Expanding the Tax Base to Obtain the Lowest
Possible Rates
by Eugene Patrick Devany
The wealthy expect the federal government to defend their wealth, both at
home and abroad, but a few are apt to cry “socialism” at the suggestion that the
cost of defending accumulated wealth (and maintaining the infrastructure
that makes it grow), should be borne in proportion to wealth itself. It is
almost as if some believe that wealth, once accumulated, should be beyond
the taxing powers of the government.[1]
In truth, there is absolutely nothing socialistic about using net wealth
(along with consumption and income) to determine of the amount of taxes an
individual pays.
Sales and Income Taxes Disappear with Flat Rates
In August of 2006, I made the following suggestion to the President’s
Advisory Panel on Tax Reform: tax Net Individual Wealth at 2%,
Consumption/Sales at 4% and Income at 8%. I have subsequently come to
realize that the flat rate nature of the taxes provides the remarkable
ability to simplify the tax proposal and make most of it disappear from
view. I consider it the flat rate miracle.
Sales taxes are typically added to the posted price of taxable items
after the goods have been subtotaled. Consumers feel the pinch when they see
the sales tax on the receipt. The same tax revenue can also be achieved by
including the tax in the listed price (as in gasoline sales). When the
retail tax is already included in the posted price, the consumer sees more
accurately what will be paid and is less apt to feel the pinch of the tax
(4% under the 2-4-8 plan).
A flat rate income tax with no deductions can also work in the
background. Unlike the current complicated income tax form (with so many
rates, adjustments, credits and deductions) the 2-4-8 plan would rely upon a
payroll tax (8% under the 2-4-8 plan). Because the rate applies to income
from all sources (including dividends and interest on bank accounts) the
financial institutions would pay the 8% tax so the stockholders and
depositors would not have to. Thus, for the vast majority of taxpayers with
income only from employment, dividends and interest; the tax would be
prepaid and the filing of the return would be nothing more than confirming
an online summary prepared automatically by the IRS computers from data
supplied by the employers and financial institutions. A more detailed income
tax return would generally be necessary only for businesses (corporations,
partnerships, self-employed individuals and landlords) where the computation
of taxable income requires an accounting of business expenses to reduce
gross revenue.
Under 2-4-8 most individual taxpayers would not perceive any sales tax or
income tax at all. The perception and the reality is that the taxes would be
paid by business. The rates are extremely low but still sufficient to
produce more than 60% of the revenue needed by the federal government. Of
course, even a streamlined federal government needs a little more than a
mere $1.5 trillion to get by. The 2% Individual Net Wealth Tax would produce
another trillion dollars which would be more than enough to start paying
down the national debt. A comparison of the 2-4-8 plan with the plans of the
2012 presidential contenders offers solid proof of the financial soundness
of this approach and why it has appeal to people of all political
spectrums.
Simplified Tax Plan Comparisons
|
What is taxed?
|
2010 Actual Revenue[2]
|
Cane[3]
9-9-9
|
2-4-8
|
Fair Tax[4]
|
Perry[5]
20%
|
|
(data in billions of dollars)
|
Revenue as a %
|
$
|
%
|
$
|
%
|
$
|
%
|
$
|
%
|
|
|
Individual Wealth
|
53,100[6]
|
|
0
|
0
|
0
|
0
|
2
|
1,062
|
0
|
0
|
0
|
0
|
|
Consumption
|
10,300
|
Sales/Other
|
2
|
208
|
9
|
927
|
4
|
412
|
23
|
2,369
|
0
|
0
|
|
Personal Income
|
12,500
|
Payroll
|
7
|
865
|
9
|
1,125
|
8
|
1,000
|
0
|
0
|
7
|
865
|
|
Individual
|
7
|
898
|
0-20
|
<898
|
|
Corporate Income
|
1,100
|
Corporate
|
17
|
191
|
9
|
100
|
8
|
88
|
0
|
0
|
0-20
|
<191
|
|
Total Revenue
|
2,163
|
2,152
|
2,562
|
2,369
|
<2,720
|
|
Less New Adjustments
|
New Individual Deduction
|
|
|
|
-?
|
|
|
No tax on Social Security
|
|
|
|
-?
|
|
Monthly Poverty Rebates
|
|
|
-489
|
|
|
New Total Federal Revenue
|
2,152
|
2,562
|
1,880
|
?
|
[1] Even Ralph Nader dared not suggest
more than a
one percent wealth tax back in 2004. A smaller 0.3% net wealth
tax was recommended in a 1996
Boston Review
article by Edward N. Wolf and
Miami Law Professor, Michael Froomkin has recently endorsed a
similar idea. Obviously a larger rate of 2% would be warranted only
with the simultaneous flat tax reforms that significantly lower the
income tax rate for the high earners. Dr. Pete Gloor, founder of
FairShareTaxes.org has endorsed a sliding wealth tax up to 2%
along with a major overhaul of the federal and state tax and
spending program. In 2009-10 Douglas Hopkins wrote “A
Citizen’s 2% Solution …” which recommended a 2% wealth tax that
retained simplified federal income tax rates and had no value added
tax. Economics Professor Ronald McKinnon of Stanford University
supported a 3% Net Wealth Tax (with $3,000,000 deduction) in his
January 9, 2012 Wall Street Journal article, "The
Conservative Case for a
Wealth Tax". [See also Wealth
Tax Pioneers].
[4] The Fair Tax Plan is described in
Wikipedia. The
tax rate and revenue estimates above are likely under estimated for
reasons noted in the article.
[5] The
Perry
Plan, (like the lower rate Gingrich plan), lacks many details and is not a true flat rate tax.
[6] The estimate of net individual wealth comes from Politifact based upon research into claims by Michael Moor that
the
wealthiest 1 percent in the US have more financial wealth than
the bottom 95 percent; and that the
top 400 Americans have more wealth than half the country. The
wealth tax might also properly be applied to the domestic assets of
foreign corporations. See wealth
tax notes.
|