TaxGNI Fair Income Tax

Income tax represents the most fair and honest tax systems. While VAT, sales, and excise taxes are regressive, hide tax rates, and aren’t paid by people who put their money in savings or financial investments, income taxes are taken up-front and apply to all income.

Traditional income tax systems require adjustments to tax brackets, rates, and standard deductions, along with multiple filing statuses and other complexities. This not only makes tax filing complex, but also hides effective tax rates and changes to the distribution of tax burden from taxpayers.

The TaxGNI system replaces this with adult equivalence factors and a simple effective tax rate computation. Tax rates are based on the per-capita income, and so adjust for an equitable society rather than for one with a growing poverty base: TaxGNI is designed for societies using a structural minimum wage.

Calculating Taxes

In practice, an online or smartphone application would compute the taxes owed with a simple form like below.

Persons age 14 or above:3
Persons younger than age 14:1
Highest individual’s income:$45,000
Total household income:$85,000
Your Taxes Computed Below
Equivalence Factor:3.1
Tax Rate:11.34%
Federal Taxes:$9,639

A taxpayer can work out their taxes with a pocket calculator, their income, and a few published numbers.

  1. Divide your household income by the income baseline to get your Income Share.
  2. Count your household members and add up the Equivalence Value.
  3. Compute the Equivalence Factor.
  4. Divide your Income Share by the Equivalence Factor to get your Modified Income Share.
  5. Compute the Effective Tax Rate.
  6. Multiply the Effective Tax Rate by your household income to find your income tax liability.

Income Share

TaxGNI computes tax rates based on a taxpayer’s income as a portion of the per-capita income or GNI/C.

\begin{aligned} I &= \frac{Income}{per-capita\ Income} \end{aligned}

The Equivalence Factor

Traditional systems give joint-filing households higher initial tax brackets, and remove this advantage at high incomes. They also allow exemptions for the taxpayer and each dependent meeting a complex set of rules and phasing out at higher incomes.

TaxGNI replaces filing statuses, brackets, and exemptions with an adult equivalence factor. Economists use equivalence values to adjust a household’s income to the income of a single-adult household at the same standard of living. Our equivalence factor phases out at higher incomes, removing the tax advantage.

TaxGNI modifies the household income with this factor, and uses that to determine the effective tax rate. Any combination of taxpayers living in the same household may file as a unit, which helps multi-generational households and other complex households.

Calculating the Equivalence Factor

Under TaxGNI, the adult earning the highest income is the Head Earner. If the Head Earner represents ⅞ or less of the total household income, one additional income-earning adult also becomes a Head Earner. The values below apply to the household.

Head EarnersAdults (age 14+)Children
10.70.5

TaxGNI modifies this value using your household income (I) and the per-capita income or GNI/C (G) with the below formula, which a pocket calculator can compute.

\begin{aligned} E(q) &= 1 + \frac{q-1}{1+e^{2(I-3)}} \end{aligned}

If the GNI/C is $60,000, an $85,000 household with two working adults, a 14-year-old child, and a 13-year-old child would have an equivalence factor as below.

\begin{aligned} I &= 1.42 \\ q &= 2 + 0.7 + 0.5 \\ &= 3.2 \\ \\ E(q) &= 1 + \frac{q-1}{1+e^{2(I-3)}} \\ &= 3.11 \end{aligned}

The household’s modified income becomes their income divided by the equivalence factor.

\begin{aligned} I_{[m]} &= \frac{I}{E(q)} \\ &=0.457 \end{aligned}

The Effective Tax Rate

TaxGNI computes the effective tax rate using a continuous curve multiplied by the top tax rate (R). The formula must be published for transparency reasons.

Our proposed formula is the one below, with fixed values for (a) and (b). Altering these values can make the curve flatter or more-progressive.

\begin{aligned} T(I_{[m]}) &= (1 – \frac{1}{a \times I_{[m]}+b}) \times R \end{aligned}

The initial implementation should match up as best as possible to the effective tax rates of a traditional bracketed system.

The TaxGNI curve fitted to the 2016 effective tax rates.

Credits and Deferred Income

We prefer credits to deductions, or the use of a program like a universal citizen’s dividend to offset taxes. The mortgage deduction, for example, would either cease to exist or become a credit of some portion of mortgage interest modified by the equivalence factor.

Deferred income raises further questions. Research suggests 401(k) and IRA deductions favor higher-income earners, and stronger Social Security benefits would better support lower- and middle-income households.

Other deductions should be eliminated where appropriate. A universal healthcare system should simply cover more out-of-pocket expenses rather than providing a deduction. Universal college and vocational education obsoletes the incredibly-weak lifetime learning credit.

Deductions sound great to policymakers and constituents, but most working-class Americans don’t benefit. Our society should replace such clutter with better programs, credits, and fair taxes to begin with.