World Magazine, May 9, 2012
Tax Reform Now!
By Alex Tokarev
Alex Tokarev is the chair of the Department of Business
at Morthland College in West Frankfort, Ill. He opines:
...
hordes of accountants and lawyers are more efficient in diminishing our
economic vitality, sabotaging our social progress, and extinguishing our
personal freedoms than any foreign enemy America has ever faced.
... We need a bill that is no more than a
dozen pages long. Flat tax, sales tax, a combination of both—take your pick.
What we have now breeds corruption and subverts the democratic process. It
is insane and it has to stop.
2-4-8 Response: The 2-4-8 Tax Blend
Tax expenditures (a/k/a tax breaks, tax extenders and
loopholes) cause the government to lose over $1 trillion in revenue and to
pay $750 billion in interest each year on the $15.6 trillion in national
debt. The tax code has slowly redistributed income and wealth to the top as
can be illustrated by the fact that Mr. Romney legally pays a 15% tax rate
while a typical family earning $70,000 pays 19% (combined income and payroll
tax). The tax code has also contributed to the loss of middle class
purchasing power, mortgage defaults, unemployment and increased federal
spending on safety net programs. The wealthy investment class and
multinational businesses take advantage of provisions permitting an
indefinite delay in paying taxes through capital gains, tax havens and
trusts (to name a few).
It doesn’t matter if you think it fair, the
redistribution of income to the top not only has to stop, it has to be
reversed in order to create a robust economy of healthy consumers.
Please consider the 2-4-8 Tax Blend – a comprehensive
tax reform for both individuals and business that can be defined in one
sentence:
Tax individual and corporate income at a flat 8% rate
(with no deductions, credits or loopholes), tax individual net wealth at 2%
(excluding $15,000 cash and retirement funds) and impose a 4% Value Added
Sales Tax (VAT) on business.
For business the combined 8% income rates and 4% VAT
would be the lowest and most competitive business taxes of all the developed
countries. [The U.S. is the only developed country without a VAT]. The 8%
income tax rate also resolves the significant problem in the deferral of
taxes on foreign profits caused by imposing a 35% tax (less credit for
foreign taxes paid) when the money is brought back into the U.S.
For investors, the net wealth tax might seem
revolutionary by U.S. standards, but most high earners would willingly pay a
2% net wealth tax in exchange for eliminating the capital gains and estate
taxes and keeping 92% of taxable earnings. The ability to buy and sell
assets without being taxed on the gains would spur a new era of investment
freedom. The increased after tax income would also create wealth much faster
than a 2% net wealth tax could diminish it.
For workers, the elimination of the payroll tax and
reduction of the income tax rate creates an immediate boost in take home
pay. For example, a young family earning $70,000 currently pays combined
federal taxes of 19% but would take home $7,700 more with an 8% income tax
(assuming net wealth of under $30,000). This additional $641 per month
represents an enormous opportunity for both savings and consumption. The
$15,000 per person cash wealth tax exemption also encourages a responsible
level of liquidity. The retention of tax exempt retirement savings programs
recognizes the need for the elderly to have sufficient assets to supplement
social security. Current interest tax deductions for mortgages and student
loans are replaced by the ability to deduct the loan principal in computing
net wealth. This is the equivalent of a 2% reduction in the interest rate
and is arguably a better incentive for both home ownership and higher
education.
Eugene Patrick Devany, JD, MPA
http://www.TaxNetWealth.com
|