Thursday, August 25, 2011

Why Have Income Taxes When You Can Have Payroll Taxes?

I like Bernie Sanders' proposal to collect payroll taxes on income over $250K as a way to save Social Security. It's making me wonder whether it might be better to tax earnings entirely on the payroll side rather than the income side. To do this in a progressive way, you'd need a graduated structure for payroll tax rates. But this is the kind of thing that business tax software is set up to handle, so the extra complexity isn't going to cause any trouble.

If you'd like to minimize the impact of bad parts of the income tax code like the home mortgage interest deduction, this would be a way to do it. Just shift the taxation over to a place where the deductions don't exist. There are good deductions, like the charity one, but maybe it's worthwhile overall to just make the deductions irrelevant. At the same time, you'd be making tax preparation more efficient by doing it all in one place where professionals and computers could take care of it, instead of forcing every American to spend hours trying to be an amateur accountant in the first few months of the year.
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