- The tax code can and must be drastically simplified
- The poor must contribute to the system, at a reasonably low rate
- Deductions, exemptions, and loop-holes should be abolished
- There should be no need to file individual tax returns
- The corporate tax rate must be reduced, as well as their deductions
Tax Policy Matters
I can hear what you are thinking, why do taxes matter to a dog? Well, it is simple, taxes directly affect the number of toys and treats my owner can afford for me. If his taxes are high, I get less, and visa-versa. While I find it easier to talk about taxes in terms of treats, this may be confusing for some readers, so for the purposes of my tax plan, I will try to use dollars in my examples.
A Flat Tax
When discussing tax reform, many politicians turn to a flat tax. Under a flat tax plan, everyone is taxed at the same rate regardless of income. Inherently this is very fair. Every person pays into the system at the same percentage and every dog loses the same amount of toys and treats. Or do they?
In actuality, the poor is greatly harmed by a flat tax. The poor has less discretionary money, as they must devote more of their resources to covering their cost of living. When a flat tax is used, the poor pay far more in taxes. This greatly reduces or even eliminates discretionary money, if any, and may make it so that some people can no longer cover their cost of living, requiring government assistance such as welfare.
Currently, the low-income individuals pay 10% or less in taxes (the tax bracket shows 10%, but due to deductions they actually pay less). Generally, proponents of a flat tax propose a 20% tax, which would more than double the tax on the poor. With suddenly less spending money, the poor must cut back. Do you know one of the first things that will be cut? Dog toys and treats. Dogs may even end up in shelters as the family will no longer be able to afford to feed them!
The flat tax is a way to sway rich voters. Why? Because their taxes will be cut in half, from a max of 39.6% to only 20%. More money for the rich at the cost of the poor. That is a flat tax.
The Fair Tax
The name of this tax system makes it sound very appealing. Is it really fair or is this a marketing ploy to garner more support? The Fair Tax is a national sales tax. It does away with all income taxes and you only pay tax when you buy something. Proponents of the Fair Tax say that when you buy a toy for your best friend (if you don’t have one, you can buy me a toy by making a donation) there will be an additional 23% federal sales tax applied to your purchase. A $30 toy would now cost you $40 (when you also consider local sales tax).
There are benefits to the Fair Tax system, such as the ability to save your money for retirement without worrying about taxes, penalties, etc. It also heavily incentivizes saving money. The problem is that the Fair Tax is inconvenient to consumers. It makes it difficult to budget and contributes to sticker shock at checkout. Think about your next trip to the grocery store, instead of $200, your total would be closer to $260.
Now, on its face, the Fair Tax hurts the poor much like a flat tax. Proponents of the Fair Tax resolve this by sending everyone an ‘advance refund’ (known as a ‘prebate’, a rebate that you receive before you paid the tax) to every single taxpayer at the beginning of each month. Wait, what? We are going to tax you more so that we can give you back some. The overhead alone of sending payments to every single American each month is ridiculous frivolous government waste. Further, this plan requires individuals to file new paperwork in the form of ‘prebate applications’ which must then be processed and verified by the government. Click here to learn more about the Fair Tax.
Like the Flat Tax, the Fair Tax greatly benefits the rich. While the rich may spend more than the poor, the max they will ever pay in taxes is the amount of the sales tax, in this case, 23%. That is a substantial tax break for the rich. In total, the Fair Tax is a substantial tax break, estimated at $1.3 trillion for 2012, which will substantially add to our national debt which is already above an astronomical $18 trillion.
Why Should The Poor Pay Less?
In our current tax system, the poor pay far less taxes (sometimes none) than do the rich. This lower tax rate ensures that our poorest citizens are better able to care for themselves and that they have more resources they can use to hopefully raise their status and eventually earn more; therefore, achieving a higher tax bracket and paying more taxes later.
When you think about it, most of people start out in this lowest tax bracket. We all know about ‘poor’ college students working part time jobs and just getting started with their adult lives. They greatly benefit from this lower rate. It helps them get established, just as it helped you when you were just starting out. The ‘poor’ are not just people sitting at home on welfare playing video games (though this does happen).
That said, the poor should still pay taxes. It is a fundamental principle of society that all people should contribute. This helps us feel that we are a part of something bigger and contributes to a sense of community. In our country, many of our poor pay nothing in taxes, and in fact receive huge rebates each year. This is a form of wealth redistribution that creates a class of people who are not invested in our system yet still benefit from it. All American citizens should be invested in our great nation and should help it to prosper.
Why Should The Rich Pay More?
Is it a matter of fairness that the rich pay more taxes? That is what we are told. The rich have more money and therefore should do more for their fellow man by giving up more of their money. This is flawed thinking and contributes to discontent between our social classes.
The richest individuals in our country are those who have created or maintained wonderful things that we all enjoy and enrich our lives, and they also are employers of thousands of people. They should be celebrated for their accomplishments. They took risks, had many sleepless nights, and dealt with a high level of stress few of us really understand. The rich earned their money, they deserve it, and like everyone else, they should be entitled to keep as much as possible. Destroying the rich will destroy the American dream. Why would people strive to excel and to achieve if they know the government will just take it away from them? Democrat Bernie Sanders is on the forefront of this charge, citing the unfairness of wealth distribution in our country as a justification for taking wealth from the rich and giving it to the poor. Instead, we need to empower the poor to be able to earn a higher status.
That said, the rich are able to pay a little more in taxes without substantially damaging their wealth. Under our current tax system, this is exactly what happens. The poor pay up to 10%, much of the middle class pays 25%, and the rich pay 35% to 39.6%. This system is working without destroying wealth. In fact, some of the richest Americans, like Donald Trump, say they should pay even more. The fact is, under our current tax system the rich pay for most of the government benefits we enjoy. They cover most of the cost of education, most of our roads, and most of everything else. They should be respected and celebrated for their contribution to our society and for all the good they are doing for mankind through their tax dollars as well as charitable contributions. If we treated the rich with the respect they deserve, do you not think they would be willing to help out even more? Hey, maybe Donald Trump will even send me a toy. =)
A Tax Plan For The People – The People’s Tax
Why are taxes such a major issue in our country? Why do people hate the IRS so much? Why do people hate paying taxes? The answer is simple; our tax code is very complex and was not constructed to work us, but instead for special interests. It is full of complex deductions, exemptions, and loopholes. This complexity leads to a constant back and forth ‘gotcha’ game between the IRS and the people, which result in the people fearing their government, and specifically the IRS.
We need a tax plan that works for the people, one that makes it easy to pay our taxes and to move on with our lives, one that is focused on us and puts taxpayers first. We need The People’s Tax. Here is what it would look like:
The core of our tax system generally works. It fairly balances the taxes paid by the poor, the middle class, and the rich in a progressive system that encourages individual achievement. It is all of the added legislation, regulation, and rules that have complicated it and made it difficult. In order to fix taxes in our country, we must first fix this issue. I propose throwing out all existing tax law governing personal taxes, including personal investment income and retirement accounts. This includes all deductions, exemptions, and loopholes. Next, we implement an income tax, similar to what we have today, and mandate that employers withhold taxes from employees’ income and that similarly banks withhold taxes at the same rate for investment income. Lastly, we do away with the need for individuals to file income tax returns. With all taxes collected by employers, and there being no system of deductions, exemptions, and loopholes, individuals no longer have a need to report to the IRS.
Due to the removal of deductions, exemptions, and loopholes, we can charge a lower tax rate for most tax brackets. Further, the number of tax brackets should be reduced to further simplify our tax system. Under my plan, the following tax brackets would exist:
|Annual Income||Tax Rate|
|0 – 34,999||8%|
|35,000 – 99,999||20%|
|100,000 – 200,000||28%|
Note that there are not different brackets for married persons or heads of household. All individuals will be taxed the same, regardless of marital or family status. This plan eliminates all tax fraud by individuals as employers automatically withhold taxes from their paycheck. There is no longer a need for tax returns, tax refunds, or audits on individuals.
Corporate taxes are very complex, but like personal taxes, they don’t have to be. You may have heard that the U.S. has the highest corporate tax rate in the world, which encourages companies to move over seas. This is true. The corporate tax rate is 39.1%. The problem is, that number is not accurate. While that is our tax rate, numerous deductions, exceptions, and loopholes enable companies to pay very little tax.
The corporate tax laws must similarly be thrown out in their entirety, and new laws must be established. These laws would require all companies (and self employed individuals) to file a tax return. The return would be as simple as follows:
|Revenue (all income to the company, from any source)||$__________________|
|Medicare and Social Security Taxes||$__________________|
|Cost of Raw Materials||$__________________|
|Total Tax Due||$__________________|
This tax plan removes all corporate exemptions and loopholes, and greatly reduces the number of deductions. Companies would only receive deductions for the amount they paid employees, the amount paid for employee benefits, other federal taxes, and the cost of raw materials for making their product (if any). That is it. Businesses would then be charged a flat tax rate of 18% on all profits (as calculated in their return).
A 18% tax rate would position the U.S. as one of the lowest corporate taxes in the world, incentivizing companies to move to the U.S. and create American jobs. By removing the numerous deductions, exemptions, and loopholes, these companies would begin contributing more to our society.
Medicare and Social Security
For the purposes of this tax plan, please assume that Medicare and Social Security taxes would remain in effect at their current rate.
All Other Federal Taxes
With the exception of taxes on foreign trade, which are important for regulating global commerce and ensuring our country remains competitive, all other federal taxes would be discontinued. Taxes on estates, energy, gasoline, phone lines, cable TV, the Internet, etc. would all be discontinued. The federal government has been successfully hiding many taxes from the American people for years. All taxes should be collected the same way, and at the same time, so that the American people know exactly how much they are paying into the system.
Downsizing the IRS
Under this plan, the IRS is no longer needed for monitoring individuals. The main focus of the IRS will be processing corporate tax returns and ensuring companies are properly withholding taxes from the paychecks of employees. With simpler tax laws, there is far less for the IRS to do. As such, we can greatly reduce the size of the IRS.
Do you realize that we spent nearly $12.5 billion this year for the IRS? Under this plan, a much smaller IRS is required. Immediately, the IRS would be scaled back by 30%, saving taxpayers $3.75 billion the first year. The remaining IRS staff would work to monitor and enforce the new tax laws and to continue checking past years for fraud. Each year, the IRS would be scaled back by an additional 10% until it is at 30% of its current size. This would free up nearly $9 billion every year.
Why “The People’s Tax” Plan Is Better
This plan accomplishes a number of things. Specifically it:
- Simplifies the tax code, making it easy to understand
- Eliminates deductions, exemptions, and loopholes that allow people not to pay their fair share, thereby decreasing the budget deficit
- Eliminates the tax disadvantages of marriage
- Empowers the American people to know exactly how much they are paying in taxes, contributing to transparency
- Ensures the poor are contributing to the system
- Incentivizes people to reach for the American Dream by not penalizing them for reaching that goal
- Eliminates the need for personal tax returns
- Reduces the size of the IRS, saving billions in tax dollars
- Reduces or eliminates the contentious relationship between the IRS and the people
- Simplifies the corporate tax code, making corporate taxes easier to understand and manage
- Makes America competitive globally, encouraging companies to move to the U.S. and create American jobs
- Repeal all current tax laws governing personal income taxes, including on investment accounts and retirement plans
- Leave Medicare and Social Security untouched
- Institute a progressive income-tax system similar to our current system with fewer tax brackets and lower tax amounts
- Eliminate the need to file personal tax returns
- Reduce the corporate tax rate to a competitive rate to encourage companies to move to the U.S.
- Simplify corporate taxes, greatly reducing deductions and simplifying returns
- Repeal all non-trade related taxes, such as those on energy, gas, and telecommunications
- Reduce the size of the IRS by 30% immediately, and 10% per year for four years thereafter.