Most Americans are in the 15 percent tax bracket and pay 3 to 4 cents per dollar in State tax. On top of that American’s pay 7.65 percent in social security and medicare taxes. Thus, even the modest-income people are in an overall marginal tax bracket ranging from 26 to 33 percent tax. High income people in states with income taxes are in a overall marginal tax bracket of 50 percent. High tax rates cause deadweight losses in two ways: 1. loses by spending tax revenue wastefully. “When government spends money on things, there’s a strong basis for believing that those things are worth less than the items we would have bought with our money.” “Governments have little or no incentive to spend money carefully because it’s not their money.” 2. Every tax causes people to alter their behavior in some way. These distortions in behavior designed to reduce the amount of taxes they pay. The deadweight loss from a tax is proportional to the square of the tax rate. The main thing we need to do is cut taxes drastically, especially at the federal level. The flat tax will create two taxes, one for income and the other for sales. Proponents of big government oppose tax cuts. “The reason they give is that such tax cuts generate disproportionate higher benefits for high-income people than for low-income people. The top 5 percent made 32.5 of the income. Low and middle income people would gain from tax cuts. Higher-income people would work harder because they could keep more of their earnings and lower marginal taxes would give people an incentive to save. The more capital and high-skilled workers there are for low-skill workers, the more productive and higher paid the workers become. EITC has incentive problems and may encourage pushes for bigger government and EITC incentives exist causing low income people to elect not to earn additional disqualifying dollars. The death tax is unjust. The death tax is unfair because it levy on people wh have already paid tax on what they have accumulated. The capital gains tax is unjust. “The tax on capital gains is another particular unjust tax because is does not take account of the increase in asset prices that is caused by inflation.” The capital gain tax does not allow individuals to index their prices so that they are paying capital gains taxes on real capital gains and not on phantom capital gains. [Learn More ...]

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