Tax Reforms Economist Agree On

So I read this article by Theo Francis that lists 6 tax changes that he claims most economists (conservative and progressive) agree on.

One: Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

Two: End the tax deduction companies get for providing health-care to employees. Neither employees nor employers pay taxes on workplace health insurance benefits. That encourages fancier insurance coverage, driving up usage and, therefore, health costs overall. Eliminating the deduction will drive up costs for people with workplace healthcare, but makes the health-care market fairer.

Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.

Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

Five: Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

Six: Legalize marijuana. Stop spending so much trying to put pot users and dealers in jail — it costs a lot of money to catch them, prosecute them, and then put them up in jail. Criminalizing drugs also drives drug prices up, making gang leaders rich.

I REALLY like these ideas. Especially if we can frame them in such a way that the consumption based taxes do not unfairly burden the poor and middle class. Many of these would encourage people to be more budget and environmentally conscious – which I think is a very good thing.

I may add to the list:

1. Reduce military spending with tax dollars: The Government is free to sell war bonds or offer services for money and take donations.
2. Reduce foreign aid (unless it is paid for from a surplus budget): basically stop giving countries billions of dollars when we are trillions in debt.


3 thoughts on “Tax Reforms Economist Agree On

  1. jon

    The part that struck me was the substitution of a consumption tax for income tax. I hadn’t thought about the issue (although I suppose I’ve heard it mentioned before). I looked on the net for articles about how a progressive consumption tax might work. One good piece was:

    which describes several versions of a progressive consumption tax. The one that’s most straight-forward (I think) is this one:

    “The most prominent of these comes from the economist Robert Frank. His proposal would work like the personal income tax, with taxpayers tallying up their income on a return, only Frank would exempt all savings from taxable income, leaving consumption as the base to be taxed. To generate the same amount of revenue as the personal income tax, much higher rates would be needed, but one of the main disadvantages of higher [income tax] rates–that they discourage savings and investments among high earners–would not be relevant [when applied to the consumption tax], so steeply progressive rates would be less economically harmful. Frank would also include a large standard deduction, so very basic consumption–food, non-luxury rent, etc.–would end up not being taxed.

  2. Rattlesnake

    I particularly like the first three changes, but I’m not sure about replacing income tax with consumption-based tax. It seems like that would act as a disincentive for purchases, which would probably mean less sales and therefore less revenue for businesses (and therefore less jobs).

    I’m certainly opposed to a carbon tax. Again, that would increase the price of gas, as well as pretty much everything else.

    But, of course, I’m not an economist, so I might not know what I’m talking about.

    As for your suggestions, the US Military probably doesn’t need as much funding (especially considering all the waste in the Pentagon).

    And I certainly agree about the foreign aid (I’d make an exception for Israel, though). Most of it just goes to dictators, anyway.


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