The Federal Government's Fraudulent Accounting and The Debt Pit It Has Thrown Us Into

Interesting analysis from USA Today, as reported in the May 24, 2012 issue of Newsmax. The newspaper makes the assertion that the Federal government severely underreports the amount of deficit spending that the political class reports on every year, masking the fact that the Federal government is running up future liabilities that are not being financed with today's taxes and spending.

These liabilities will result in future retirees probably never receiving the future financial and medical support that the current members of the political class are promising, i.e. today's political class is writing checks that the Federal government will not be able to cover in the future.


But first let's look at what the Federal government reports as our annual spending deficits (double click on the graph for a bigger picture):

Ever since Obama became President, our annual Federal government spending deficit has been easily over $1 TRILLION a year. 2012 is not on the graph but credible current estimates put this year's deficit well over a TRILLION dollars again. This traditional definition of deficit is quite simple: it is the difference between what the government collected in taxes and fees and what it spent in a single fiscal year. The difference is the annual deficit which is financed by selling Treasury bonds, future IOUs, to cover the difference between what is collected as wealth and what is spent.

Just looking at these annual results is not a good news story. If we assume that the average annual deficit of the Federal government over the past few years is about $1.2 TRILLION a year, then on average, if the Treasury did not sell bonds and IOUs, every American household would be on the hook for an additional $10,500 per household to cover the deficit shortfall EVERY YEAR of the Obama administration. Since the average income for an American household is about $50,000 a year, this means that we would all have to pay a whopping additional 20% of our gross annual household income just to cover the Federal government's annual deficit.

Of course, every American household really is on the hook for the deficit shortfall, they just do not pay that additional number NOW since the Treasury Department continues to mortgage our future by Treasury selling bonds. Those bonds will eventually have to be paid off by every American taxpayer.

A horrific financial situation. Outlandish and wasteful spending by the Washington political class, which wastes hundreds of billions of dollars every year in order to attain these TRILLION dollar plus deficits.

But these numbers and spending deficits are just for current government operating expenses and costs. The USA Today article presents a more realistic, and more horrific view, of the country's dire financials:

• The official government deficit for the 2011 was $1.3 TRILLION.
• However, according to the USA Today analysis, the more accurate estimate is an astronomical $5 trillion.
• The reason for this large discrepancy is that Congress exempts itself from reporting the cost of promised retirement benefits incurred in any one year when computing the annual deficit.
• This exemption, of course, does not apply to private sector companies which must include these future liabilities and commitments in their business financial statements in order to give a truer picture of their actual financial situation and to not break the law.
• The USA Today analysis found that the liabilities for Social Security, Medicare and other government retirement programs rose by $3.7 trillion in 2011, but the amount was not included on the government’s financial ledgers and reports even though they are committed future expenses.
• If these retirement and liabilities and commitments were included in the outlook for 2011, the actual, more definitive, deficit total would be equal to about $43,000 for every American household, about four times higher the horrific estimate we went through above.
• Since the median income of U.S. households is $49,445, according to the latest Census findings, the average American household would have shell nearly all of its annual income in taxes to balance the real government liabilities incurred in 2011 if standard accounting rules were used to compute the Federal government deficit.
• If these better and more accurate accounting rules were taken into account by the Federal government, and the Washington political class, the annual spending deficits from 2004 to 2011 would be six times larger the official total of $5.6 TRILLION.
• The USA Today  report also determined that all future Federal debt and retiree commitments equal $561,254 per household.
• Since the average American household also owes $116,057 for its own mortgages, car loans and other debts, the total debt burden as of today for every household is about $676,311.
• Thus, on average, every American household would have to work 14 straight years, without paying any other taxes, paying any medical bills, eating, taking vacations, fixing up their homes, going to the movies, or incur any other expense in order to dig the nation out of the debt pit the political class has thrown us into.

Mind boggling. Obviously, something is going to have to give, the above trajectory of disaster will eventually manifest itself somehow. The Federal government may choose to continually raise taxes to pay off the debt which eventually will collapse the economy from lack of disposable spending. Or those Social Security, Medicare, and Medicaid promises will have to be broken since their exponential rise in cost, without the concurrent collection of wealth to pay for these future liabilities, cannot not be met.

The USA Today article and analysis have provided a great service to the country, a service that most Americans are not aware of and most politicians, given their short term, myopic thinking, do not want you to be aware of. We are in far worst financial condition than most of us are aware of. To stave off the collapse of our financial affairs and save our democracy, the following steps from "Love my Country, Loath My Government" need to be taken immediately:

1. Step 1 - a coherent plan of reducing government spending 10% a year for five years must be undertaken to get Federal government spending under control. Unnecessary and redundant programs and organizations need to be terminated. The wasting of hundreds of billions of dollars every year due to inefficiencies and criminal fraud need to be stopped. Obama's deficit reduction commission, which he completely torpedoed and ignored, would be a good first step to putting this Step 1 into operation.
2. Steps 10, 11, and 12 - These steps would reform Social Security by reducing the Social Security tax rate but applying it to all forms of income without any cap, raising the retirement age to 70 years old with a hardship exemption, and excluding anyone worth more than $3 million from ever receiving a Social Security check.
3. Step 28 provides a process to finally attack the root causes of our escalating health care costs and put a plan into effect to attack those root causes, something that Obama Care will never do.
4. Step 39  would implement term limits so that we can finally remove those sitting politicians that have been around forever but who have gotten us into this financial debt pit. Since they were not part of the solution, they must be part of the problem and need to be removed forever from office.

I do not know if even these five steps are enough to get us out of our debt pit. I do know that the longer we wait for someone, anyone, in Washington to show a little guts, courage, leadership, and vision in this area, the tougher it will be to climb out of this debt pit. We can only hope that the hole does not collapse upon on us before we get out, taking our economy and our liberty with it.


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 http://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/

State Level Economic Musings - California Vs. Florida Vs.New Jersey

I am a Florida resident, having moved to the Tampa Bay area from New Jersey in late 2005. My reasons for moving were varied but economic reasons were a driving force:

• In 2005, I was paying over $12,000 in New Jersey property taxes a year for a typical northeastern suburban house, or about $4.00 per square foot. I had a volunteer fire department, no local police coverage (state police covered our area), no municipal garbage pick up, and no local library.
• In 2012, I am paying about $3,600 in Florida property taxes a year for a typical southern suburban home, or about $1.80 per square foot. An absolute difference in dollars of at least $8,400 a year or about $700 a month vs. New Jersey. For those dollars I get county police coverage, full time fire protection and numerous local libraries.
• Since 2005, the property tax bill for that New Jersey house has probably gone up dramatically, far exceeding the ridiculously high $4.00 per square foot I was paying in 2005.
• Since moving to Florida in 2005, my annual property taxes have actually gone down every year and future property tax increases, if and when they come, are capped at no more than 3%.
• New Jersey politicians tried to tell us that our property tax rates were so high because the state invested so much money in  the public school system in order to create outstanding  schools. However, according to the latest Newsweek annual analysis of the top 100 high schools in the country, 13 were from the state of Florida and only one was from the state of New Jersey.
• New Jersey has six state income tax rates with the top rate being a very high 8.97%.
• Florida has only a single income tax rate, 0%, for all levels of income.

I talk about these two states because I have first hand economic experiences in both. With a fraction of the cost of property tax and no income tax, my family can live a great life in Florida just about on our tax savings alone. Year round golf, fishing, beaches, Disney World, and sunshine are not too bad either.

This is another way of stating that people are not stupid and will look for ways to maximize their life's experiences, which many times means optimizing their financial status. Based on the 2010 Census, we now know that the population of New Jersey grew about 4.5% over the past ten years. This is a growth rate that is only about half of the national growth rate and is so slow that the state will be losing a Congressional seat in the next election.

Based on the 2010 Census, the state of Florida's population grew 17.6% over the past ten years and will be gaining Congressional representation in the next Congress. This population growth rate is almost double the national population growth rate over the past ten years. I have to think that lower government cost of living, via lower property taxes, no income taxes, and a cap to future property tax increases has a lot to do with these numbers.

Florida recently closed a major state government budget gap by cutting unnecessary state government costs and NOT raising taxes, while still adding about $1 billion to the education systems throughout the state. Pretty impressive. We still have police protection, fire protection, the libraries are still open, and the roads are still in good shape, all of the major functions you want an efficient government to provide in a cost effective manner. Not sure New Jersey can make those same claims.

Now, it is not a secret that Florida got hit hard by the recession. It went from a low unemployment rate of 3.3% in August of 2006 to a high of 11.4% in February, 2010, a more than threefold increase. This disaster was mostly the result of a collapsing real estate market and a drop in tourism as a result of the recession, the two main industries in the state.

However, since February, 2010, the unemployment rate has dropped 2.8 percentage points from 11.4% to 8.6% (about a 25% decrease). The unemployment rate in New Jersey has come down only .5 percentage points from its high of 9.7% in April, 2010 to its current 9.2% (about a 5% decrease). Florida's economic improvement, without raising taxes but cutting unnecessary government costs, has also dramatically beaten the national economic picture which has seen the national unemployment rate drop only 1.8 percentage points, from 10.0% to 8.2% (about an 18% decrease).

I know these are a lot of numbers but the approach that the Florida political class has taken, to their credit, seems to be working quite well: cut unnecessary government spending, do not cover up wasteful spending with higher taxes, invest in education, and simplify government's involvement in citizens' lives. It seems to be working quite well, based on the  results cited above, numbers that will get considerably better when the real estate market turns around, a bread and butter staple of the Florida economy.

I have a high degree of respect for what New Jersey governor Chris Christie is trying to do in New Jersey. He gets it: minimize tax increases while reducing excessive and wasteful government spending. But he is battling decades of old political thinking where unnecessary, criminal, and wasteful government spending could always be covered up with higher and higher taxes. The fact that the state's unemployment rate has only come down half a percentage point relative to the nation and to states like Florida shows he has a long way to go.

At least he gets it. I am not sure if the political class in California gets it, based on some really sour economic data that has been coming out of that state over the past few months:

- According to a Bloomberg News report from May 12, 2012:

• The California budget deficit is worst than originally forecasted, expected then to be $16 billion.
• The original deficit was expected to be about 40% lower or $9.2 billion, an estimate from January, 2012.
• This new budget deficit is almost a full 20% of the proposed state government budget, indicating there will have to be a lot of action to close such a large gap.
• One of those actions is to place a tax question on the next ballot that would temporarily raise the state sales tax, already the highest in the U.S., to 7.5% from 7.25% and would also boost income tax rates on income starting at $250,000. The 10.3% levy on those making $1 million or more would rise to 13.3%, the most of any state.
• If the tax ballot initiative does not pass, the state will have to cut $4.8  billion more from state school budgets. 

Do we really think that raising already high tax rates will work in these hard economic times? I doubt it.

(Note: the Associated Press reported on June 15, 2012 that the state government legislature did eventually pass a budget of about $92 billion but did not include any plans on how to actually attain that budget number and their budget relies heavily on voters approving the mentioned tax hikes in November.)

- According to an article in the Orange County Register from May 10, 2012, only about 22% of California's eighth-graders tested on a national science test passed, ranking it among the worst states in the nation. California, home to Silicon Valley, tested better than only Alabama, Mississippi, and the District of Columbia. How embarrassing, such a low score but the one of the highest tax burdens in the ocuntry, and imagine how much worse it will get if another $4.8 billion comes out of the state government education budget.

-  According to a June 9, 2012 Associated Press article, voters in San Diego and San Jose, the eighth and tenth largest metro areas in the country, overwhelmingly voted to reduce benefits currently given to both retired and current municipal employees simply because these cities can no longer afford the burden.

In San Diego, the city's payments to its employees' retirement fund went from $43 million in 1999 to $231.2 million this year, almost a fourfold increase and equal to 20 percent of the city's operating budget. Concurrently, the 1.3 million San Diego residents have seen roads deteriorate and libraries reduce hours. For a while, fire stations had to share engines and trucks. The city has reduced its workforce 14% since 2005.

San Jose is not in much better shape. Its pension payments jumped from $73 million in 2001 to $245 million this year, or 27% of its operating budget. Four libraries and a police station that were built over the past decade have never even opened because the city cannot afford to operate them. The city of 960,000 reduced its workforce 27% percent over the past 10 years.

These growth rates in pension and benefit payments are unsustainable, at some point you either go bankrupt as a city or you end up just being a collection agency for government employee benefit programs as you cut other vital government services due to lack of funding. Something has to give at some point.

- Something did give in Stockton, California where they already have or are about declare bankruptcy. Their expenses have gotten so out of control that bankruptcy may be the only alternative to fix the situation.

- An Associated Press report from July 12, 2012 indicates that San Bernadino, California is also about to declare bankruptcy, having less than $200,000 cash on hand to cover millions of dollars of pending expenses and costs.

- A comprehensive study by the Mercatus Center at George Mason University measured the degree of personal and economic freedom state-by-state along a whole host of variables and measurements. California ranked 48th worst in the latest edition of the study (New Jersey was 49th) while Florida was 11th. Given these three state options, where will freedom loving and tax averse people be most likely to want to live, on average, in the long term? 

- A survey study by the Chief Executive Group found similar results when it asked chief executives which states had the best environment for business. California ranked 50th, New Jersey ranked 49th, while Florida ranked 11th. Most of the states that were viewed favorably in the survey cited low state tax levels and friendly business regulation environments (i.e. the government and political class get out of the way of business operations and growth) for their high ranking of the winning states.

Again, similar question: where will freedom loving businesses and tax averse people be most likely to locate their businesses in the long term?

The study results were especially critical of the politicians running California:

"California, once a business friendly state, continues to conduct a war on its own economy. According to the Pacific Research Institute, it has the fourth largest government of all U.S. states, with spending equal to 18.3 percent of GDP. The comparable figure for Texas is 12.1 percent. Survey respondents uniformly say the state’s regulators are hostile. “No one in his right mind would start a new manufacturing concern here,” said one California CEO.

Although California is not unique in pursuing policies that prompt wealth and job creators to expand elsewhere, (New York being a good example), the Golden State seems uniquely oblivious to the effect its labor and other regulations are having on its innovative and growth-oriented Silicon Valley. Job growth in the Valley has flatlined. Firms keep their HQs there, but pursue growth in friendlier states. Google, Intel, Cisco and other companies locate new plants in states such as Arizona, Utah, Texas, Virginia or North Dakota.

Sacramento seems to take perverse delight in job-killing legislation, of which the pair of bills known as California’s “Green Chemistry Initiative” that former Gov. Arnold Schwarzenegger signed into law in September 2008 serve as an example. The regulations mandated that “manufacturers seek safer alternatives to toxic chemicals in their products, and create tough governmental responses for lack of compliance.” When the 92-page final set of commands was issued, the “green community” demanded a rewrite with even tougher requirements. Writing in the Washington Examiner, Chapman University Law professor Hugh Hewitt said that the new rules will mandate testing and labeling changes on tens of thousands of products, likely triggering product recalls. “Take whatever you think is the worst regulatory regime out there, and expand it exponentially.”

Then there is the state’s carbon emission law (AB 32), which the Small Business Roundtable and PRI say will cost half a million in foregone jobs in 2011 and up to 1.3 million jobs by 2020. What’s more, it is by no means certain the law will reduce carbon emissions since it only applies to California."

Is it any surprise that people and businesses are leaving states where it is so difficult to do business.

- Consider some insights from Eric Laffer, author of the book, "Eureka! How To Fix California:"

"Firms, people, investments, and tax revenues are fleeing California, repelled by the most onerous antigrowth business environment in the United States. California’s after-tax rate of return for doing business lags so far behind other states’ (especially zero-income-tax competitors such as Texas, Tennessee, and Florida) that the exodus shouldn’t surprise anyone. Yet the state’s Democratic leadership is pushing a November ballot measure aimed at raising income and sales taxes in order to make up for lost revenue. Tax hikes, especially during trying economic times like these, make no sense. Economies don’t tax themselves into prosperity."

In the article I read online (http://www.city-journal.org/2012/22_2_california-taxes.html), Laffer explains in his book how the California political class can save their state by simplifying everything they do, from their tax code to business regulations to streamlining government.

I particularly love his line, "Economies don't tax themselves into prosperity." This is true at the state and national level. At the state level, people move, taking their wealth, families, and businesses with them to seek out the best financial and economic conditions, conditions that usually include minimal taxation and minimal intrusive government regulation. Usually, those moving are the wealthier families and the better run businesses.

At the national level, the Obama administration has added thousands of regulations to the U.S. business environment since it took office. It has come up with dozens of new taxes for both businesses and families. National economies also don't tax themselves into prosperity.

Maybe that is why the unemployment rate has been over 8% for a record 40 straight months, maybe that is why over 35,000 small businesses shut down last year, maybe that is why we have suffered our first national debt credit downgrade ever.

The California migration trend, leaving the state for a better live, may be starting to find its way into a broader United States migration trend. According to recent IRS reports:

• Last year, 1,800 Americans renounced their citizenship and moved out of the country.
• That's a record number since the Internal Revenue Service began publishing a list of those who renounced in 1998.
• It's also almost eight times more than the number of citizens who renounced in 2008 and more than the total for 2007, 2008 and 2009 combined.

Not a good sign. High taxes and unnecessary and burdensome government intrusions and regulations have no place in a democracy. New Jersey and California are finding out the hard way. Florida already gets it. Will the Washington political class get it before our best citizens, our most promising entrepreneurs, and other successful U.S. businesses decide that elsewhere is better? Muse on that for a while.




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/

Retro 18: United States of Purple - Fixing Our Income Tax Crisis

Due to family visits and obligations, for the next couple of days we will be reposting some previous posts. These will include some of the major issue positions we had written about in February. These positions laid out how the United States of Purple Presidency would finally get around to resolving some of the major issues facing the country, issues that the exisitng political class has never had the nerve, the intelligence, the means, or desire to resolve.

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/