The current tax system is broken. Some people say that we should cut taxes across the board. These people believe that by reducing taxes it will stimulate the economy. This is true but it is more sophisticated then that. Activity is stimulated by the percent change in taxes. When Reagan was sworn into office, the highest tax bracket paid 70% in taxes. He brought it down under 40% which led to significantly more economic activity. However, today the top tax rate is 39%. In order to have the same effect, the tax rate has to drop to approximately 20%.
Should we do this? Well economics gives us an answer. The Marginal Propensity to Consume (MPC) is the percent of $1 an individual spends. This is an important metric because if people are not spending money, then their is an economic benefit to taxing that amount. Once an individual makes over one-million dollars, their MPC decreases significantly. Because of this, tax rates on individuals should be low up until that point. Once we get over that threshold, we should aggressively tax the income.
Corporations should be taxed at a low rate. Taxing corporations hampers the economy. High corporate taxes causes companies to spend less on R&D, move operations abroad, and cut employees. Reducing corporate taxes will enable companies to be more competitive and to employ more people. Now, many companies will buy back shares and other similar financial alchemy. However, many of the people who receive the most benefit from financial alchemy will be paying a higher tax rate then what the corporations pay so it will balance out. The tax rates I propose are listed below.
15K - 200K: 10%
200K - 1M: 20%
1M - 25M: 50%
25M - 50M: 75%
500K - 10M: 5%
10M - 100M: 10%
100M - 1B: 15%
As you can see, this plan would completely eliminate capital gains. Taxing investments at a lower rate is not practical. Most of the capital gains taxes that are collected are collected from millionaires. These people do not need this reduced rate because their MPC is lower.
Universal Basic Income
I do not understand how anyone could be against Universal Basic Income (UBI). For Democrats, it creates an economic floor. For Republicans, it gives people more choice. Under my plan, all income that is reported to the IRS -- capital gains, salaries, interest receivable, etc -- will be taxed at 10%. This is for both employers and employees. Their will be no cap which means all of Henry Kravis's $200M will be taxed at 20%, of which he and his employer will split. This will allow a UBI of $10K - $30K per year per person. However, if we do have a UBI, that means that we will eliminate Social Security, Medicare, Medicaid, and unemployment benefits. So the net change in taxes will be marginal, just it will be put to different uses. The only requirement to receive the UBI will be to have American citizenship.