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The Optimal Tax Rate

This question comes up daily. What is the optimum tax rate for a working Americans? Hell, thatís easy. Itís ZERO. At least thatís the optimum tax rate for me.

But there are expenditures that require dollars and I get that. National defense is certainly something I would not want to live without. The Federal Reserve is another area that is needed. After all, without a standard medium of exchange, we have to revert back to barter. That would certainly make grocery shopping interesting. Just picture the long lines, while the milk, bread and bananas are paid for with whatever the consumer brought in to exchange.

What muddies up the argument over optimum rates are all of the additional resources that are required Ė the lobbyists, attorneys, legislators and assistants that must be accounted for in the process. It would be easy if our tax dollars got from point A to B without all of the confusion in between. (Confusion is a nicer word than what some call the tax code.)

A tax has 2 main components. The amount is needed to run the program or service, and secondly, the amount needed to fund all of the other ancillary costs associated with the distribution of the tax money. Arguing about the program or service would be diminished if the method of distribution was forced to be fully automated and transparent prior to pushing through new legislation on any new tax. If we could reduce this latter process by 5-10%, we get that much closer to the real optimum rate.

Mark Schuster, Partner

March 8, 2013

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