Occupy The Tax Code

I guess I'm just in an idea-making kind of mood lately. There are certainly worse moods to be in, and it's a hell of a lot better than having writer's block.

Let's start by noting that I never expected Occupy Wall Street to take off the way it has. Like a lot of people, I had it pegged as being too disjointed and lacking in clear policy ideas to really get a foothold.

But a funny thing happened. It turns out that specific policy proposals have been quite unnecessary. Occupy Wall Street and its ever-growing number of supporters have operated on this sort of mind-meld, a single mutual wavelength visible right there in the name: "Occupy Wall Street". You 'occupy' a place, in the sense of the term used here, because you wish to take it over for however long it takes to change the way that place is run. Why one might want to occupy Wall Street is so obvious to so many people that they either express support or grab a tent themselves and head to their nearest large city.

And every time there's a clash with the police, support accelerates because the images- and resulting ever-growing disparity between protesters in jail and bankers in jail who caused this whole mess in the first place- only serve to underscore the struggle and the imbalance of power between Wall Street and everyone else. Every single clash- the recent incident with Citibank being a particularly potent example- makes more people subconsciously think 'Oh my God, if I don't hit the streets right now, the movement will be crushed and THEN what chance do we have?'

No further communication necessary.

In the end, though, some policy proposals will have to step forward from somewhere. They surely won't get tackled right here and now. Not with this Congress. But with the right result next November, maybe they get tackled in the next Congress. As previously stated, the three pillars I think should be given the highest priority are the restoration of Glass-Steagall, the overturning of Citizens United, and of course, tax hikes on the rich.

But how you handle the tax rate is a bit tricky. It always is. In fact, 'a bit' tricky is a gross understatement. The tax code goes through annual overhauls for that very reason. What rate do you tax at? What should be the highest tax bracket? How do you work it to minimize unfair gaming of the system?

I'm electing to tackle it in two steps, both a bit of a departure from the more common proposals. (Because going way off the reservation is what we always do here with these policy proposals. It's a new way of looking at things, and besides, it's more fun.)

My first step is to index tax brackets so that they are all proportions of a single figure indicating very low income (currently, the brackets are decided arbitrarily). I've selected the poverty threshold, as determined annually by the Census Bureau. Everyone is taxed in relation to that number. If you make 1.2 times the threshold, you pay this much; if you make 1.4 times the threshold, you pay that much, if you make 1.5, 1.6, 1.8, 2, 2.5, 3, 5, 10, 20, 50, 100, 200 times the threshold, you pay all these other amounts.

(At this point, just a reminder that each tax bracket has no bearing on the ones before it. If there are three tax brackets of 10%, 20% and 30% at $10,000 increments, and you make $30,000, you don't pay $9,000. You pay $6,000: $1,000 on the $10,000 taxed at 10%, $2,000 on the $10,000 taxed at 20%, and $3,000 on the $10,000 taxed at 30%.)

The idea here is that the better-off are taxed not strictly according how well-off they are, but how well-off they are in relation to those at the bottom of the ladder. Build up the impoverished and improve their lot in life, and it's effectively a tax cut for everyone else. Pick on them, take services away, call them lazy and 'welfare queens', and it results in a tax hike. (Originally, I was going to use the minimum wage, but then realized the math is too easily broken by eliminating the minimum wage, which is exactly the opposite of what we're trying to do here. The poverty threshold isn't a number that you can alter for political purposes.)

The second part of the plan involves the high end of the tax bracket. A lot of the argument revolves around what the highest rate should be (currently there are six brackets- 10%, 15%, 25%, 28%, 33%, and 35%) and how high your income should be to get there. However, the argument doesn't scale. The argument revolves around 'well, how do you define rich?' and it ends up being largely fighting over whether we're talking a million dollars or a quarter-million. Either way, it's way below the incomes of the people we're all angry at, people who can pull in multi-million dollar bonuses even when they run their company into the ground. What I'm looking for is something that will scale infinitely, something that can make an endless amount of tax brackets without ever quite hitting 100%. (You're already doing them online or handing them over to a pro, right? You can let the computer figure out the math. That's what it's there for.)

I ultimately opted for logarithmic scale. The best way to describe it to the layperson is to give an example of what a logarithmic scale is. Luckily, there's one in common usage: the Richter scale. You're (hopefully) aware that each point on the Richter scale indicates an earthquake ten times stronger than the point before it. An 8.0 earthquake is ten times stronger than a 7,0 earthquake is ten times stronger than a 6.0 earthquake is ten times stronger than a 5.0 earthquake.

That's a logarithmic scale. Every unit increase in a logarithmic scale increases in value exponentially from the unit before it. With the Richter scale, that exponent is 10.

If you take the exponential increase, and turn it into an exponential decrease, I think you could use it for tax brackets. The way you'd figure the math here is, you'd figure the amount a taxpayer gets to keep- starting at 100%- and then adjust it downward based on income. The more you earn, the higher the tax rate, but the less it increases by as you keep going up (it'll never hit 100%, but it can keep inching up by microscopic decimal points). The debate is then on what the exponent needs to be, and if it doesn't quite scale properly, finding the place where the scaling starts to fail and resetting the exponent to something where it does. (The unit here, of course, is the person's income.) As opposed to the current system that only shifts brackets in increments of tens of thousands of dollars, theoretically you could scale logarithmically to every single dollar.

This, of course, flies directly in the face of everyone who's ever wanted to simplify the tax code. You would absolutely need a computer here to figure out what your tax burden would be. But simple tax codes have a nasty tendency to be flatter and thus more regressive. Flat taxes sound nice and even catchy, but in practice they just make the poor poorer. (In short, if you have a flat tax of 10%, someone who makes a billion dollars can still live just fine on $900 million. Someone who makes $10,000, who has to work infinitely harder to stretch every dollar to make things work, is going to feel their $1,000 tax a hell of a lot harder than the billionaire feels their $100 million tax.) If you want fair taxes, they're going to have to be bracketed. Here we just take it to the next level.

But before we take it to that level, there are a whole lot of other, blunter levels we still need to push past.