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I just finished my taxes this weekend, and so my annual hatred of the Internal Revenue Code and the Internal Revenue Service is at a peak. I’ve been pondering a “what if” scenario – “If I could, what kind of tax program would I design?”
And so here it is.
Let me outline a couple of principles that I am trying to achieve here.
First, taxes should never be used to manipulate behavior. Taxes should only be used to raise the revenue in order to operate the government. If you want to change behavior, then write a law, and allow the people to speak and vote on that law (either directly, or through their elected Representatives). Taxes should also not be used to encourage charitable giving. If you get a tax break for donations, they really aren’t charitable. They are simply transfers of money.
Second, poor people and those under 18 shouldn’t be forced to have taxes withheld on the money they earn. It is silly and stupid to withhold money, then refund it back again. I cannot possibly imagine how much it costs the government to process that return and refund check, but it cannot possibly be less than $5 a transaction.
Third, taxes should be simple, fair, and non-punitive. In other words, I do not believe in “progressive” taxation rates. One rate, one tax. But I also believe that the rich should not be able to accumulate ridiculous tax deductions merely because they are “more able” to than the middle class or the poor. Also, it should not take citizens special software or tax advisors to plan around their tax burden. I want to remove the “tax avoidance” industry for two reasons: one, to free up that intellectual capital to generate more investment revenue and two, to allow the government to focus more on “tax evasion”.
Fourth, I want to more directly link tax payments and elections, so that politicians cannot hide behind the calendar as they pass new taxes. Our country after all, was founded on the battle cry of “no taxation without representation”.
Fifth, I do not believe in the death tax. Period.
So, here we go. For the purpose of this discussion, “taxes” refers only income taxes. It does not refer to the Social Security or Medicare premiums.
First, my tax plan is quite simple. We do away with almost ALL deductions and exemptions, but for the following:
- $22,000 per adult (defined as a person over the age of 18, regardless of dependence status). This value will be indexed to inflation.
- $7,000 per dependent child (defined as a person under the age of 18) . This value will be indexed to inflation.
- Minors (a person under the age of 18) pays no taxes at all and are not subject to any withholding.
Second, taxpayers are given the option of what I call immediate withholding or deferred withholding. Taxpayers could choose to be exempt their salaries from withholding up to the first $22,000 of income OR they could choose immediate withholding with a refund at the end of the tax year.
Under my scheme, anyone below the poverty line (which hovers between $19,000 and $21,000) would pay NO INCOME TAX, and could opt out of any withholding, putting more money in their pockets faster.
Third, health insurance and health care costs are 100% TAX DEDUCTIBLE up to $22,000 per adult or $7,000 per child. For example, for a family of four (2 adults, 2 children), health insurance and health care costs are 100% TAX DEDUCTIBLE up to $58,000 per annum. We discard the threshold that it has to reach 25% of your current income.
Fourth, we eliminate the cap on tax-deferred, pre-tax contributions to IRAs/401(k)s for incomes under $500,000 per annum. There would be a limit equal to two-times the standard adult exemption (starting at $22,000 per annum) for incomes over $500,000.
Fifth, the income tax rate shall be 10% for all income over the standard adult exemption. The tax rate may only be RAISED by a 2/3 super-majority vote of both Houses of Congress. It may only be raised once per Presidential term (4 years) UNLESS the President has issue a DECLARATION OF NATIONAL EMERGENCY. It may be lowered any time by a simple majority. Furthermore, any bill to alter or adjust the tax rate must be a “single issue” bill, dealing only with the tax rate adjustment.
Sixth, the Capital Gains tax will be set at 10%, and will be indexed to inflation. The tax rate may only be RAISED by a 2/3 super-majority vote of both Houses of Congress. It may only be raised once per Presidential term (4 years) UNLESS the President has issue a DECLARATION OF NATIONAL EMERGENCY. It may be lowered any time by a simple majority. Furthermore, any bill to alter or adjust the tax rate must be a “single issue” bill, dealing only with the tax rate adjustment. Capital Gains taxes will not apply to the sale of a primary residence home.
Seventh, the day for filing all tax returns and applicable paperwork will be moved to the First Tuesday in September. Companies will be required to issue wage and tax statements no later than July 1 of the calendar year.
Eighth, any refunds due to taxpayers from the Federal Government will be paid plus an interest rate equal to the interest rate charged by the Internal Revenue Service for late payments. Interest will be calculated from the date the tax return was filed until the day the refund check is cut. All refunds must be issued by no later than the first Monday in November.
Ninth, the United States Government will implement a five-year plan that transitions income tax collections from the Internal Revenue Service to State tax collection agencies.
Tenth, no tax shall be charged on any estate of a deceased person. Applicable capital gains may be charged on the sale of applicable assets in the estate. The transfer of any assets from that estate to a person shall not be taxable.
There are some logistical issues to work out here (like how do we handle year one transition), but I am trying to kick off a discussion of a simpler, fairer income tax plan. I don’t believe that a consumption or super-sales tax will work on a federal level, but I do think that we can go a long way to getting there by dramatically simplifying the current tax code.
What say you?