Jeff Clark is a financial analyst who decided to think about what would happen if the US Federal Government’s tax system worked similarly to Mickey Mouse’s current ticketing system for Disney World. After all, forty years ago the two were more comparable since Disney World used to have a “progressive” ticket structure. This meant that different rides cost different amounts based upon the “thrill” of the ride.
Jeff Clark wonders what would happen if we all paid the same price for our “admission tickets” to living in America. After all, Disney World eventually changed its system to a flat rate plan and found that to be immensely more profitable. Mr. Clark managed to interview a Disney employee in the shareholder services department that he calls “Snow White” in order to keep her anonymous:
Me: Why doesn’t Disney charge different admission prices based on the income level of the people visiting its theme parks?
Snow White: Um… because that’s a stupid idea.
Me: Are you saying the tax policy of the United States of America is stupid?
Snow White: Alright… if you’re asking this as a serious question, maybe “stupid” is too strong a word.
At Disney, we charge everyone the same admission rate because once inside the park, everyone has equal access to all the rides and attractions. We do have discount tickets for young children since they may not be permitted on some of the rides because of safety concerns. And we do offer a small discount to organizations that purchase a large number of tickets all at once. For the most part, though, everyone pays the same price to enjoy our parks.
Me: OK. Everyone pays the same because everyone has the same opportunity. But let’s say someone has an unfair advantage to the rides, would he have to pay more?
Snow White: There are no unfair advantages at Disney.
Me: Oh, sure there are. For example, my favorite ride is the Indiana Jones Adventure – which is located all the way over at the north side of the park. If I enter the park from the south side, I don’t have the same opportunity to ride the ride as someone who enters from the north. He should have to pay more.
Snow White: Well… no… You can always just enjoy the rides that are closer to where you enter the park. Or you can walk over to the north side to ride Indiana Jones Adventure.
Me: But he’s closer… And that’s an advantage.
Snow White: Walk faster.
Me: Never mind… Can you tell me how you decide what to charge for admission?
Snow White: Yes. Admission prices are set to ensure a good value for the consumer, enable us to keep the park in excellent condition, allow us to pay our employees a competitive rate, and provide a reasonable return to our shareholders.
Me: But what if I can’t afford your admission price? Can you just charge some rich guy in line in front of me for two tickets and then just give one to me?
Snow White: That’s not really a serious question, is it? Of course, we couldn’t do that.
Me: But what if I’m out of work? Or if I just spent my extra money on a new set of headphones? Or if there are just other things I need to pay for first, and I don’t have the money for a ticket to Disneyland? What am I supposed to do then?
Snow White: Well… I guess like anything else you might want out of life, you’re going to have to work hard and save for it.
Me: Thank you for your time, Snow White.
Snow White: You’re welcome… I think.
The US Government currently has a progressive tax plan, where the top 10 percent earners of the population pay 70 percent of the income tax revenues. Next year in 2013 the U.S. Federal government plans to spend a total of $3.8 trillion, with about a third of that being overspending known as the deficit. The current tax code is extremely convoluted and the IRS requires $12.8 billion to operate. Some taxes cost more to collect than they bring in.
Politicians love the complexity of the tax code. This complexity is why politicians often talk about “paying for a tax cut.” By that they really mean, “Who do we shift the tax burden toward so our overall revenue does not go down?” The original 1040 form was only three pages long in 1913 according to CBSNews.com, with one page being instructions. Why can’t it be made simpler again?
The US has a 315 million population with individual taxes representing 82 percent of the budget according to taxpolicycenter.org. Currently, 46.4 percent of households do not pay federal income taxes, with 18.1 percent not paying any income or payroll taxes. (This is where Romney derived his 47 percent comment.) So that means each person would be required to pay roughly $9,889.20 to stay here if the cost was spread completely evenly (which no politician is suggesting, as far as I’m aware). A family of four would be expected to pay in taxes an obscene amount of just over $39,500. And that’s BEFORE state taxes!
Ron Paul has been one of the biggest long-time proponents of the flat tax. More recently, Herman Cain proposed his 999 plan which combined aspects of Flat Tax, Fair Tax, and VAT tax plans. While certainly bold, the 999 plan was only good as a starting point for discussion since analysts found it suffered from serious flaws according to FreedomWorks.org. Proponents argue that such plans would bring jobs back and raise incomes, so all income groups would be better off because of the added jobs. Either way, such plans would have to be reworked and tweaked in order to ensure the poor and low income earners would not be adversely hurt by the transition period during such a large change to the Federal tax code.
Jeff Clark ends his essay by suggesting the US Federal Government try only spending as much money as it earns. A simple plan like that works for the rest of us, so why not for the government?