How to Tax More and Take Less
September 22, 2005
How do you cut federal income tax rates in half without losing a dime of tax revenue? Find the answer—at least in theory—in our new “Fiscal Fact” posted yesterday.
In it, chief economist Patrick Fleenor calculates that by expanding the base of the federal individual income tax to include all personal income—rather than just the 40 percent it now taxes—we could theoretically lower the U.S.’s average effective income tax rate from 19.5 percent to just 9 percent. From the analysis:
An ideal tax system is one that taxes a wide base at a low rate. Unfortunately, the current federal individual income tax system does neither. Thanks to a myriad of exclusions and preferences, the current system taxes just 40 percent of actual income in the U.S. As a result, income tax rates are more than twice as high as they could otherwise be.
Read the full piece here. Here are the graphics with the punchline: