Tax Reform Overview
(Revised July 25, 2014)
The 2-4-8 Tax Blend is a federal tax reform plan that begins by eliminating
and replacing the
regressive, job killing payroll taxes (an idea endorsed by Bill Gates). An optional 2% net wealth tax
(excluding $15,000 cash and retirement funds up to $500,000) provides a new
revenue base. The wealth tax enables the income tax
rate to be lowered to a flat 8% for those who elect to pay a wealth tax (because over $1 trillion in tax expenditures
are not needed when the rates are very low).
Rather than using a net wealth
tax to “soak the rich” (as some have suggested), the same 2% wealth tax rate and 8% income tax rate
would be available to all. Because 50% of the population has only 1% of the
wealth and 10% has 75% of the wealth the combination tax rate is progressive even
though the same rates are applied to rich and poor.
not wishing to pay the net wealth tax could elect to pay a flat 26% tax on
income but would also be subject to estate, gift and capital gains taxes.
The estate and gift taxes would effectively be recouped when the taxpayer
died or otherwise give the assets away. A later taxpayer election to pay the
net wealth tax and the lower income tax rate would require a penalty. For
those electing the 26% tax rate
the charitable deduction would be retained but would be available only
to public charities that sponsored new jobs with a portion
of the donation.
For business, there would be a 4% VAT and the C
corporation income tax rate would be reduced to 8% (for the lowest business
tax rates in the developed
The 2-4-8 Tax Blend is the only tax reform intended to solve the
following economic issues:
1. The elimination of the payroll tax on labor will encourage the
growth of U.S. jobs.
[This was also the position of Bill Gates when he
spoke at the American Enterprise Institute on March 13, 2014].
2. The broad net wealth tax base places the growing Social Security and
Medicare programs on sound financial footing without taxing younger workers.
3. With an 8% corporate rate there would be little reason for deferral of taxes on
foreign corporate profits and no reason for a territorial tax system.
4. The 2% net wealth tax provides a negative reinforcer (as in “use it or
lose it”) to productive business investment. The low 8% income tax rate also
supplements business growth.
5. Taxing net wealth eliminates any policy need for estate tax, gift tax or
capital gains tax for those taxpayers that make the wealth tax election.
6. The $15,000 cash exemption encourages modest savings for emergencies and
liquidation for tax payments.
7. The exemption for retirement funds (up to $500,000 per person) recognizes
economic mobility and the need to accumulate some wealth over the course of
8. Deductions for mortgage interest, student loans, consumer purchases, etc.
are not needed where the net wealth computation effectively gives a 2%
credit for the unpaid principal.
9. The combined flat tax rates are fair and progressive with no need for
rate brackets or tax credits - (that are necessary when taxing only the
10. Limiting the tax deduction for charitable contributions
will create more than 2,000,000 full and part time jobs with domestic
service charities for the long term unemployed in times of high unemployment.
The following objections have been repeated often but cannot
1. Assets are difficult to value:
Valuation of assets is easy with
digital filing of tax returns and internet-database technology which was not
widely available 10 or 20 years ago. Taxpayer assistance and automation
improvements by the IRS is considered a threat by many opposed to tax
2. An Amendment to the Constitution is needed:
An income tax option based on net wealth (or simply a tax on net
wealth) includes but is not limited to
a tax on property within state borders and thus the tax rates would not have
to be apportioned among the states.
Other Plan Descriptions
Submission to Ways and Means Tax Reform Working Groups - March 2013
Creating New Wealth by
Taxing Net Wealth
Finance Committee and House Ways and Means Committee
Expanding the Tax Base to Obtain the
Lowest Possible Rates