| | Merlin,
I thought about the issue of inheritance, but didn't mention it because the money still might have been earned by the person who left it to his heirs - and paid ordinary income tax rates on that; and there may or may not have been an inheritance tax on that money that had already been taxed and then would generate the capital gains that would be taxed yet again.
I hadn't thought about hedge fund managers.
People talk about a progressive tax rate... well, even a flat tax rate is progressive. A person who is taxed, say, 15% of their income will pay more in absolute terms if they make $1,000,000 per year than the person who pays the same 15% but only makes $10,000.
If we consider that we should only be paying for the proper services of government, which includes only the following: protection of our property, protection of our liberty, and protection of our person. (Actually we are paying for the structure and activities that maintain the environment most conducive to individual rights). Looked at that way, maybe we should pay more if we have more stuff to protect - like insurance policies go up in price as the value of the policy goes up. But the protection of liberty and of person shouldn't cost out very differently, theoretically, for a poor person versus a rich person. They both live under the same safety umbrella of the military defense forces and so on.
Anyway, I don't think there is such a thing as a really fair tax, because I believe it is possible to have a government that does what it is supposed to yet is fully funded with voluntary fees. But that is academic in terms of what should we like to see put forth in the next few years. In those terms, I would like to see... - flat tax rates instead of progressive tax rates,
- decreasing the tax rates year after year as spending is cut,
- eliminating the confusing complex of deductions and simplifying in the direction of a few, universal deductions and phasing them out year by year, and
- shifting from taxation of investment and savings to taxing of consumption and the use of fees, and
- shifting from hidden forms of taxation to highly visible - in your face - forms of taxation, and
- until we can get rid of taxes, they should be for everyone - no free riders.
We are competing in a global market and that will just intensify with increases in technology and because of that it is crazy to tax businesses. They only pass the cost of taxation on to their customers, but in the mean time they are made less competitive than the same business in a country that taxes less. Capital is international and will travel at the speed of electronic transfer, and will chose the domicile that gives the best combination of safety and freedom from taxation. If we provide zero taxes on capital gains, dividends, and interest income then the flood of money coming our way would be like a giant, green tsunami. Our financial markets would be flooded! Take away taxes on businesses, and the growth in business activity in our country would explode.
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