Ezra Klein is inspired by the 9-9-9 plan to advance some radical tax reform ideas, but I say they’re not radical enough!
If it were up to me, the major revenue streams would be a land value tax (like a property tax, but without the buildings), a greenhouse gas tax, an uncapped payroll tax with a sharply progressive rate structure, and a modest tax on non-land wealth with a generous exemption. As minor revenue sources, you can add excise taxes on alcohol, tobacco, and marijuana plus of course congestion pricing! Land value taxes are great, because creating disincentives to build more land is not a major issue. Greenhouse gas taxes are well understood. A payroll tax with a progressive rate structure is similar in its overall impact to the fabled progressive consumption tax*, but easier to administer and fairer to old people. You need the wealth tax because it’s not possible to build enough progressivity into the payroll tax but you keep it low since high wealth taxes are economically destructive. States governments would not collect any tax revenue but would instead receive grants from the federal government that are designed to keep spending smooth across the business cycle. The formula would be proportional to (though not necessarily equivalent to) each state’s land value tax contribution, so that states are properly incentivized to enact policies that increase demand for living there.
Maybe that’s all crazy. But I think it’s right. The general idea is that as long as we’re talking about radical reforms, why not make them really radical?
* PROOF: All income is either derived from payroll wages or from investment. And all income is either consumed or invested. So in the long-run, the income derived from investment is equivalent to the income that is not consumed. Which is to say that consumption is equivalent to wage income. In the short-term, they’re totally different since a consumption tax would end up taxing the consumption of people (seniors, especially) who saved up money before the imposition of the tax.
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