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Tax Reform Overview

(Revised April 22, 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 optional 2% net wealth tax (excluding $15,000 cash and retirement funds up to $500,000) provides a new revenue base. This enables the income tax rate to be lowered to a flat 8% (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 available to rich and poor. Any taxpayer 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 world).

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 a lifetime.

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 income tax base).

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 withstand scrutiny:

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 reform. See Free File.

2. An Amendment to the Constitution is needed:

An income tax surcharge 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

Submission to Senate Finance Committee and House Ways and Means Committee

Expanding the Tax Base to Obtain the Lowest Possible Rates


 
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Spread the word: Let Congress know you want them to consider the 2-4-8 Tax Blend by simply tweeting "TaxNetWealth.com" or by copying any basic description and sending, faxing, or emailing it to at least one representative from each political party. [Many representatives will only accept email through their individual websites].

Copyright 1985 to 2013 by Eugene Patrick Devany