So we free market folks often point out that about half the country pays no income tax. Our worry is that as an increasingly small percentage of earners fund the government, we’ll soon have a majority of people who pay no tax voting for more and more government services they benefit from, but don’t have to pay for.
The response from the other side is that the poor do pay Medicare and Social Security payroll taxes, and that those taxes aren’t progressive. So they hit the poor especially hard. That doesn’t exactly refute the problem of all other government programs getting funded by an increasingly small pool of taxpayers. But it’s still a valid point in and of itself.
So here’s my idea: Let’s make the Medicare and Social Security taxes more progressive. (While we’re at it, let’s subject both programs to means testing.) But in exchange, we also scrap the Earned Income Tax Credit in favor a negative income tax. Built into this would be a mechanism ensuring that when government spending goes up, everyone pays for it—it’s just that people in lower tax brackets would “pay” by getting a smaller reverse income tax payout. The idea is to be sure everyone has to sacrifice a bit of discretionary income when a politician proposes some big new government program, so everyone can decide whether the benefit from the new program is worth its cost.
I’d prefer scrapping the income tax altogether, mostly because I don’t like the idea of government knowing how you earn a living—which leads to government snooping on how you spend your money, money laundering laws, and all sorts of other nastiness. But as long as we have it, I’m curious to hear what my fellow free marketeers, and our opponents, make of this . . . I guess we’ll call it a “compromise.”