Tax Reform is essential in this country. We will be discussing all of the arguments for Tax Reform, suggesting ways around the bottlenecks, and the two most prominent solutions. But first an editorial on why Tax Reform is essential for this Democracy. But first a little humor with a real point.
Tax his land,
Tax his wage,
Tax his bed in which he lays.
Tax his tractor,
Tax his mule,
Teach him taxes is the rule.
Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.
Tax his ties,
Tax his shirts,
Tax his work,
Tax his dirt.
Tax his tobacco,
Tax his drink,
Tax him if he tries to think.
Tax his booze,
Tax his beers,
If he cries,
Tax his tears.
Tax his bills,
Tax his gas,
Tax his notes,
Tax his cash.
Tax him good and let him know
That after taxes, he has no dough.
If he hollers,
Tax him more,
Tax him until he's good and sore.
Tax his coffin,
Tax his grave,
Tax the sod in which he lays.
Put these words upon his tomb,
'Taxes drove me to my doom!'
And when he's gone,
We won't relax,
We'll still be after the inheritance TAX!!
Accounts Receivable Tax
Building Permit Tax
CDL License Tax
Corporate Income Tax
Dog License Tax
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel Perm it Tax
Hunting License Tax
IRS Interest Charges (tax on top of tax),
IRS Penalties (tax on top of tax),
Marriage License Tax,
Real Estate Tax,
Service charge taxes,
Social Security Tax,
Road Usage Tax (Truckers),
Recreational Vehicle Tax,
State Income Tax,
State Unemployment Tax (SUTA),
Telephone Federal Excise Tax,
Telephone Federal Universal Service Fe e Tax,
Telephone Federal, State and Local Surcharge Tax,
Telephone Minimum Usage Surcharge Tax,
Telephone Recurring and Non-recurring Charges Tax,
Telephone State and Local Tax,
Telephone Usage Charge Tax,
Vehicle License Registration Tax,
Vehicle Sales Tax,
Watercraft Registration Tax,
Well Permit Tax,
Workers Compensation Tax.
STILL THINK THIS IS FUNNY?
Not one of these taxes existed 100 years ago,
and our nation was the most prosperous in the world.
We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids.
What the heck happened??
Many, Many people have proposed Tax Reform and even suggested a Flat Tax for many, many years. We all know the current Tax process and administration of it is incredibly complex, fraught with inequities, and very difficult to administer. The IRS wields tremendous power over the individual. The current system of taxation has imbedded within it the greatest potential for cheating, corruption, and an inconsistent tax across the entire population. It is difficult to create a balanced budget because the flow of money coming in cannot be easily defined. The expenses of the government cannot be balanced against a known income source.
In order to fix inequities and give a break to selected groups (poor, working mothers, the very rich, small businesses, Corporations, and so many others) the tax code has been modified in hundreds of ways. This complexity has resulted in a tax code document of over 1700 pages and cannot do anything but get bigger. No one in this country can clearly explain it to anyone else.
The IRS can at any time make life incredibly difficult for anyone, close down small businesses, enforce pretty serious penalties, and audit anyone (which is in itself a difficult and damaging process). There is very little the IRS cannot do as it enforces this complex and outdated Tax Code.
In order to balance things out we have tax credits, tax deductions, Allowed expenses, not allowed expenses, Tax shelters, temporary reprieves, income tax cuts for some, we can file jointly or file individually, and we can give most of our saving and wealth accumulation back to the country when we die.
In order to generate income to run all the different areas of government we are taxed in a hundred different ways. The greatest double tax is when we save (and pay taxes on that savings) so that our children can continue in the business we spent a lifetime creating, or increase the quality of their lives, we are taxed again after we die.
If we want to buy property and earn a living from the rent we can get, we are taxed differently than the home we live in. We have short term capital gains and long term capital gains, ostensively to thwart excessive speculation for a short term profit. If a renter fixes something for us and takes it off their rent, we have to declare that as income. This of course becomes a wash as we can expense these repairs against our rental property. So who is the genius that thought that one up. The point is we are required to jump through hoops, pay CPAs large sums of money to file our taxes correctly, and hope that we have accurately followed the rules (which no one can define accurately).
I personally would gladly file my income under one heading (all of it) and pay a flat rate rather than have to turn myself inside and out every time tax season came around.
There are stories after stories of how the implementation of our Tax Code has and does cause great hardship within the population of the United States.
Company after company derives its employee base from other than the US. Small businesses have a difficult time surviving. Family after family goes to great lengths to protect its assets from the ravages of death and taxes. The system is broken and everyone knows it. So why have we not over hauled the system and implemented something that is easier to administer, fairer to administer. An over haul that would promote job creation, allow families to inherit the lifetime of sacrifices one generation does for another, and provide a secure foundation for the financial stability of these United States.
First - Sources of income
Lets assume that I have an income from many different sources. And yes this a lot of money to so many of us but it is here to place the example in a higher tax bracket and to illustrate how the tax code could be fixed.
Small Business: $40,000 per year
Contracting: $10,000 per year
Dividends and Interest: $5,000 per year
Capital Gains: $12,000 this year
Salary: $30,000 per year
Rental Property: $24,000 per year
Short Stories/articles: $5,000 per year
Inheritance: $50,000 1 time benefit
If I file all of these in todays world I would have to file different forms, Handle Social Security for my employees, Social Security for myself, Franchise Tax, Property Tax, Unemployment Insurance, Federal income tax, W2s, 1099 forms, Short term gains, long term gains, sales tax, state income tax, inheritance tax, Insurance. While there may be more that escaped me, the idea is we are in a complex and hard to deal with, tax system. In addition each of these have different tax rates, exemptions, loopholes, and attachments (unemployment insurance changes based on whether an employee has filed for unemployment). How could this be simplified?
We would still need a way to identify sources of income, which we have today. We would still have to have a vehicle for submission of our income sources to the Federal Government. The states would have to have a way to assess your income and property evaluations (or would they?).
Here is a small example: I make $10 dollars. I buy a desk for my Office. I not only pay sales tax (8.5% in some states), I am also assessed by the state a property tax because I am using the property in my place of business. I pay the government an Income tax and a social security tax on the whole $10 dollars. I save the extra $5 dollars for my childrens inheritance. Here is the rub, I pay 28% to the federal government, plus 7.5 percent for social security, I pay 8.5% sales tax and a yearly property tax on the desk for as long as I have it until its value is reduced to some very small number. That is 40% off the top, probably 40% of the $5.00 I saved for my children and another sum each year for the property tax on the $5.00 I bought the desk with. In case you have not noticed for this case, Taxes consumed at least 84% to 90% of my $10 dollars, but I do have my desk.
While this is somewhat tongue in cheek, under a certain set of conditions this is possible. The reason some couples file separate rather than joint returns is the bracket problem. We have different rates based on how much income we have received. Our objective as tax-payers is to apply the expenses and exemptions to get that total number as low as possible. Because the rate increases as we climb the income ladder everyone scrambles to lower that amount.
We all know how difficult it is to interpret the tax code. The list of possible combinations that could either cost you more tax or reduce your tax burden is very big. Our various levels of government need revenue to function. That is not in dispute. What is in dispute is the fairness of the Tax Code, its complexity, and the various levels of government's fiscal responsibility. Matching income to outgo is fundamental to every citizen in this country. Those who take charge of our finances, those who spend our tax revenue need some other mechanism to properly assess what to spend it on.
We are in debt as a nation. War is expensive, not only in our citizens blood but financially. There is a lot of money to be distributed in wartime. Checks and balances are not always in place to protect our economy and the financial health of our citizens.
*Everyone puts up a percentage of their total income, older people retired or collecting SS would pay half the percentage), the states are allocated a percentage based on the population of that state. Or, we have consumption tax.
The message here is not to inadequately propose a cavalier solution but it is to say we function with a complex, unfair, inadequate, poorly administered tax system that does not meet our current budget needs. On top of that balancing the budget is a nightmare. Our SS, Medicare, Military and infrastructure costs tend to commit future dollars without assurances that the money will be there when the time comes...i.e. changing demographic, employment and global economic climate.
So lets run down the numbers: All approximations or just trying to achieve a perspective on the issue.
Government Budget US: 2.33 Trillion Dollars
Population: 305 Million, Number of households 121 million, number of businesses 22 million
Texas State Revenue: 156 Billion (approximately 79 billion from the Federal government)
So we have 2.33 trillion that has to come from 305 million people and/or 22 million businesses
For every man, woman and child that is approximately 7,500 dollars or 18,500 per household or $100,000 per business (which is not practical since all small businesses do not make a profit of $100,000).
What is wrong with this picture (besides the imprecise nature of the numbers)?
What we have here, from a different perspective is our government is spending $7,500 per individual to keep us safe and administer the government that does that.This of course does not take into account each States expenses which are almost equal what the Federal government gives each state.
What then is a fair way to balance the budget? Do we need to reconsider the Budget? Since we cannot tax babies or people under the age of 19 how do we get the 2.3 trllion dollars to run the system?
One fair way to get the revenue is to tax the GDP (Inventory and all goods and services). What is that number? Approximately 14 trillion dollars. The concept here is this:
If I make 25,000 Dollars, and spend 25,000 dollars then if I pay a consumption tax of 25% the Government has 25% of the total GDP or 3.5 trillion dollars. How do we manage such a idea?
Example 1: I build a car for $20,000 (my cost in materials and labor which includes taxes I paid on the cost of parts and labor and services) ). I charge you $25,000. You pay a consumption tax on the whole amount which is 25% of $25,000 or $6,250 Dollars. So the car cost you $31,250. The idea here is If I have a low income I only pay for what I consume (food ,shelter,clothing, medical and transportation). If I am wealthy and spend my money on a $1 million dollar house, I will pay a tax of $250,000 dollars, Now before anyone gets nervous about giving up so much money, each person has kept and put into their pocket all of the money they have earned, no matter how they earned it. If I make $100,000 dollars I have $75,000 in purchasing power.
Now if you noticed the business paid taxes on part of the $20,000 (that is taxing businesses), The individual paid taxes on all of the businesses expense but also on the profit. Yes this is a double tax but since GDP includes all of this, we have to tax all of this. The benefit here is that all of my discretionary spending is optional on my part. I can save any part of my income I want to. This will help fund innovation, new businesses and all investments in our future.
More to come.....