The problem is the governments intervention of the tax code. The Income tax was SUPPOSED to be progressive, but strayed thanks to greedy politicians and corporations.

When you give the government the power to easily change something, they'll ALWAYS change it in their favor.

A consumption tax (which includes a prebate) is much harder to manipulate. Especially if you force a 2/3 majority in order to make any major changes.

The income tax, on the other hand, has changes made to it in virtually every bill that crosses congress. Various earmarks to give corporation A a small tax break, or corporation B, a tax credit. By the end of the year, the changes are various.

So in the end, the federal income tax is not a good design. And significant reform is needed to bring the tax code back to some form of normalcy.

Also, last time I checked the wealthy buy many expensive items, from cars, to mansions, to islands. But often times, the wealthy don't pay much taxes on any of these things. Why? Because of the way they cheated the system in the first place.

You see, a sales tax makes it much harder to evade the tax. With less evasion, tax revenues should move higher and the IRS should become smaller. That means less government spending, too, and the chance for even lower taxes for you and me.

Also, just check my earlier comment about the sales tax prebate. It pretty much takes care of the concern that lower income people would get hit hard by the tax. In fact, they would pay no taxes at all and receive a lump sum at the beginning of the tax year.

excellent post. I disagree with pretty much every word but love the way you constructed it and supported it. It is a valid opinion well presented and well reasoned. Kudos!

I would point out the following:

1. Poverty is not a disease we can cure. Social engineering is not the role of the IRS. I have no problem paying more when i make more but if the poor are given more money taken from me, prices rise because they can afford to pay more. That is a free market, capitalist society. They might have a higher standard of living but they don't close the gap with the rich. This country already has more and better safety nets for minimum subsistence than most nations.

2. Inspiring the "rich" to put more into stocks bonds and other such investments is a GOOD thing, not a bad thing.We are a capitalist economy. It depends on capital. Such investment raises capital and lessens the amount of capital we raise in foreign markets. Such investing is investing in America. We should all be doing it and as a point of fact, over 63% of American households are invested in the capital markets in one way or another. As a further point of interest, according the FEC filings the Obamas are NOT invested in America in this manner. I find this curious and more but I suppose some will give them credit for this. In my opinion every single American should be invested in the capital markets in some manner and to some degree. I have started many of my friends on DRiP plans where they invest as little as $25 a month into equities. You don't have to be rich to do it. It is another whole argument but instead of being ripped off by our government partial privatization of our social security tax should be invested where it not only out performs the 1.5% return we get from social security before inflation, but it actually does the country's economy some good and is backed by actual dollars and not an IOU. This investment creates jobs, grows the economy and makes our country strong.

3. Taxation jiggering away from a flat tax is a matter of being punitive or rewarding someone. Manipulation of taxation is usually done in return for a behavior we deem socially advantageous. In other words if you want oil companies to put R&D;money into wind energy research, you incentivize them. If you want consumers to conserve energy you either tax the heck out of it as Al Gore proposed with his kilowatt tax or we reward those who buy a Prius, solar panels etc. If you want people who want to smoke to stop, you tax cigarettes like crazy as Clinton did.

4. Infrastructure was built before Income Tax. Railroad Barons floated bonds. They cheated their workers and that should not be condoned. In today's society it would not be. We have minimum wages, OSHA, child labor laws etc. Today a worker would be paid comparatively well, protected from unsafe work environments, have retirement plans and have health insurance for themselves and their families. However they would be contributing labor and being fairly compensated for that labor. But the railroad baron would be risking everything. His financial well being would be risked on the venture and in exchange for that risk, he is compensated in a huge way. The parallel you try to draw between the contributions of labor vs the contributions of the entrepreneur leaves out the whole equation of risk, and the issue of what value added each brings. A worker creates the value of his own job. No more. An entrepreneur creates many jobs and assumes risk. In a capitalist society, that is rewarded. The difference, as is common, is who can do it more efficiently. Do you want the govt to tax you and spend 4 million building a railroad they cant run efficiently or do you want a private investor to build the same railway for 3 million and then profit from it?

5. Your tale of woe and disaster is a mite off from the facts. Before income tax when economic disaster struck, JP Morgan acted as a one man federal reserve system and operated much more efficiently than todays fed. In time of war or economic disaster as spending dries up so does income so that is a wash IMO. This is exactly why Alexander Hamilton said that "A national debt, if it is not excessive, will be to us a national blessing". It allows us to borrow funds when needed in times such as you envision. Of course we can discus for decades what defines "excessive".

Here's the fundamental flaw in your logic. Simply put the rich in general receive less services from the government, so forcing them to pay a disproportionate tax can only be be justified by the idea that everyone should be forced to work for the greater good. That line of reasoning leads down only path: Communism. From experiments throughout the world it can be shown that Communist societies inevitably fail when they are translated onto nation-state levels. When there is no incentive to exceed the average, most people choose to work slightly below average.

Socialism, essentially is the attempt to avoid this problem by maintaining some sense of individual property but redistributing "excessive" wealth to the less fortunate. However, this system creates a solid, recognizable class distinction between the "haves" and the "have-nots" in a way that Capitalism and Communism do not. In a Capitalist society, the market does not care whether any person succeeds or not; it is a matter of personal will to survive. On the other hand Communism is the opposite, everyone is bolstered up upon each other but anyone who attempts to work above and beyond the norm is immediately cut down; but everyone is treated exactly the same.

As I said Socialism institutionalizes classes. It would be difficult and utterly wrong to argue that the poor should not be helped to succeed on their own, but it is equally wrong to assume that society as a whole owes anything to its members. Each individual has a responsibility to contribute to society; society does not have responsibility to the individual. It should be expected that the wealthy should choose to help the poor but it can not be something that is forced upon them. In doing so we have forced the will of the mob upon a minority.

Its hard to imagine how one can claim that most of the wealthy didn't have to work to get where they are. The wealthiest people are most often entrepreneurs who were very good at what they did. Bill Gates, for example, started Microsoft with Steve Ballmer from nothing. The supposed "robber barons" of the 19th century were often rags-to-riches stories as well.

The point isn't that anyone can afford the pay the income tax, rather its the message that the United States is saying to its people: "All men are not created equal." The same message it's been playing over and over again for more than two hundred years.

Not true. A sales tax would discourage consumption and encourage savings (since you don't get taxed on what you save, the capital gains you earn, or the dividends you collect).

So when you retire and pull money out of your 401(k) or IRA, then you pull money out completely untaxed. That can be a huge savings. This is huge. The US has a horrid ( i believe negative) savings rate. Compare that to the people of china who have a savings rate of over 20%.

A tax like this would encourage Americans to save, and not spend. This mentality would've avoided everything that's going on today. So the economic benefits should speak for themselves.

As far as the really poor people (the ones already living paycheck to paycheck) most proposals include a prebate based on the poverty level. Let's say poverty is $15,000 a year and the sales tax is 15% per year. The prebate would actually refund them that 15% up to the poverty line.

So the net affect on people who earn under the poverty line is no tax.

As opposed to the income tax which taxes rich people disproportionately? If there is no income tax then the poor will have more income to spend, not less which means that while they will continue to feel the strain of taxation it will not be a greater strain. The idea is to provide a flat tax that is not variable based off of one's economic standing. Additionally the tax need not apply to everything purchased, essentials such as groceries could be excluded or taxed less heavily.

from what i've seen, rich people buy really expensive shit. it's wise to save, but they save an amount... not all their money. they still spend it... and they buy the expensive shit too... if anything, they're still getting taxed way more than poor people under this system.

i don't care though, i prefer sales tax.

I am not opposed to income caps to a certain extent, though the effect you described is likely to occur. People would simply stop trying to earn over and above the allotted amount.

This has two outcomes simultaneously:

I agree that you would probably find a rise in small and medium-sized businesses, that would be a good thing in my opinion.

Secondly, though, if noone is earning above the cap where do the taxes come from? How will the government be funded?

What I would favor is a pyramid-like squeeze; little to no tax at the bottom with an ever-increasing gradation so that, at a certain point, a person is taxed to a de facto cap.

That way we end up with an income-capping system with its benefits AND plenty of taxes to support government services.

I wouldn't say you are dumb as any thought on this subject should be entertained. However you are just building inefficiencies into the system. Using your example of Coke, the key to Coca Cola is distribution. They don't distribute filled bottles ready for sale. They distribute syrup to be mixed, bottled and sold locally. In your suggestion these efficiencies and other economies of scale are barred from the system lowering productivity. Additionally what happens with an industry like automobiles or building jet planes. The sheer cost of entering the business prevents too many players from competing. Then look at utilities where one area does not have the raw materials needed. If one oil company does not build a pipeline to a location far from any refineries, how do you have growth of population centers or new cities when energy is not available readily. Also if a drug company is making its limit of profits, why would they invest in further R&D;to come up with new needed drugs? Profit equals motivation. I wont even address the issue of your comment about how much someone has "the right to want".