deduction (or at least allow deduction of only the cost basis for appreciated items). Eliminate personal deductions, deductions for margin interest, deductions for health insurance, IRAs, 401(k)s, etc. A 30% flat rate might well be adequate to fund government and a generous dividend. If not, we could toss in a somewhat higher bracket (35-40%) for the truly rich, and maybe a few excise taxes. We’ll explore the matter elsewhere later.

Moreover, if we balance the budget, we can expect profit rates on passive investments to drop. Deficit spending is a subsidy to those who have money to loan. Free money for all coupled with a truly simple tax and a balanced budget would be enormously progressive.

What the Rich Gain

So what’s in it for the rich?

Simple taxes to start with. No more playing accounting games in order to protect wealth from Uncle Sam. You pay your dues and get to spend what’s left how you please.

They also get security. Crime will go down as we’ll explore later in the benefits area. They should be safer from envy filled juries as well. Everyone would know that the well off pay the federal taxes and that the rest of us are receiving a net dividend.

They’ll get labor. They won’t have to hire illegal aliens to get the house cleaned or the lawn mowed. The poor won’t be desperate for work, but they won’t be losing benefits for working either. For every dollar they earn, they’ll keep $0.70. And employers will have a very easy time calculating paychecks as well. Take gross payment, multiply by .3 and send that to the government. No more benefits, unemployment insurance, FICA, Medicare, etc. Just write two checks – one to the worker and one to the government – and you’re done.