It Just Might Work: The tip tax

by Brian Clarey

As a new business owner, I was spared the teeth-gnashing experience of paying taxes this month that my peers have been complaining to me about since February.

I suppose next year I’ll join in on the fun.

But I read and write a lot about taxes, and I’ve done a lot of thinking about the matter over the years.

It’s not fair, of course, that passive income — or capital gains — is taxed at a lower rate than income earned through labor or creative output or anything else that is more difficult than sitting back and waiting for the checks to roll in. And it’s not fair that small businesses like this one pay corporate taxes through the nose while big businesses like General Electric and Berkshire Hathaway have the wherewithal to whittle their tax bills down in nine-figure increments.

The wealthmonger Steve Forbes ran for president in 1996 and 2000 with a tax-reform platform that introduced the flat tax: 17 percent on all income, regardless of its provenance, with the first $33,000 exempt. He also exempted capital gains, pensions, inheritance and savings.

I have my own plan, similar to Forbes’ but more progressive. I say everybody pays 20 percent, just like you should do when you’re tipping in a restaurant. And the Tip Tax, as I call it, applies to everything: unearned income, capital gains, corporate and personal income… everything. I’d keep the first $40,000 tax free, but after that, if you find a quarter in the street you owe 5 cents in tax.

Let’s face it: Nobody likes paying taxes, even though we get some pretty great things with the money that’s left over after everybody takes their cut. Ever been to the Smithsonian Air and Space Museum? Awesome.

But part of the reason people don’t like paying taxes is that it’s a major pain in the ass, with more math than most Americans are capable of doing. This way, people will still hate paying taxes — which for most if us will be considerably less — but at least they can figure out how much they owe in just a couple minutes. And maybe, just maybe, the 10 percent restaurant tip will become a thing of the past as well.