Proposal for a New Income Tax

May 29, 2026

A proposal for a just and constitutional federal income tax. One that would have the consent of the governed. Simplify tax rates. Best would be a single rate for everyone and for any type of income. Tax fringe benefits as income. Tax corporate income at the individual rate. Replace deductions with direct subsidies. Eliminate double taxation. No retroactive income tax. Let taxpayers choose any inflation measure to adjust long-term gains.


Blayden Balance
	You’ve argued that having different tax rates for the majority and minority is unconstitutional. From that it is easy to guess you would advocate for a single tax rate for everyone.
Filius X. Publius
	The ideal would be a single tax rate for everyone and for all types of income. But that is not an absolute requirement for the tax to be a just tax having the consent of the governed.
General Ken
	Are you backing off from your position that different tax rates are unfair?
Filius X. Publius
	That wasn’t what I said. A tax law that charges one rate for the majority and a *higher* rate for a minority does not have the consent of the governed. That makes such a tax unjust and unconstitutional. However, the majority could tax themselves at one rate, and tax some minority at a *lower* rate. Such generosity by the majority would be fair, just and constitutional.

	For example, suppose we set the tax rate at fifteen percent. But we could also have a tax rate of five percent for those with net income less than the poverty line. As long as the majority pays at the higher rate, tax law would have the consent of the governed.
Blayden Balance
	What about the lower rate for capital gains and dividends?
Filius X. Publius
	Income doesn’t just happen. People earn it. People who produce things or services that other people want. And are willing to pay for. This is true of all income. Including income earned by individuals. And groups of people combining their efforts. As in small businesses. Corporations. Partnerships. To treat all people equally we must tax all of their net income at the same rate. That means taxing capital gains at the same rate as "ordinary income," and taxing corporate income at that same rate, too.
Blayden Balance
	Won’t taxing capital gains at the same rate as ordinary income reduce the incentives for economic growth?
Filius X. Publius
	We have the largest economy in the world. Do we still need to provide people with an incentive to invest in building businesses?
General Ken
	Shouldn’t we tax corporations at a higher rate?
Filius X. Publius
	Corporations and partnerships are just ways for people to work together to earn money. The stockholders own all of the corporation. And all of the corporation’s income. Same thing with partnerships. We should tax the owners at the same rate for their corporate income as for their personal income.
Blayden Balance
	One of the features you are proposing is "no double taxation." Does that mean you want there to be no tax on dividends?
Filius X. Publius
	Yes.
General Ken
	But aren’t dividends income to the shareholder?
Filius X. Publius
	Not really. The shareholders own the corporation, and all of its assets. That means the shareholders own the money in the corporation’s bank accounts. Dividends just move some of the shareholders’ money from the corporation’s bank accounts to the shareholders’ bank accounts. The shareholders owned that money before the move. And they own that money after the move. There is no income for anyone.

	This is just like your money. You own the money in your checking account, in your savings account, and in your wallet. It is still your money if you move it from one place to another. For example, if you move money from your savings account to your checking account. Or if you move your wallet from one pocket to another. It was your money before you moved it. It is still your money after you moved it. That same principle applies to stockholders or partners when they take some of their money out of their corporation or partnership.
General Ken
	What about the fringe benefits? You want to start taxing them? Even health insurance?
Filius X. Publius
	Fringe benefits are part of the employees’ pay. To phrase it slightly differently, fringe benefits are part of what employers pay out in exchange for the employees’ work. The benefits are a cost to the employer and a benefit to the employees. Is there any just reason why we should not count those benefits as part of the employees’ taxable income?
General Ken
	But we don’t tax health insurance now. We haven’t taxed it before.
Filius X. Publius
	That’s right. And that has been an unfair tax advantage for people with employer-paid health insurance They don’t get taxed on that part of their pay.

	For those who don’t have employer-paid health insurance, we tax them on all of their pay. Then they have to use some of what’s left to buy health insurance. If we count the employer’s cost for the health insurance in the employee’s taxable income, then we will be treating all of the people equally.
General Ken
	What about other fringe benefits?
Filius X. Publius
	We should include all fringe benefits as taxable income.
Blayden Balance
	What about Workers’ Compensation Insurance? What about the employer’s portion of Social Security?
Filius X. Publius
	Yes to both.
General Ken
	Why Workers’ Comp?
Filius X. Publius
	It is an insurance program run by state governments where the benefits go to the employee. Once again, it is a cost to the employer and a benefit to the employee.
General Ken
	But the employer’s portion of Social Security is a tax on the employer, not income to the employee.
Filius X. Publius
	Not really. Congress was trying to hide how much Social Security tax we all pay.
General Ken
	How so?
Filius X. Publius
	Congress wants 12.4% of everyone’s pay. Self-employed people have to pay that much themselves. But for employees, Congress split the amount. The employer withholds half from the employee’s paycheck. The pay stub tells him the tax is only 6.2% of his pay. And the employer pays the other half. The employer doesn’t tell the worker about the other half. The employer has to send in the 12.4% as long as the employee is getting paid. When the employee leaves, the employer stops sending in both halves. The entire 12.4% is a tax on what the employee earns.
General Ken
	How come you think all of the benefits should be taxable income for employees?
Filius X. Publius
	Suppose a company wants to hire someone. They are willing to pay $130,000 a year to someone who can do the job. The company’s fringe benefits cost 30% on top of the pay. So the company offers $100,000 a year. The new hire thinks his pay is $100,000. But the company is actually paying $130,000 for his services.

	The company would find it easier to just pay the whole amount to the employee. Then the employee would have to pay the various taxes. He could also shop for his own insurance. But various laws and customary practice rule that out. The company will just have to write multiple checks. And tell the employee he is only earning $100,000.
General Ken
	What about paid vacation? Even with a new income tax some of those fringe benefits will remain. What about those?
Filius X. Publius
	You’re right. Most fringe benefits will remain. And there isn’t anything wrong with that. But we should tax each employee on what he earns. That includes the fringe benefits. So we should include the cost of the fringe benefits in his taxable income. And show him the various taxes on his pay stub. That way everyone will know what their real pay is. And they will know the amount withheld. And where that money went.
General Ken
	So what things count as fringe benefits? After all, there are a lot of expenses. How would a business know what to include?
Filius X. Publius
	Think of the rule as follows: whatever money the employer has to pay out to get the services of the employee counts as part of his pay. That includes anything the employer has to pay to the government, such as Workers’ Comp, Unemployment Insurance, and Social Security. Also anything paid to outside parties for the employee’s benefit. Things like health insurance, pension plans, and savings plans.
Blayden Balance
	Let’s switch to the tax rates. You want there to be only one tax rate. Is there any reason for not allowing multiple lower rates?
Filius X. Publius
	Yes, the reason is to keep the entire tax system simple enough that everyone can understand who gets taxed, and at what rate. That should be one of our checks and balances. I regret that the framers didn’t include that in the Constitution right from the start. I don’t blame them, though. At that time a federal income tax was unconstitutional.
General Ken
	What about deductions? Are you against all deductions?
Filius X. Publius
	We should get rid of all of the existing deductions.
Blayden Balance
	There are many business deductions that encourage some types of business. What about those?
Filius X. Publius
	If the people and Congress believe some past deductions are beneficial enough to justify their cost, then Congress should do them as direct subsidies. That goes for those business deductions. And charitable contributions. And mortgage interest. And health expenses. Any and all of them.
Blayden Balance
	Why? Isn’t it more efficient to keep them as deductions?
Filius X. Publius
	Two main reasons: to keep the tax code simple. Everyone should understand who gets taxed and at what rate. And to improve the fairness and transparency of government subsidies.

	It is important that the tax code be fair and just. It is equally important that the people can see that the tax code is fair and just. That means the tax code has to be simple and clear enough so people can see how it works, who is getting taxed, and by how much.
General Ken
	That would be a big improvement over the current mess.

	But what subsidies?
Filius X. Publius
	Every tax deduction is really a subsidy. With deductions the government reduces the amount of money you have to send in. With subsidies, the government sends you a check. Same result.
General Ken
	If the result is the same both ways, wouldn’t the deduction be more efficient?
Filius X. Publius
	Yes, it would be more efficient for the government. But it would also be less clear on who gets the money. It would also would be less fair about who gets the money.
General Ken
	Less fair? How?
Filius X. Publius
	Consider the mortgage interest deduction. If you believe Congress, it exists to encourage home ownership. But only home owners who have a mortgage get the subsidy. Those who have paid off their mortgages get no subsidy. As it stands now, the mortgage interest deduction is really an incentive for people to take on large debts.

	If we the people wish to subsidize some activity, we can have Congress pass a law. The government would send a check to everyone that meets the conditions specified by law. Congress would have to vote on renewing each subsidy every year. It would be much more transparent. We could see who is getting the subsidies, and how much each year. And we could drop any subsidy if public opinion turns against it.
General Ken
	Will that stop congressmen from giving our tax dollars to their campaign contributors?
Filius X. Publius
	No. They will be still be able to bury some subsidies in those thousand-page bills they like to pass in "emergencies." With direct subsidies we will know who will get our tax money, and how much.

	Currently Congress hides the subsidies in a very complex tax code. Those hidden subsidies continue for several years. Usually only a favored few receive the benefits of special rules.
General Ken
	When you say we will know who is getting the subsidy, do you mean we will know their names? Would we know the amounts of each check?
Filius X. Publius
	No. I should have said that we will know what qualifies people for a subsidy. For example, if someone is a homeowner, or gives money to a qualified charity.

	Because it is federal spending, some people might find out the names and amounts by digging through the annual budget. Or maybe by filing a Freedom of Information request. If those data miners find something scandalous we might get to hear about it. Other than that we won’t know individual names and amounts.
Blayden Balance
	"Annual budget?" Don’t you mean the Continuing Resolutions that Congress passes every few months?
Filius X. Publius
	I stand corrected.

	We will know what people did to get each subsidy. We will know how they calculated the amount of the subsidy. For example, consider giving to charities. Instead of deduction, Congress can vote a subsidy. People list charitable contributions on their tax returns. The IRS sends them a check. The amount would be based on the amount of the contribution. The Treasury could then list the charities that received the donations, and the total amount given to each charity.
Spawn of the Torch Lady
	So what if we don’t like the idea of the government giving our tax dollars to home owners? Or any other group getting a subsidy? Do we lobby Congress to discontinue that subsidy in future years?
Blayden Balance
	Yes. That is exactly how representative democracy is supposed to work.
General Ken
	But what if some of the subsidies are unconstitutional?
Filius X. Publius
	That will probably happen. But that can also happen now. Currently they would hide it as a deduction buried somewhere deep in the tax code. Would a deduction be less unconstitutional than a subsidy?
Blayden Balance
	No. If it is unconstitutional as a direct payment then it is unconstitutional as a deduction.
General Ken
	You want to eliminate all deductions?
Filius X. Publius
	Almost, but with one possible exception. I am open to having a standard deduction to make it easier for people to adjust their pay down to net income. I oppose all of the other deductions that currently litter the tax code.
General Ken
	We can come back to "all of the other deductions" in a moment. First, what is "net income," and why does it matter?
Filius X. Publius
	Net income is income minus the costs of earning that income. Suppose you run a side business buying and selling things on the internet. Your net income is the money you take in minus the expenses.
General Ken
	What expenses?
Filius X. Publius
	All of the costs of earning that income. Such as the cost of the things you buy. The computer you use to run the business. The cost of your internet access. The cost of developing your web site, and keeping it up and running.
General Ken
	People who aren’t running a business won’t have those expenses. They will just have income.
Filius X. Publius
	Almost everyone earning a living has some expenses related to that income. For example, an author who writes at home has the cost of heating and cooling his home. Light at his desk. And something to write on or with. Pen and paper, or a computer.

	People who work for a company also have expenses. Some workplaces have a dress code. It might be a formal standard like "wear a suit and tie," or wear the company uniform, or an informal standard like "dress appropriately for business." If there is a dress code, then the clothes employees buy for work should be deductible. Also, any costs of getting to the workplace and back home.
Blayden Balance
	The current tax code doesn’t allow employees to deduct the cost of their clothes unless the clothes are a uniform. Also, currently the tax code generally doesn’t allow deducting commuting costs.
Filius X. Publius
	That is why I wanted to mention those here. When people join together in a partnership or corporation to earn money, the business gets to deduct whichever of those costs that the business pays for. Lots of partnerships own "company cars" for the partners to drive. Some corporate executives also drive company cars. Those businesses deduct the costs of those cars, and the gas and maintenance on them. Why should we treat an employee any differently? Shouldn’t we treat everyone the same under the law?
General Ken
	How would a standard deduction fix that problem?
Filius X. Publius
	We estimate the average amounts for some common expenses. Such as business clothing, commuting expenses, and so on. Then everyone has an option. They can keep their receipts and itemize deductions. Or they can take the standard deduction.
General Ken
	Are you proposing this as a requirement of a just tax code, or for efficiency?
Filius X. Publius
	Both. To be just the tax code must allow everyone to subtract the cost of earning income from the gross amount of revenue or pay that they earned. And by "everyone" I include those who are self-employed, work for an employer, and those who own all or part of a corporation or partnership.

	Using a standard deduction would be more efficient for both the taxpayers and the government. Taxpayers can take a standard deduction and avoid keeping records. Or keep records on what clothes they wear to work, how far they drive to and from work, and so on. A standard deduction is more efficient for the government. They never need to audit the records for standard deductions.
General Ken
	What about the exemptions that the tax code allows now?
Filius X. Publius
	There isn’t a problem with a per-person exemption from income. It should be the same amount for every person.
General Ken
	What about the current practice of allowing an extra exemption for people who are blind? And for those who are over 65?
Filius X. Publius
	There isn’t a constitutional problem with those, as long as the people who qualify are a minority. It is just like having a second lower tax rate for a minority like those with low incomes.

	The problem comes as the swamp adds more exemptions and more tax rates. It is their standard "foot in the door" practice. If they can’t keep their complex tax code, they will try to rebuild it. A little at a time. At every step along the way, they will claim some pitiful group needs an exemption or different tax rate. We must show our compassion and allow it. Just this once. Eventually we will have a tax code as complicated and unjust as our current mess.
General Ken
	What did you mean about not allowing a retroactive income tax?
Filius X. Publius
	The Constitution does not allow the federal government to tax wealth. It does allow a tax on income. The government can only tax income earned while there is a just and constitutional income tax law in effect.
General Ken
	But aren’t income and wealth the same thing?
Filius X. Publius
	Yes, but not at the same time. When you earn money, it is income when you earn it. After you have received the income and paid any income taxes due on it, it is wealth.

	The federal government can tax the money you earn in the year that you earn it. If there is a constitutional income tax in place. But after that it is wealth and not subject to federal taxes.
Blayden Balance
	If we followed that description, then all of the money in IRAs, 401Ks, and other tax-deferred accounts would count as wealth, not income. Shouldn’t people pay income tax on that money when they take it out of the tax-deferred accounts? When should the owners of that money pay the income tax on it?
Filius X. Publius
	Never. They earned that money before Congress will enact a constitutional income tax.
Blayden Balance
	But there was an income tax law on the books when they chose to put their money in a tax-deferred shelter.
Filius X. Publius
	Let me offer a slight correction. There was an unconstitutional income tax law on the books when they put their money in those tax-deferred shelters.
General Ken
	What about the inflation adjustment? What is that about?
Filius X. Publius
	You have to pay a tax on any gain when you sell an investment asset.
Blayden Balance
	That would be the tax on capital gains. You want to raise the tax rate on capital gains to match the personal income tax rate.
Filius X. Publius
	Yes. But I also want an inflation adjustment to better reflect the real gain. The tax should only be on the "real" gain, not on the "nominal" gain. Not on the paper gain caused by inflation.
General Ken
	What’s the difference?
Filius X. Publius
	The calculation of the gain centers around two numbers. What you got when you sold the asset. And what you paid when you bought the asset some years ago. The "nominal" gain is what you get when you subtract the historical cost from the sales price. The current tax code assumes that there is no inflation. It treats all of the price increase as taxable income. The "real" gain is what you get if you remove the effect of the inflation that occurred between when you bought the asset and when you sold it.
General Ken
	That makes some sense. However, I’m not very clear on how that would all play out.
Filius X. Publius
	How about we walk through an example? For this example, we will use the CPI numbers for our measure of inflation. They say that $100 in 2015 is about the same as $136 in 2025. Suppose you bought some stock in 2015 and paid $100, and in 2025 you sold it for $150. The gain is the selling price minus the cost. The issue is what number to use for the cost.

	The "nominal" gain ignores inflation. It uses what you actually paid as the cost, which was $100. The nominal taxable gain is $50. The "real" gain removes inflation. It uses the inflation adjusted cost, which would be $136. The real taxable gain is $14.
Blayden Balance
	Inflation is difficult to measure. The government has several "inflation adjustment" numbers. Which one should we use?
Filius X. Publius
	Yes, measuring inflation is a complex issue. Some other time we should discuss that. But for this discussion, let’s stick to fixing the tax code. The tax code should adjust for inflation when taxing gains and losses. And we would improve the economy at the same time. We should reduce how much the government benefits from inflation. That will change the incentives for the government. They will finally have a reason to control inflation.

	The government is the only entity with any real control over inflation. The responsibility for maintaining stable prices belongs to the Federal Reserve. Most people who don’t study inflation might interpret that as "no inflation and no deflation." But that is not the government’s practice. Currently the Federal Reserve targets inflation at two percent a year. For the last few years they have been running higher than that.
General Ken
	How does the government benefit from inflation?
Filius X. Publius
	Remember the example about inflation? The one with selling an asset and the nominal gain versus the real gain? Using today’s tax code the taxable gain is $50. But if we remove the inflation, the taxable gain is only $14. The government gets over three times as much tax revenue. And all because of the inflation that the government caused.
General Ken
	How does your proposed tax fix this?
Filius X. Publius
	You can adjust for inflation any numbers from earlier years. That would include the cost of long-term assets and depreciation. And any other place the tax code has you use numbers from the past. And you may use any reasonable measure of inflation. That will remove inflation from several calculations.
Blayden Balance
	Any reasonable measure of inflation? What do you mean? Just picking one of the government-published measures of inflation?
Filius X. Publius
	No, more than that. How about using the price of gold as an inflation measure? Or an index calculated from a group of precious metals? If you’re selling a house, you could use an index of average home prices. Anything that might pass muster as a measure of how much the original purchase price might have risen because of the government-caused inflation.
Blayden Balance
	That would be a mess. Don’t those inflation measures you mentioned include both the demand for some assets and inflation? How can the IRS evaluate all of the various "inflation measures" everyone will be coming up with?
Filius X. Publius
	We might not get too many different measures. But we would have people using measures other than the ones the government generates now. Taxpayers will choose the measure that lowers their tax bill the most. That would be how we change the government’s incentives.
Blayden Balance
	Please explain.
Filius X. Publius
	As it is now, the government benefits from inflation. They get away with it. Everyone feels the effects of inflation, but few understand it. Most of us don’t have any idea of what causes it. And for those who know a little about it, there is too much confusion about measuring it. Let’s switch the incentive. Let’s let taxpayers remove the effects from inflation. That will lower their taxes. The government will finally have a real incentive to control inflation.

	If the government came close to hitting zero inflation, they could avoid any confusion over inflation measures. If all the measures round to zero, even the IRS wouldn’t care which measure you use.
General Ken
	What are the chances the government would go along with it?
Filius X. Publius
	I don’t have high hopes. Congress loves spending, and anything that would reduce the tax money they take in will be very unpopular in the halls of Congress.
Blayden Balance
	As would the idea of a flat tax rate. Congress also loves their "tax the rich" mantra.
Filius X. Publius
	Also true. The best hope we would have for achieving a flat tax would be either if the voters or the President and Vice President insisted.
General Ken
	How would that work?
Filius X. Publius
	The voters could vote anyone opposing the flat tax out of office. Or the President rules the progressive tax unconstitutional. He would then order the IRS to return income tax money to the taxpayers. That would deprive Congress of their spending money.

	He tells Congress he will veto any new progressive tax. If they override his veto, he will declare that tax to be unconstitutional. And would refuse to accept any money paid under it.
Blayden Balance
	Impeachment would surely follow.
Filius X. Publius
	No doubt about that. But what would Congress do if the Vice President made it clear that he would continue the same interpretation? Any progressive tax would still be unconstitutional and he would not enforce it.
Blayden Balance
	All of this assumes the President considers the progressive tax unconstitutional. That he would use executive review to strike it down. And hold his ground on demanding any new income tax be a flat tax.
Filius X. Publius
	Yes. That means that as of today, this proposal for a constitutional income tax is more of a wish list than a real guide for what to do for writing a new income tax law.
General Ken
	Well, it is a nice wish list.

Comments

Do you disagree? Do the arguments presented support the conclusions? Are there any errors? Do you have any counter arguments? Please post your comments, arguments and corrections here.

All comments submitted will be considered to be in the public domain.

Comments

Leave a Reply Cancel reply