Let’s say I wanted to maintain the status quo distribution and all of the incentives related to it. But I also wanted to do it in a way that cut the tax level to 0% of GDP or 100% of GDP. How would I do that? It’s simple.
0% of GDP
Right now the government spends using United States Dollars. But you could change that. Instead of spending USD, it could finance all of its operations (including transfers and paying employees) by issuing transferable refundable tax credits. Instead of sending an elderly person a Social Security check equal to $12,000, for instance, the government would send out a transferable refundable tax credit equal to $12,000 (or possibly somewhat higher given the transaction costs the recipient will have to suffer). The recipient of that tax credit could then sell it to someone else (because it is transferable) and thus convert it into cash.
Come tax time, the refundable tax credits would be redeemed by whoever had them. The government would also levy taxes equal to its outstanding refundable tax credits. Thus, the refundable tax credits would entirely offset the revenue raised by the taxes and the tax level would be 0% of GDP.
100% of GDP
Right now the government permits some money to go out as market income untaxed. But you could change that. Instead of taxing a percentage of income, it could tax 100% of income and then send out welfare benefits to each individual in order to achieve it’s preferred distribution. Instead of taxing someone’s market income 30%, the government would tax it at 100% and then pay out a cash welfare benefit equal to 70% of that individual’s market income.
Because every market action leads to the same distributive result, this should not affect incentives at all. That is, a person who is taxed 30% right now should behave the same way if they are taxed 100% and then given a welfare payment equal to 70%. In both systems, their market action is generating the same outcome and so they should be willing to do it identically.
Thus, I have just demonstrated how I could keep the status quo distribution intact and all of the incentives contained within it while also switching us to a 0% of GDP tax level or a 100% of GDP tax level.