Clarifying thoughts on Taxes

It seems to me that a lot of talk about taxes is just plain silly.   The President's constant harping about raising rates on the rich will be counter-productive in terms of revenue raised.   The GOP claims that we have significant portions of the system not paying any tax is factually wrong.  And the Democrat's constant attempt to make the tax system into an instrument of policy beyond collecting taxes (which the GOP is also guilty of) adds burden and most often does not accomplish the intended purpose.

Here are several things which we know about the current tax system:
1) Increase rates too high and they will decrease the incentive to produce.   For higher income taxpayers (and there is a lot of dispute about who those are) by lowering rates they will pay more taxes.

2) About 45% of Americans pay no federal income taxes.  That does not mean they pay no taxes to the federal government - it just means they pay no income taxes.  It also does not mean that they do not file.  (See chart from Visualizing Economics) In FY 11 - the per capita burden of income taxes was $4554 and the per capita burden of Social Insurance Taxes at the federal level was $3003.
3) As rates have declined the most wealthy in society pay a greater proportion of taxes.  There may be two things at work here.   First, premise #1 may be at work. Higher income taxpayers have a greater ability to choose when they recognize income and if rates are too high, they will choose to defer it. (think capital gains)  But also premise #2 may also be at work.  As you exclude people from the tax system the distribution of tax payments from the remaining groups changes.   From my perspective, it is probably a bit of both.
4) The payments to Social Security (not medicare) are capped for a reason.   Benefits bear little relationship to payments and they are supposed to be a floor not a pension system for all.    For most people the expectation of the system is that they will save for retirement in other ways.

From my perspective there is some wisdom from Adam Smith that many modern taxwriters and talkers should know and do not.   In the Wealth of Nations, Smith wrote that taxes should be timely - "Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it."   Smith's other three maxims should also be followed - they are "The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State."; "The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever other person."; "Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State."  (Ability to Pay, Timely and Non-Intrusive)   


Finally, among all the major tax changes done in the last six decades (beginning with the 1954 Act), the best among them was 1986 - which combined simplification with significantly lower rates.   Any discussion of tax "reform" should start with the premises of 1986.