Friday, November 8

I Like the EITC and I am a Conservative

What is the EITC?  EITC is an acronym for the Earned Income Tax Credit.  The EITC is a tax credit received by low income individuals and families after filing their tax returns.  For many conservatives this tax credit is seen as another part of the over-bloated welfare state.  This is a simplistic view of tax policy because the EITC is not merely a welfare program but essentially a negative income tax.  The next question you might ask in this conversation is what is a negative income tax?  Well a negative income tax is a tax system which was advocated by the late and great economist Milton Friedman.  In one model proposed by Friedman, if for a family of four the amount of allowances came out to $10,000, and the subsidy rate was 50% and the family earned $6,000, the family would receive $2,000, because it left $4,000 of allowances unused, and therefore qualifies for $2,000, half that amount. (Source: Wikipedia)  This system in Friedman's mind would only work if it was implemented largely in lieu of the current welfare system.

A major plank of the conservative and even liberal counterargument is that this system would be prone to high levels of fraud.  This I think would be patently false.  Let us think about this problem for one moment and ask ourselves is their a certain amount of welfare fraud now?  The answer is surely yes, but there are not many statistics on the exact amount.  Next how do we police current welfare fraud?  Well, through the bevy of welfare agencies currently in charge of such programs.  Now if welfare was reduced to just one agency, the IRS (I know no one trusts them at the moment), it would be a lot easier to police welfare fraud.  This would also reduce the amount of government bureaucrats necessary to administer federal and state welfare programs. 

Not only do I believe that an increased role of the EITC would reduce welfare fraud it would also be a pro-growth and pro-free market reform.  Unlike welfare programs where you have to prove certain conditions and fill out endless paper work.  The EITC would require first being employed and second filing a tax return.  This reform would free up time for people by making receiving benefits an easier task and it would also provide an incentive for people to find employment (think tanks on the left and right are in agreement about this specific outcome).  This reform I think turns our welfare system into a workfare system.
As a much overused quote eloquently says, "give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime."  I believe that embracing a larger role for the EITC or a negative income tax would be a positive change for our nation.

Next we must confront this awful strain of elitism in the Republican Party as displayed by Mitt Romney:

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. ... My job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."

This may true to some extent, but it is an attitude which needs to wiped out of our party's collective psycheFirst of all belittling a wide swath of people will never ever help you to convince them to come to your side.  Writing people off as lazy and useless reinforces their belief in their supposed victimization.  In order to stop this vicious cycle we as a party must talk positively about all Americans in order to inspire them to take charge of their lives.

The next thing I would like to address in this quote is the belief there are so many takers in American society.  I would like to ask you a question?  Why should lower or middle income people pay any income tax at all?  The answer I will probably receive from a great deal of conservatives is a question in retort, why should the rich bear the brunt of income taxes?  I will now say something shocking, something you might have thought only a liberal would dare say, because they can.  Lower and middle income citizens should pay as few taxes as possible, because it provides them the opportunity to save a greater portion of their income.  This would allow them to save for retirement and possible entrepreneurial endeavors.

(A big point I would like to make is that I use the terms lower and middle income.  I do this because I believe if you use the word class your sponsor the idea that there are classes in our society.  Also being poor is a state of mind that is hard to change, but being broke is just a temporary state)

For all intensive purpose the average American household did not pay any income taxes until the 1950s.  The first cutoff for the lowest bracket was usually far beyond the average median income in the United States.  Was this wrong?  No it was not, it allowed people a greater degree of freedom than many of us enjoy today.  One caveat in my opinion though is that I am not advocating for lower and middle income people to pay no pay roll taxes.  Since pay roll taxes provide revenue for programs we all benefit from directly I believe that in fairness everyone should contribute.  I know you would argue that everyone receives benefits from income taxes in the form of programs like the military and federal infrastructure projects.  I would counter with the argument that yes they do benefit from what income taxes are spent on though indirectly, but I would also argue that more people would be in an income tax bracket high enough to pay income taxes if they were able to keep a larger percentage of their income when they made less money allowing them to be more successful in the future.

To sum up the tax system I am advocating I will give you all some bullet points, because I know everyone likes bullet points (because I certainly do):

  • Eliminate our confusing tax brackets and change to a flat rate of 25% kicking in at $100,000 (just a random number, I would have to ask an actual economist for a reasonable number)
  • Eliminate all deductions
  • Eliminate corporate taxes in order to eliminate double taxation of dividends, thus allowing dividends to be taxed as regular income (this ensures people like Warren Buffet do not pay a lower tax rate then their secretaries)
  • Expand the use of the EITC for lower income individuals and families and eliminate the majority of other federal and state welfare programs
  • Eliminate the cap on pay roll taxes
  • Means test Medicare and Social Security benefits to reduce program costs
  • Raise the Medicare and Social Security retirement age to 70 and then index to life expectancy thereafter
  •  Adjust tax bracket and benefits for inflation every year so there is no bracket creep
This is just a simple overview of my idea for a tax system overhaul.  This overhaul will surely be reviled by some of my readers and many conservatives, but this overhaul has something I think everyone will like (except the most radical of leftists who just think the rich should give all their money to everyone).  I think this plan would especially appeal to moderate conservatives, moderates, and independents.  I think this is a program of reforms that would disarm any and almost all liberal arguments that conservatives are curmudgeonly and coldhearted.  This program of reforms would also be pro-growth, pro-free market, and pro-liberty.  I only ask you to consider these ideas not necessarily agree with me one-hundred percent.

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