A Modest Proposal: The Log Tax Until we find some other way to fund government, we're stuck with

taxes. What we want out of our tax code, then, is that it produce the revenue we require, in the way that least burdens the taxpayers. This burden is not just the money payment, but also the regulatory cost - the time and effort required of the taxpayer to satisfy the tax code. Thats why so many people want taxes to be simpler. So, what's the simplest tax that gets enough revenue? A flat tax is simple but to make enough revenue that way, it has to be at a rate so high that it becomes a crushing burden on the poor and the middle class. A tax system that stifles the economic development of the lower half is a bad idea for many reasons, but it also sabotages its own revenue, by sabotaging growth. The simplest way to keep taxes from being such a burden on the lowerincome end is a progressive tax - one where the tax rates start low, but then curve upwards with income. Right now we have sort of a stair-step mostly progressive income tax, with our tax brackets, but riddled through with so many exceptions and alterations and subsidies and sweetheart deals - and other taxes - that it often requires professional help to deal with it; whether you're trying to understand our tax policy, or just trying to figure out how much you, personally, have to pay. What if we really could just replace all of that with one equation, one simple curve? I tried out several curves, but the one that seemed to work the best was a logarithmic curve: Tax Rate = R*log( income/poverty ). It turns out, this one equation - which can fit on a bumper sticker - could replace our entire federal tax code. If you're not familiar with how logarithms ("log") work, that's not necessary. It's just one of the buttons on the calculator. But it does make some sense that a logarithmic curve would work well, because the practical effect of the logarithm is: someone who multiplies their income by ten, adding another zero onto the end of their income, will add R to their tax rate. It's a smoother, continuous version of what they try to do with tax brackets, without all the jumps. R stands for Revenue - it's just the number you have to multiply "log(income/poverty)" by, to actually get the total revenue called for in the budget. Last time I checked, that was 3.7 trillion. So, I collected together some income distribution data, and tried the tax out on it, in a spreadsheet,

to find out how much revenue it would raise, and what R would have to be for the tax to work; the answer I got was that R is about 8.83 this year. My data was incomplete, so that's probably a bit off. But I tried to make sure that I erred on the conservative side each time there was a range of possible values, so I'm pretty sure that more data will only make that number lower. But what would that mean? Well, in the first place, the effect of dividing your income by the poverty level is that we start counting the tax rate at 0% for poverty level incomes, which is officially $11,161 a year the last time I checked. If you look at the attached chart, when you find your income on the bottom, you can see the corresponding tax rate on the side. By the time you have $20,000 a year income, then, you end up paying 2.4% taxes, or $524 in taxes per year - this includes income, capital gains, excise, and the payroll taxes too: Social Security and Medicare. A median income of $33,750 a year ends up paying 4.2%, or $1432 a year in total federal taxes. 4%, as it turns out, is the current average effective tax rate (that is, what they actually end up paying) on the lowest 20%. The middle 20%, which includes the median, currently pays an average of 14.3%; this plan, then, cuts the average taxpayers rate by more than two-thirds. At $50,000, it's 5.8%, or $2995; by $100,000 it's up to 8.4%; $210,000, getting into the top 5% income range, pays 11.3%. The average income of the top 1% is 11.7 million, and they would be paying an average 26.7% tax rate, which is a little less than the 29.5% they pay now.

The average corporation makes half a million in profits per year, and would pay 14.8% taxes on it. This is less than the cheapest corporate tax bracket that exists now, 15%, and less than half of what the average company nominally pays now, 34%. It's even less than what they actually pay (about 17%.) This tax system, then, turns out to be a big tax cut for almost everybody, and a pretty good one for most corporations too. The 15000 largest corporations each make a profit of more than 250 million per year, and they would be paying 38.4% - pretty close to the 35% they are supposedly paying now, but this plan would be a tax increase on the 15000 largest corporations. On the other hand, those corporations could then save a lot of money on lawyers and tax dodges; so this tax could actually be a good deal even for some of them. The 400 richest individuals, according to Forbes, make at least 1.7 billion each - they would be paying a 45.8% tax rate, leaving them with at least $0.92 billion income. Starting from about that same level, the Fortune 500 companies would then range all the way up to Exxon: the year Exxon made a $45 billion profit, it would be paying a 58.3% tax rate. So, this tax plan does raise taxes significantly for a few thousand companies (about .6% of companies) and a few hundred individuals (0.00024%.) On the other hand, tax rates on the highest incomes has been well over 60% for most of the time the income tax has existed - all

the decades, in fact, except the 1920s, and the last couple, so it's really a comparatively good deal for them as well. I'm sure Exxon would not like this plan; after all, they actually didn't pay any taxes at all, the year they made a 45 billion profit. But even if they had paid this tax, they would still have made 18.8 billion dollars in profit that year, and they would still have been one of the ten most profitable companies ever to walk the face of the earth, even if all the others didn't have to pay any taxes! Is that really a significant burden? I don't think that it is - what does it keep them from doing? I also think that it becomes much more of a burden when we shift it, as we have in our country, onto the shoulders and backs of the poor and the middle class, instead. Usually, these tax discussions are framed in terms of the rich versus the poor. But this system actually only raises taxes on the super-duper-rich - that is, less than 20,000 individuals and corporations who each make on the order of billions per year. Some would say that this will stifle their economic development - but of course most development actually comes from the smaller companies; the biggest ones, by and large, have already done their developing and are looking to downsize. If we want to encourage economic development, do you think we could do it better by helping a few thousand billionaires get even richer, or by, instead, making it easier for millions to become millionaires? To get our economy going, we should make it easier for people to develop their abilities, or to begin and develop a business; even if the trade-off is that it does make it a little harder for those very largest companies to become even larger. It turns out we can lighten the tax burden on almost everyone, in an economically beneficent way, without putting any really serious burden on anybody, just by distributing the taxes in a fair and simple way. Some readers are probably now thinking, and worrying, about some of the subsidies in the tax code that they like; perhaps, for example, the child tax credit. I'd like to get rid of a lot of our subsidies, but some of them really are good ideas. What I would suggest is that we have a tax form, just for tax, and separate subsidy forms for the subsidies; no one would have to fill out a subsidy form if they didn't want any, and the tax form could then be very simple indeed. I think it'd be worth going through and deciding which subsidies we really do want to keep, especially once we can see clearly exactly what the costs really are, and since so many of them will be made unnecessary anyway by the generally lower rates. One of the best things

about this whole system, in fact, is that it is simple enough for voters to readily understand, evaluate, and make informed decisions about it. It is, therefore, much more suited to our democratic processes than that awful, shambling mound of confusion we have now. For example, suppose we were concerned that the very largest corporations were being too heavily burdened; we might decide we want to subsidize the Fortune 500, by letting them not pay any taxes at all. We'd have to replace about $479 billion to pay for it; that would add about 15% onto everyone else's taxes. So that'd be an option we could consider, and we would each know what the cost of it would be to us, and we could each make a direct decision about whether it really was worth it to us or not. If you know your total income or profit, and you have a calculator with a log button on it (your computer has one in its calculator program), you can just divide your income by 11,161; hit "log"; multiply the answer by 8.83; and that's the total federal tax rate you would be paying in this system. Wouldn't you rather have that tax code, than the one we have now?