You can learn more about our movement and how to get involved, including the intitiative to install term limits on all Federal politicians, at:
www.unitedstatesofpurple.com
Tuesday, February 7, 2012
This is the first of a series of posts we will do in support of our drive for the Presidency, under the United States Of Purple banner. Yesterday, we laid out the many critical and dangerous problems facing the country today, pointing out how the established political class, both Democrats and Republicans, have failed to resolve any of these issues over the past forty years or so, despite controlling the Presidency and Congress at various times.
The United States of Purple has developed a set of solutions that are simple yet effective, efficient yet effective and cost controlled vs. costs that are out of control. The political class has proven that massive new Federal government bureaucracies have never solved any problem They just lead to more wasted taxpayer wealth, more encumbrances on the economy, and often more divisiveness between U.S. citizens. Isn't it time to try another approach?
Ex-Treasury Secretary William Simon once said: "The nation should have a tax code that looks like someone designed it on purpose." How true. So today will show how to fix our out of date and ineffective tax code. However, let's first look at the ludicrous state our existing tax codes exists in:
•The Federal income tax code is about 70,000 pages long which defies anyone inside or outside of government to fully understand the unneeded complexity it creates.
•A recent study estimated that the U.S. economy and its personal and business tax filers spend almost half a TRILLION dollars a year trying to comply with the complexity and filing requirements embedded within those 70,000 pages.
•A recent Business Week article reviewed the fact the IRS likely does not collect over $300 billion a year in taxes due under the current tax codes, a tax evasion percentage that is an embarrassment. This requires the honest taxpayers to pay more than they should to cover this incompetence of the Federal government's tax collecting abilities.
•Despite earning billions of dollars both within the United States and overseas in 2010, General Electric was able to manipulate the 70,000 page tax code so that not only did the company not pay any Federal income taxes in 2010, it actually got a multi-billion dollar refund, courtesy of the American taxpayer.
•When queried by Congressman Paul Ryan how long the 2010 GE tax return would have been if it had not been filed electronically, the Congressman was told by company representatives that it would have been 57,000 pages long, a return that would have stood about 17 feet high if stacked up.
•As a result of disincentives within the current tax code, it is estimated that Americans companies are sitting on over $1 TRILLION in cash overseas since bringing it back to the country would result in an onerous U.S. tax payment. Imagine what a TRILLION dollar injection into the domestic economy would do for the lives of Americans.
Not a pretty sight. Hundreds of billions of tax dollars not collected from tax evaders. A tax code that looks like no one designed it on purpose. Hundreds of billions of dollars sitting offshore serving no one's purpose, the companies that are sitting on the cash and the U.S. economy that could use it to fuel growth.
We believe that the Unite States of Purple can do much better. (In fact, we think that just about any educated person could do a better job). Before we reduce the 70,000 page tax code down to a page or two, let's establish a set of assumptions and restrictions that the new tax code must adhere to regarding consumer tax returns:
1.No tax reform would ever get passed the Democrats if it was not progressive, so any reforms would have to include higher marginal percentages of taxation as income goes up.
2.However, the number of marginal tax rates should be kept to a minimal for simplicity reasons.
3.Every American would receive a tax exemption on the first $15,000 earned. Married couples filing jointly would get a family exemption of $30,000, i.e. no matter marriage penalty or benefit.
4.A dollar earned is a dollar taxed beyond $15,000. In other words, a wage dollar, a dividend dollar, an interest earned dollar, a domestic dollar earned, a foreign dollar earned, etc. would all count as one dollar from a tax perspective.
5.No more U.S. tax breaks for paying taxes overseas. No more lower tax rates for dividends vs. other types of dollars. This should make investment in the U.S. no better or worse than investing overseas, possibly keeping more investment dollars in this country. No more discriminating against other forms of earnings vs. dividends (Democrats would love this).
6.Since about 45% of Americans now pay no Federal income tax, even though they get all of the benefits of the Federal government, any tax reform must bring more Americans into the Federal income tax payment process except for the least fortunate (which is handled by exempting the first $15,000 in earnings).
7.The new tax plan would be phased in over ten years in order to minimize and ease the transition to the new, simplified tax code. Every year, the tax owed would move from the current tax code to the new tax code by 10% a year.
8.For example, in the first year, the taxes owed would move 10% closer to the new tax code results from the old tax code results. In the ninth year, the taxes owed would have moved 90% closer to the new tax code results form the old tax code.
9.This would require that taxes be calculated two different ways every year. However, given that almost all tax returns today are calculated by computer programs, the extra work involved should be minimal, let the machines do the work.
10.With two exceptions, the new personal tax code would have no deductions, no exemptions, no credits, no teacher supply accommodations, etc. The first exception would be the ability of a taxpayer to contribute to a Health Savings Account (HSA). Long term, this would help take pressure off of the skyrocketing costs of Medicare and Medicaid. The second exception will be covered by our solution to the global warming and energy dependence problems.
11.The new tax code has to be revenue neutral so that the political class does not get their hands on any more of taxpayer wealth than they get today.
12.The new tax code would have only two marginal tax rates, 11% for earnings up to $100,000 and 28% for earnings over $100,000 for single filers, 11% for earnings up to $200,000 and 28% for earnings over $200,000 for married filers.
There you go, rather than 70,000 pages, we get a dozen rules with this new tax code. Let's see how this would play out using the detailed 2009 IRS tax return data that is up on the IRS website. 2009 is the latest year that detailed tax information is available:
•We assumed that the historical percentage of married filers vs. single filers would apply to the 2009 returns.
•In the 2009 tax files from the IRS, about 140 million personal tax returns were filed.
•We assumed that an annual HSA contribution for a single filer would be $3,000 and $6,000 for married filers but that only half of the filers would actually take advantage of the deduction.
•By using the above principles, and applying the above single filer and married filers tax percentages, we estimate that the new tax code for personal tax returns would get the government about $877.7 billion vs. the $865.9 billion it got in 2009. This is within about 1.14%, making the plan revenue neutral to the political class.
•The national overall effective tax rate was 11.35% in the 2009 IRS returns and 11.51% in this new plan, reinforcing the revenue neutral assumption.
•26.8% of the 140 million tax returns would pay no taxes in this plan, all of whom earn less than $15,000 a year, fulfilling the criteria of reducing the number of Americans who pay no Federal income taxes in this country
•The effective tax rates under the current tax code and the proposed simplified tax code looks like the following (you can double click on the graph for a larger, clearer view):
•As you can see, the new plan is as progressive as the old plan, the higher the income the higher the percentage of taxation.
•Particularly at the lower tax brackets, the current tax code and the proposed new tax code effective tax rates are the same without the 70,000 pages of clutter, complexity and confusion.
•The tax rates at the higher earning brackets are a little higher than the current brackets (making Democrats extremely happy). However, these higher earners are also going to save a lot of money in tax preparation fees, since I am assuming they pay the most to have their taxes prepared, at least partially offsetting the somewhat higher tax brackets
Now, that wasn't hard, was it? Twelve rules, about the same results without more than $400 billion in tax preparation expenses and 70,000 pages of tax codes. Even better, it gives the political class very little leverage to favor certain parts of the population by gumming up the taxing process. It also prevents rivals within the political class from empty saber rattling and finally putting useless arguments like the proverbial "Bush tax cuts." to bed.
Most importantly, by putting a firm, definitive, ten year conversion schedule in place, it provides certainty to the economy, the market, and everyone's household. This enables everyone in the country to plan accordingly and not be subject to the political whims of the political class, e.g. will they or will they not change the tax rates, will they or will they not renew the Bush tax rates, will they or will they not gouge the rich, etc.
One negative trait of the Obama administration is its uncanny ability to introduce uncertainty into the market and the economy, from tax policy to environmental policy to health care policy. This simplified, easy to understand tax reform approach eliminates at least some of the unneeded uncertainty.
•The above analysis was done for personal and small business tax returns. I do not have the data or expertise to do a similar analysis on corporate tax returns. However, the same principles would apply:
*Corporate tax rates would be reduced on a percentage basis and there would be fewer of them, making us competitive with the corporate tax rates in the rest of the world.
*Earnings wherever they are earned, domestic or overseas, are to be treated the same way. This would help make investment in the United States more attractive.
*With the reduction in the size of the tax rates, most existing business deductions and credits would be eliminated, especially the deduction that allows domestic businesses to close domestic facilities and move their functions overseas.
*The only deductions that would be allowed would be depreciation expenses and investment tax credit expenses to encourage investment, health care insurance to help take the pressure off of Medicare and Medicaid, and salary expense which would cut off for any employee earning over $3 million a year in total compensation. No more making taxpayers subsidize outsized corporate executive salaries or pro athlete contracts.
*These corporate tax principles would also contribute significantly to the wholesale reduction in the size of the tax code.
Besides creating certainty and encouraging investment in the country, two other actions would accompany the implementation of this plan. First, corporate America would be given a one time tax holiday in order to find a way to bring a lot of that $1 TRILLION that is stranded overseas because of our current tax code. One time only, with restrictions to ensure that the tax holiday money is invested in the economy and not executive salaries.
Second, there would be a one time tax amnesty program for personal and small business tax filers in order to recover some of that $300 billion that is lost to tax evaders every year. Pay off the money owed and not go to jail. After the amnesty period is done and the new tax code is implemented, then the IRS would be instructed to go aggressively go after tax evaders and their staff funding increased accordingly.
Simpler tax rules, more investment in America, tax evaders given a chance at redemption before being actively pursued, tax resources redirected to help build companies' businesses and expand the economy. That was not hard, as long as you keep the political class and their moneyed interests out of the process.
We invite all readers of this blog to visit our new website, "The United States Of Purple," at:
http://www.unitedstatesofpurple.com/
The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.
The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/
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