Taxation and the Middle Class

Taxes are the price of admission to live in civilized society. In the U.S., according to the Heritage Foundation, we pay 28.2% of our gross domestic product in total tax revenues. Politicians are always saying they are going to cut taxes, but taxes have stayed nearly the same since 1975 when they were 26.9% of GDP. In fact, taxes over the last 34 years have averaged about 27.7% with very little variation through Democratic and Republican administrations. It appears that we have about the right amount of taxes (if you do not count the bailout, which has to be paid for by you know who). Although compared with Canadians it appears Americans might be spending too much. Canada makes due with 33.4% and includes national health care, which is 10% of their GDP. Private health care costs us 16% of GDP, and that is on top of the 28.2% we are already paying in Taxes. Why do Canadians spend 24.7% of their GDP to do what we do with 28.2%? Our bloated military and related misadventures are major sources. To this wastefulness we can add the War on Drugs, prison policies and other things that do not make sense.

Although as governor I would not be able to change the federal tax code, I favor building support for a modified flat tax system with a national sales tax. Property taxes on residences would be scaled according to value, so that those homeowners with houses at median level values below would pay nothing. Those houses above the line would be taxed according to that portion of value above the median. Groceries up to a certain amount would be exempted from the national sales tax. This tax, known in Europe as a value added tax (VAT) would combine local, state and federal taxes and it would be included in the sales price. There would still be an income tax-but only on that portion of income higher than $200,000 or more. Ninety-five percent of us make less than that, so only the top 5% of us would pay income tax. A national sales tax by itself – the darling of libertarians – is simply unfair and would be a gift to those who became rich with the help of our system.

The VAT would tax consumption instead of income, and it could be increased for products that being phased out, are environmentally unsafe, or for which health concerns exist. For example, gasoline prices should be taxed to reflect the real cost to society and the environment, and taxed enough to also greatly encourage alternative clean energy independence. There should also be taxes on unhealthy products, such as alcohol, tobacco, and drugs that are now illegal. The amount of the VAT should be scaled to the inherent danger of the product, but not so high as to create an excessive black market.

Combined with national health insurance – something other civilized countries manage at a fraction of what we spend for health care – and other policy changes, the middle class will experience a renaissance. The rich will also benefit, because they will get the benefit of a living in a happier, healthier, more compassionate, and sustainable country.