Usually the debate between tax-and-spend liberals and cut-taxes conservatives is a fight about raising taxes on the rich or lowering taxes for the rich. Instead of wading into those troubled waters, I would like to propose a policy of cutting taxes on the poor and the lower middle class. As a byproduct, the system would fund charity to feed the hungry, house the homeless, and provide medical treatment for the poor and mentally ill.
State and local sales and property taxes hit the poor hard, while the tax laws ensure that only the prosperous benefit (though not very much) from donating to charity. I would change this, as follows:
1. Congress should pass a law providing a federal income tax credit equal to the amount of sales taxes and property taxes paid at the state and local level. Sales taxes hurt the poor: the rich don't notice them, but the poor and the middle class feel them painfully. The rich can afford to pay property taxes, but they bleed other homeowners dry, meanwhile driving up rents and home prices. States and localities are involved in providing essential public services, but the federal government can cut taxes on the poor by defunding nonessential federal programs. For people too poor to pay income taxes, a cash tax refund should be issued in the approximate amount of their sales and property taxes. This would effectively repeal those taxes. Technology exists to track how much sales tax a poor or middle-class person has paid. To assuage the fears of privacy advocates, tracking sales taxes could be an opt-in feature chosen by people who want the rebate for it. Or people could keep their own records of what sales tax they paid and report it to the IRS.
Sales taxes hurt the poor: the rich don't notice them, but the poor and the middle class feel them painfully.
2. Add the charitable deduction on top of the standard deduction, thus drawing in people who don’t itemize deductions and encouraging everyone to give more to charity and less to taxes.
3. Limit eligible charitable deductions to charities that feed the hungry, house the homeless, or provide medical treatment to the poor or the mentally ill. This will funnel charitable dollars to the vulnerable and needy, lessening the ability of liberal politicians to exploit government power in the name of need. Within the realm of such vital services, remove all red tape to make it easy for any charity to gain IRS status for the right kind of donations.
4. By statute, eliminate liability for a charitable donor's honest errors in estimating the cash value of goods and services he has donated. Create a safe harbor so that if any reasonable person could have purchased the donated goods or services for $X amount, then the IRS may not challenge or litigate when the donor claims a tax deduction of $X. This will set the middle and lower middle classes free from the fear of using charitable contributions to avoid paying taxes.
Funneling charitable dollars to the vulnerable and needy would lessen the ability of liberal politicians to exploit government power in the name of need.
5. Institute a charity multiplier of 2x or 3x. For example, if someone donates $300 to a charity, he avoid paying $900 of federal income taxes. This will encourage people to donate to vital charities while achieving a massive de facto tax cut.
This policy package, if passed in its entirety, would help the poor by cutting taxes on both rich and poor. Congress should do this, and we libertarians should advocate it.