One-Sentence Tax Reform
Let’s just start by designing a code that requires that as adjusted gross income rises, the effective tax rate may not fall. That way taxpayers would be able to look at their own effective rate, and know that everyone with higher incomes would pay at least as high a rate.
Pointer from Mark Thoma.
Here is my own one-sentence proposal:
If A and B earn the same income, but A saves and B spends more, then A should not have to pay higher lifetime taxes.
Note that Green’s principle sounds attractive, my principle sounds attractive, and they contradict each other. Consider A and B in my example. Because of higher saving, A’s income will be higher, and according to Green this means that A should face a higher tax rate.
If the tax code is focused on reducing income inequality, it will have to punish saving. If the tax code is focused on not punishing saving, it will have to enhance income inequality. (Those of us who oppose punishing saving tend to view consumption inequality is a better measure than income inequality.) I see no way to reconcile that conflict.
Politicians do not want to surface and deal with this conflict in a coherent way. Instead, individual provisions in the tax code lean one direction or the other. Thus, it is easy for both Green and me to complain that the tax code violates our “simple” principles.