Republican presidential candidate John McCain has released some new suggestions for taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy, including a temporary “repeal” of the federal gasoline tax from Memorial Day to Labor Day. Other highlights courtesy of the Associated Press included an increase of the personal exemption for dependents from $3,500 to $7,000, as well as an optional flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. .
If the purpose of the federal gasoline tax is to serve as a user-fee for transportation services, then any temporary repeal is bad tax policy. If the federal gasoline tax is just used to raise general revenue for the government, then it shouldn’t really be there at all or should merely serve as some Pigouvian taxA Pigouvian tax, named after 1920 British economist Arthur C. Pigou, is a tax on a market transaction that creates a negative externality, or an additional cost, borne by individuals not directly involved in the transaction. Examples include tobacco taxes, sugar taxes, and carbon taxes. for pollution or congestion purposes. Either way, a temporary repeal has little justification, and whether or not it would even lower the price by the full amount of the tax in such a short time period is unclear.
With regards to increasing the personal exemption for dependents, the obvious question is How much is enough? How much should we be giving people to have children? They already get a $1,000 tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. per child (up to 17) and a $3,500 deduction. Furthermore, there are credits for child care, education, and EITC that increase as the number of children increase. Maybe we should just write a $10,000 check to each family per child that it has. Or how about $20,000? Maybe even $100,000. McCain and others who constantly argue that the tax code needs to be “pro-family” need to justify what amount of subsidization is correct, just like the nannies need to justify why a given tax rate on alcohol, cigarettes, candy bars, etc. is justified.
With regards to an optional flat tax, there are few details that have emerged, but typically, they serve just as a tax cut. Optional tax systems have benefits, but they also increase complexity.
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