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A Libertarian Tax Code

In 2008 (last year available) the total adjusted gross income (less deficit) in America was $7,583,461,595,000.


At the same time the total business income (less deficit) was $2,914,239,219,000.


All other revenue sources are too small to be worth the effort of collecting, not to mention introducing inefficiencies into the economy and perverse incentives.  Of course the tax rate should be flat and there should be no deductions for simplicity, transparency, and reduced fraud.

So there is a total income (less deficit) of $10,497,700,814,000.  This is the tax base.

The only legitimate function of the federal government is defense, which according to the White House costs us $782,000,000,000.


That gives us a tax rate of 7.45% which sounds pretty good.  But that includes overseas contingencies so instead lets make it 5% and cap it Constitutionally, and we'll include a provision allowing it to go to 10% under a declaration of war which must be renewed annually.  

All non-defense federal programs are cancelled effective immediately, let each State determine if it wants social programs and they can run them however they wish.  Let a thousand flowers bloom (the smart states will leave it up to municipalities so it will be more than 50 flowers hopefully).  The federal debt is defaulted and the federal government is constitutionally prevented from issuing new debt.  Each year the government would spend the money from the previous year's tax collection.

Alternatively, if we really must have a federal social welfare program lets keep it simple.  We'll make the tax rate 5% for defense and 15% for 'society' that gives us $1,574,655,000,000 to distribute, so lets do it the easy way, equal payments for each American citizen.  Total of 307,000,000 citizens ( so that means a check for $5,130 annually per citizen.  So a family of four would get $20,520 of welfare just for being citizens.  No waiting in lines, no perverse incentives, no buying votes.

So to sum up here is the Libertarian IRS tax form:
1. Write down the amount of money you made (all sources).  
2. Divide by 20 (divide by 10 in time of war).  
This is your tax.

Or the Libertarian-Liberal Compromise:
1. Write down the amount of money you made (all sources).  
2. Divide by 5 (divide by 4 in time of war).  
3. Subtract $5,130.
This is your tax (or your refund if negative).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.