ii iv viii
Logo3 Merry Christmas and Happy New Year

NEW - In 2016 the 2-4-8 Tax Blend will become 2-4-8 Tax Choice
The "choice" would allow all taxpayers to choose an income tax rate between 8% and 28% paired with a net wealth tax rate of 2% going down to zero. Wealth taxes paid would reduce Estate and Gift taxes (also set at 28%). This would encourage wealthy individuals to pay some net wealth taxes as a form of inexpensive life insurance.
  Wealth
0%
0.5%
1%
1.5%
2%

Income
28%
23%
18%
13%
8%

Business
C - Corp
4% VAT
8% Income
   


The Washington Post, January 31, 2012

Major tax reform: Why it always fails

By Robert J. Samuelson was a columnist for Newsweek magazine from 1984 to 2011. He is the author of “The Great Inflation and Its Aftermath: The Past and Future of American Affluence” (2008).

Mr. Samuelson opines:

... Almost everyone favors “tax reform” in the abstract: Broaden the tax base by reducing deductions, credits and other tax breaks, and then cut top tax rates. But this sort of sweeping tax reform is usually a political nonstarter ...

...  the special breaks that complicate the tax code and push up top rates. Manipulating taxes to favor or disfavor particular industries, groups or regions is a source of power that Democrats and Republicans alike are loath to surrender. That’s why major tax reform fails, despite routine endorsements from both parties.

... “Let businesses and families make economic decisions without being biased or even pressured to do one thing rather than another, such as buy rather than rent a home, just because the tax system makes it worthwhile,” [quoting Bruce Barlett]. By contrast, many politicians view the tax code as a tool to reward or punish various constituencies and causes.

... It’s easy to imagine a better income tax. The top rate would be no higher than 30 percent. There would be no special rate for capital gains. Most tax breaks, including the deductions for mortgage interest and charitable contributions, would be eliminated or reduced.


2-4-8 Response

I am a tax reform advocate and a failure … so far. I also understand why most entrenched tax attorneys, economists, accountants and even business writers have difficulty thinking outside the box on tax reform. The general public, on the other hand, is much more open to major tax reform and that is why there was excitement in Cane’s “9-9-9 Plan”. The public can see that most incremental reforms like Obama’s Buffet Rule or even Perry’s flat tax have unintended consequences (and you correctly note, “how much taxes distort behavior”). The public may also be in a better position to separate tax reform from the much more contentious spending issues.

I believe that bold reform will not happen unless the media accurately reports that income, sales and even net wealth can be part of an expanded tax base to produce the same amount of revenue in a much better way. At the risk of oversimplification, try to contrast a 30% income tax (the top rate you suggest) with an 8% income tax combined with a 2% wealth tax for each of the next 11 years. The latter combined tax would permit an individual to keep 22% more salary each year and tax another 2% of the amount not consumed for the next 11 years. If one saved the 22% for 3 years it would be like having a year’s take home in the bank on top of what might have otherwise been saved under a 30% flat tax rate (conservatively assuming the 2% wealth tax was offset by 4% investment interest).

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%. The exact same rates apply to the rich and poor. There are no different tax brackets, credits, and no favoritism. The three taxes would yield about $2.6 trillion per year (slightly more than the current combination of Income, Social Security, gasoline and other federal taxes and fees).

It is hard to imagine anyone that wouldn’t welcome a 2% tax on net wealth and a small 4% sales tax, in exchange for drastically reduced 8% individual income tax rate. Even the "fair and balanced" Bill O'Reilly (a/k/a the Factor) supports a national sales tax (of 3%) as a necessary component of tax reform. The concurrent elimination of social security, capital gains, estate and gift taxes; and a significant reduction of the corporate income tax rate to 8% should guarantee near universal support from social liberals and business conservatives alike (he defiantly declared as he waited for someone to find a flaw in the plan rather than a lack of political will).

Eugene Patrick Devany, JD, MPA

www.TaxNetWealth.com

 

 
    Skip Navigation LinksHome > News and Resourses > NEWS Jan-Mar 2012 > Samuelson: Reform always Fails

Spread the word: Please 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 2015 by Eugene Patrick Devany