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Preamble
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Income Tax
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Determinants
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Margins
-
Deductions
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Earned
Income Tax Credit
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Sales Tax
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Amounts
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Exemptions
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Carbon Tax
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Politics Tax
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Payroll Tax
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Inheritance
Tax
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Corporate
Income Tax
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Basic Income
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Process for
Receiving Taxes
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Where the
Money Goes
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Process for
Making Tax laws
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Punishments
for tax fraud
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Tax code
Restrictions
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Defending the
Progressive Income Tax
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Defending the
lack of many popular deductions in the Income Tax
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Defending the
inclusion of and changes to the Corporate Income Tax
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Defending a
Progressive Capital Gains Tax
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When we run a
surplus
Statement of purpose
The tax code is
riddled with tax breaks that do not benefit the economy. The tax code
is practically regressive, with an extremely low tax burden for the
wealthy relative to both our history and other developed nations, and
starting at a high rate for the middle class. The tax code should be
improved to ensure it works in the best way possible. The goal for
social programs is to tax the incomes with the lowest marginal
propensity to consume to boost programs that provide opportunities to
further their education and ensure all people are able to work which
is the most effective way to boost GDP per capita and average quality
of living.
Income Tax
Definitions:
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Citizen:
Someone who possesses American citizenship or American nationality.
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Non-citizen:
Someone who does not possess American citizenship or American
nationality.
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Global
Income: The total income for the individual from all countries and
all sources.
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Domestic
Income: The total amount of income made within the United States and
its territories.
Effects:
Filing statuses
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Individual
File - An individual file individually.
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Family - A
married couple can file with their minor children on the same tax
form or as individuals.
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Dependent - A
person under age 25 who makes less than the cost of living may file
with their parent(s).
Determinants
Income tax will be
determined by the sum of income from wages, stocks, bonds, interest,
dividends, gambling, game show winnings, rental income, capital gains
upon realization, and tips, after tax breaks. This includes all
domestic and foreign income under these expenses. Income from S
Corporations and LLCs may be treated as regular income, or may be
paid through the corporation.
Margins
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People will
pay the percent of their income equal to 0.5*((Income/(Number of
household earners*cost of
living))-subtractor)/SQRT(10+(Income/(Number of household
earners*cost of living))^2) which will yield a smooth progressive
income tax where everyone under $5000 will pay a negative income tax
and everyone above $50000 will pay taxes. The 0.5 at the beginning
is the maximum tax rate. The subtractor will be 6.
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The cost of
living will be determined by the cost of transportation, food,
utilities, and housing for different family sizes in their home
region as determined by the IRS through a survey. Utilities is
defined as average cost of water, electricity, and internet. This
will be determined by the Bureau of the Census annually for every
state and region. A citizen’s cost of living will be determined by
their region that the Bureau of the Census will determine. Each
region needs to have a similar cost of living and economy
throughout. The cost of living paid for each household will be
determined by the head of household, spouse, and number of minors
residing in the same place.
Deductions
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The value of
money spent on post-secondary education will be fully deducted from
income. Money used for sending out scholarships that are dispersed
will also be fully deducted until no income tax is owed. You do not
have to be related to the person to deduct this and you can deduct
your own education if it is on the path to a degree or certificate
or necessary for work and required by an employer or the government
for a license. Money offered in scholarships is included in this
deduction. The amount spent on the education of other Citizens for
post-secondary education is fully deductible.
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The value of
money spent out of pocket on health care will be fully deducted from
your income, up to the average per person cost of Medicare minus the
amount paid by employers and government programs, and money can be
earned through this credit if the value of health care exceeds the
taxes owed before exemptions. Expenses on vitamins or vacations do
not count. You can include any medical expense you pay for any
person. Life insurance, babysitting, maternity clothes, nutritional
supplements unless prescribed by a doctor, cosmetic surgery,
toothpaste, teeth whitening, food, and weight-loss expenses are not
deductible. This will be in place until there is a single-payer
health care system.
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There will be
a deduction equal to State, and local taxes paid.
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Foreign taxes
will be fully deductible from the amount of money you are taxed.
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If you are
stolen from the value of goods stolen may be deducted from your
taxes. The same is true for property lost in a fire.
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The owner of
a business may deduct business expenses that are moved to the
business’ account. Business taxes are determined separately. Money
put in for careers may be deducted. Money used for licenses is fully
deductible.
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Union dues
are deductible.
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You may
deduct up to the cost of living for your household in charitable
deductions. Charities that are deductible may not be involved in
politics. A deductible non-religious charity must give at least 50%
of its money to the cause. Religious organizations are deductible as
long as at least 10% of their donations go to charity non-mission
expenses (due to the nature of religious organizations). Deductible
charities and religions may not spend more than 5 times the cost of
living for the salary of any person. Deductible charities must make
their financial records open for the public to view on the internet,
which will be complete and include revenue and sources of revenue,
and all expenses and where each expense goes. A charity or religion
that fails to follow these rules will not be deductible and will be
treated as a business.
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Taxes owed
will be decreased by 1% for every member on the filing who votes.
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The amount
invested into Individual Retirement Accounts (IRA) may not be
withdrawn under any circumstance until the depositor turns 65 will
not be considered income up to the cost of living. Amounts invested
in IRAs up to 6% of income or 6% of 10 times the cost of living
(whichever is lower) will be tax-deductible. They will be taxed as
regular income when withdrawn. There may be no minimum withdrawal
when the IRA reaches maturity. Employers may match employee minimum
contributions, and employees may put more into the account in a year
than their employer puts in at any time the employee chooses.
All deductible
amounts will be added up and 10% will be given to the tax payer as
part of their tax bill.
Earned Income Tax
Credit
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The Earned
Income Tax Credit will continue as it is.
Sales Tax
There will be a
sales tax in the United States in the following margins. It will
function as an income tax on businesses which is forwarded to
customers in slightly higher rates.
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A 10% tax
will be charged on the sales of cigarettes and cigars.
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A 2.5% tax
will be charged on the sale of alcohol.
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A 20% tax
will be charged on the sale of firearms.
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A 20% tax
will be charged on the sale of ammunition for firearms.
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A 10% tax
will be charged on the services of tanning salons.
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A 20% tax
will be charged on the sale of any vehicle having less than 10 miles
per gallon on the highway.
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A 15% tax
will be charged on the sale of any vehicle having between 10 and 15
miles per gallon on the highway.
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A 12.5% tax
will be charged on the sale of any vehicle having between 15.1 and
20 miles per gallon.
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A 10% tax
will be charged on the sale of any vehicle having between 20.1 and
30 miles per gallon on the highway.
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A 5% tax will
be charged on the sale of any vehicle having above 30.1 miles per
gallon.
There will be no
general sales tax because the sales tax is by nature regressive and
regressive taxes have a higher multiplier than progressive taxes on
GDP because they disproportionately affect the poor who need to be
able to expand their wealth most of all.
There will be no
Corporate Gross Income Tax.
Carbon Tax
There will be a tax
of $43/tC ($43 per every metric ton of Carbon emitted) from every
fuel source and every factory and every household. Carbon Taxes will
be implemented at the point of combustion, so people and companies
who use cars will pay the carbon tax at the pump, factories and power
plants will be required to track their carbon emissions through the
year.
The United States
emitted 1.522 billion metric tons of CO2 from transportation in 2013,
meaning this would have yielded around $45 billion of revenue if
carbon emissions didn’t drop. If this meant that carbon emissions
were reduced by 5% (just a random guess) than total revenue would
have been around $42.75 billion of revenue from transportation alone.
Total CO2 emissions
from the US in 2012 were 6.526 billion metric tons, and the amount of
carbon emitted has been steady since the 1990s. If the carbon tax
reduced emissions by 5%, we would receive $266.6 billion dollars of
revenue.
Politics Tax
Every donation to a
political campaign at any point of the year is subject to be taxed at
the following rates per individual donor. For this purpose money
lobbyists give to politicians is considered a campaign donation. It
depends on how much the donor donates to politicians, the rate will
be on the total amount of donations:
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If the
maximum amount a person donates up to half the cost of living in
their home state they will pay 5% of their donations in tax.
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If the
maximum amount a person donates between 50% and 100% of the cost of
living in their home state they will pay 15% of their donations in
tax.
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If the
maximum amount a person donates between 100% and 250% of the cost of
living in their home state they will pay 20% of their donations in
tax.
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If the
maximum amount a person donates between 250% and 500% of the cost of
living in their home state they will pay 25% of their donations in
tax.
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If the
maximum amount a person donates between 500% and 750% of the cost of
living in their home state they will pay 30% of their donations in
tax.
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If the
maximum amount a person donates between 750% and 1000% of the cost
of living in their home state they will pay 35% of their donations
in tax.
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If the
maximum amount a person donates between 1000% and 1500% of the cost
of living in their home state they will pay 40% of their donations
in tax.
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If the
maximum amount a person donates between 1500% and 2000% of the cost
of living in their home state they will pay 45% of their donations
in tax.
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If the
maximum amount a person donates above 2000% of the cost of living in
their home state they will pay 50% of their donations in tax.
Corporations, think
tanks, PACs, SuperPACs, foreigners, and unions may not donate to
political campaigns. There is no cap on the amount an American
citizen may donate to campaigns they will vote on. Donating to a
political candidate that you cannot vote for is a Class I Felony. A
corporation that donates to a political campaign will have its
Business license revoked and the entire Board of Directors, CEO, and
other officers will all be guilty of a Class I Felony. If an
individual makes a mistake of reporting their donation they will have
4 years to correct their mistake and pay the tax. If after 4 years
the person still has not reported they will pay 10 times the tax they
would have paid. A foreigner that donates to an American politician
will be barred from entering the United States for life and their
American assets will be seized by the government.
Inheritance Tax
Inheritances will be
taxed at a progressive rate per recipient. Spouses are exempt.
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All
Inheritance under 50 times the cost of living will not be taxed.
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Inheritances
between 50 times the cost of living and 100 times the costs of
living will be taxed at 20%.
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Inheritances
between 100 times the cost of living and 250 times the costs of
living will be taxed at 30%.
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Inheritances
between 250 times the cost of living and 500 times the costs of
living will be taxed at 40%.
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Inheritances
above 500 times the cost of living will be taxed at 50%.
Corporate Income Tax
Corporations have
two options for how they will be taxed:
Option 1 for C
Corporations, LLCs, LLLPs, and Series LLCs is to have all taxable
income as defined below will be paid for by the corporation.
Option 2 for S
Corporations, LLCs, LLLPs, and Series LLCs is to have all taxable
income sent to the stockholders.
The equation to
determine the taxable income is as follows:
Corporations will be
taxed at a progressive rate based on their net income calculated as
follows:
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A= Total
Revenue
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B= Employee
income with varying rates, compensation in cash, IRAs, medical
benefits will all count towards these categories.
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X: Employees
that make below 100% of the living hourly wage will have their
income taxed at 100%.
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Y: Employees
that make at least 100% and below 250% of the living hourly wage
will have 100% of their total income deducted from the
corporation's taxes.
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Z: Employees
that make at least 250% and below 5000% of the living hourly wage
will have 125% of their total income deducted from the
corporation's taxes.
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Employees
that make at least 5000% of the living hourly wage will have no
deduction on their income.
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C=Total sum
of cash spent on capital Investment in buildings, manufacturing, and
other physical assets, advertising,.
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D=Amount of
money paid to foreigners at rates below the Federal Minimum Wage
adjusted for purchasing power parity in that country.
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E=Total State
and foreign taxes
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P=Political
Donations
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F=Charitable
Donations
R = Tax Rate
B=X-Y-1.25Z
A+X-Y-1.25Z-C+D-E
R(A-B-C+D-E+P)-F
equals Taxes owed. If the answer is negative, no money will be given.
Tax*(Total
Revenue-Wages-Investment+Below wages-Taxes+Political
Donations)-Charity = Taxes owed
Living Hourly Wage
is defined as the amount of money needed to be earned per hour to
make the cost of living in one year working 1920 hours in one year.
(40 hours per week for 48 weeks)
The tax rates are as
follows:
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5% on taxable
income for companies that give all of their employees and
contractors at least 5 weeks of paid vacation time and unlimited
sick leave.
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10% on
taxable income for companies that give all of their employees and
contractors from 4 weeks but less than 5 weeks of paid vacation time
and unlimited sick leave.
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15% on
taxable income for companies that give all of their employees and
contractors from 3 weeks but less than 4 weeks of paid vacation time
and unlimited sick leave.
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20% on
taxable income for companies that give all of their employees and
contractors from 2 weeks but less than 3 weeks of paid vacation time
and unlimited sick leave.
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25% on
taxable income for companies that give all of their employees and
contractors from 1 week but less than 2 weeks of paid vacation time
and unlimited sick leave.
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30% on
taxable income for companies that give all of their employees and
contractors less than 1 week of paid vacation time and unlimited
sick leave.
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35% on
taxable income for companies that do not give all of their employees
and contractors unlimited sick leave.
Definition of
Charitable Donations:
-
Donations
that go towards financial assistance, providing medical, scientific,
or educational value towards an individual will be considered a
charitable donation and be completely tax deductible.
Basic Income
Every family will
receive $5,000 per person in Basic Income (to be annually adjusted
for inflation). For minors half of their income will go to the
parents and half will be put into a new Basic Income Trust Fund which
the minor will get when they turn 18 where it will get interest as
government bonds until that point in time.
Where the Money Goes
-
50% of all
surplus revenue of the Government of the United States will go into
a fund for spending in years where a deficit is run. This will be
held by the Federal Reserve for future use. This fund may not be
tapped without an Executive Order or Act of Congress when spending
is greater than income. This money may not be used in any year where
Spending is equal to or less than revenue.
Process for Making Tax Laws
The Process for
making a tax law code change lies in the power of Congress. The
Internal Revenue Service, Courts, and President may make no change
without the approval of a simple majority of both houses of Congress.
Punishments for Tax Fraud
Any American citizen
convicted of lying the IRS on their income will have committed a
Class I felony and lose the right to vote for the rest of their life.
They will lose the right to run for office. They will be incarcerated
for 10 years in a Federal Prison with no bail and charged ten times
the amount that they owed and didn’t pay. Citizens have one year to
correct mistakes.
A business that
cheats on taxes will be fined one hundred times the amount of taxes
owed from previous years. Companies have one year to correct mistakes
without incurring fines.
Cost of Living
The cost of living
will be calculated by Metropolitan/Micropolitan Statistical Areas as
defined by the Census Bureau.
Defending the Progressive Capital Gains Tax
I already know the
least popular part of taxing capital gains as regular income is going
to be the claim that I am hurting investors. There is some merit to
this in the immediate term, but it only looks at the individualistic
short-term side of the picture. Citizens will claim I need to tax
capital gains at a lower rate than regular income, that capital gains
keep the economy running, that taxing capital gains as regular income
introduces double taxation, but there are some problems with this.
Most arguments come from this far-right think tank’s article on why
they claim to oppose a progressive capital gains tax:
http://reason.com/archives/2013/01/06/why-double-taxation-must-cease
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The biggest
problem they are wrong about is that the Utilitarian capital gain
tax does not introduce double taxation. The Capital Gains tax is
only on the amount the investment made, which means that despite
what many will claim, it is only getting taxed once, upon
withdrawal.
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-
Taxing
capital gains as regular income will give the government enough
revenue to fix the debt without touching spending. 10% of our
government spending in Fiscal Year 2012 went to the debt, and that
money should be going to the American Citizens in the form of health
care and education.
These types of
groups write sensationalist loaded language that is designed to make
Citizens who already agree with them to be outraged (and frankly, I
have occasionally been the victim of some left-wing groups doing the
same tactic) and should be ashamed of themselves.
Taxing capital gains
as a progressive tax is just fair and actually makes good economic
sense. If someone invests their money early and keeps it in for
decades they could have billions of dollars, like pretty much
everyone on the Forbes 400 list. If Capital Gains are taxed at a
fixed rate and you have a billion dollars in the stock market and the
market collapses and you pull everything out along with your
billionaire peers the market will collapse further and companies will
have less capital to invest with, which will put them at odds between
the continued growth of the company through assets and employees, or
giving their investors their annual/quarterly dividend and increase
to their stock, and we all know which usually takes priority. To
stabilize the stock market we need to give an incentive for these
mega-investors to keep their money in for the long term so that
companies can use their money efficiently, downturns can be short,
and unemployment can be lower than otherwise which will preserve our
economy’s demand curve. By preventing large market collapses it
will help Citizens who have their money in the market from losing all
of their gains, and companies will continue to have capital to invest
and grow, and hire more Citizens which will raise the demand curve,
decrease unemployment, and make a stronger economy. This is why a
progressive income tax that treats capital gains as regular income is
just healthy economics for America and the world.
Will a progressive
capital gains tax make a substantial difference? In America there are
about 250,000,000 adults, and lets conservatively assume that one
percent of these Citizens make over a million dollars a year. That
equates to $2,500,000,000,000 of income per year, or 17% of our GDP.
Under the current tax structure, the government will make $500
billion from that income, but under the Utilitarian tax code the
government will make at least $625 billion instead. For Citizens in
the top 400 richest Americans, if we assume they make at least $100
million per year, that is a lower limit of $40 billion of annual
income. This currently gets taxed at 20% when they take it out (since
most of it is in capital gains) which is $8 billion of income for the
government. With the Utilitarian tax code, they will pay an effective
rate of 69%, which means the government will make $27.6 billion
instead. While 69% seems really high, they are still keeping $31
million of after-tax income, and by taking their money out of the
stock market over a long period of time they can easily lower the tax
burden, so no one will really pay 69% because they will remove their
money from the stock market over a long period of time. But the most
important part is that this will punish Citizens from removing all of
their money from the stock market at once which hurts the economy,
and will create revenue for the government during future recessions
to put the economy back on course with smaller deficits in the bad
times, and the government will not need to run deficits in the good
times under such a system. This will mean less frequent and less
severe recessions as part of the market cycle, which is good for
everyone from the factory worker who won’t get fired to the CEO who
won’t see his company’s market cap decrease significantly. On the
other hand, the current tax structure doesn’t punish Citizens for
pulling out all their money at once which creates recessions by
making the stock market more volatile when many investors act at once
which can occur when stocks act erratically.
Another closely
related issue with the corporate world is how much Citizens should be
paid.
www.ethisphere.org
is a collection of stocks that beats the S&P 500 every single
year in growth, and are selected not for their stock returns (which
are considerable) but for their morality. By paying their workers
more every year than their counterparts they have lower turnover,
lower training costs, lower hiring costs, and their employees make
fewer errors which cost any company money, giving these companies
money to either grow, and/or pay their investors more money than
their minimum-wage and/or Chinese slave driving competitors.
(
http://www.aljazeera.com/programmes/slaverya21stcenturyevil/2011/10/2011101091153782814.html)
By paying Citizens more money this helps the corporation immediately
by getting and keeping the best workers in the market and making them
valued which makes a difference. In the long term at the societal
level it raises the demand curve for goods and services which means
that more Citizens can afford the goods the corporation makes which
increases their demand and means that a stable relationship between
company owners, employee, investor, and consumer can develop. This is
just good economics from every perspective for the reasons I outline
above. My tax code will help move us toward such a world. As Henry
Ford said, “
There
is one rule for the industrialist and that is: Make the best quality
of goods possible at the lowest cost possible, paying the highest
wages possible.”
Defending the Lack of Many Popular Deductions in
the Income Tax
There are hundreds
of deductions in the United States Tax Code, from the beloved Home
Mortgage Interest Deduction, to the hobby deduction (no joke), to
short-selling stocks, to 401k fees, office rent, business insurance,
dues to business organizations (as an individual), travel expenses,
and most of these are impossible to accurately defend. We should keep
deductions that help our economy as a whole and eliminate the ones
that hurt us.
The Home Mortgage
Interest Deduction makes the government lose billions of dollars a
year. It give consumers little reason to shop for a lower interest
rate in the marketplace, and with no cap makes it extremely
regressive. Citizens who need the most help get the smallest
deduction, Citizens who need no help get the largest deduction. It
doesn’t benefit society. Home ownership over apartment ownership
does not need an extra incentive, as inexpensive apartments can
easily cost $500 per month, while a mortgage for a larger house will
be less before the tax deduction. Also, the common perception that
the United States has a higher home ownership rate than outside of
the country is completely false as can be seen here:
http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate
Clearly this
deduction fails to make a significant difference in home ownership,
doesn’t actually help the principal of the mortgage, and only
eliminates the incentive for consumers to shop for a lower interest
rate making an annual bailout of banks. This does not function as a
tax cut. The only real beneficiary are the banks who can charge
higher rates of interest.
Losses from
ponzi-schemes are deductible. We shouldn’t be deducting things from
poor investment choices which decreases the need for responsibility
and due diligence and does not benefit the country. This is a
completely different argument from national health care because
making sure that everyone has health care increases the competition
of the American worker which benefits the common good. People do not
choose to get ill, people choose to give their money to a scammer.
Ponzi schemes, gambling deductions, and sky high mortgage interest
payments do not benefit Americans who are not part of such schemes.
We currently allow
some deductions for Citizens who buy bonds.
Defending the Corporate Income Taxes changes
The current
Corporate Income Tax system is perverse. The most popular argument
for a corporate income tax is that it is a way to tax the rich. This
is just plain wrong. When a company is deciding its prices it puts
the corporate income tax into its calculations for how high to set
the prices, and the prices are inflated so the company makes the
amount of money it wants regardless of what the corporate income tax
is, sure there is competition but that doesn’t come into account as
much because consumers will pay the tax no matter where they bring
their business. Also, many companies make their expenses work to get
enough deductions so that they don’t have to pay anything in taxes.
Clearly, the modern corporate income tax doesn’t work.
It has been widely
commented by economists on how it is not ideal on how companies are
taxed for bringing foreign-earned cash back home to the United
States. There are two ways to look at this, first of all they are
investing their money in foreign countries, but since the products
are generating cash abroad it means that they are selling items
abroad. If we have companies potentially exporting items to the
United States we want them to be able to bring the cash back home to
invest domestically. The current corporate tax code makes such a move
detrimental to the company, but with the current tax code they will
get tax benefits for bringing money home and creating domestic jobs.
We need to encourage companies to grow jobs here at home which is why
this part of the corporate tax (along with most of it) has been
removed.
We will modify the
Corporate Income tax to encourage companies to pay their employees
more to increase the aggregate demand curve of the economy which is
necessary for the economy to function.
Defending the Negative Income Tax and UBI
This tax code
proposes a massive transfer of income from the richest of the country
to the poorest through a negative income tax and Universal Basic
Income. This is done for multiples reasons, but one of the most
important is people with less income are more likely to spend it.
This helps stimulate the economy. It also has a political component
because people who feel like they have more of the pie are more
likely to vote which is what the majority of political science
research demonstrates, which will improve our nation’s political
well-being.
Providing a general level of wellbeing will help significantly
alleviate poverty and stimulate impoverished communities. It will
reduce inequality which is tied to gun deaths and other social ills.
Instead of spending money on implementation this is a more effective
way to get people out of poverty.
Defending the Corporate Income Tax
Every part of the
Corporate Income Tax is designed to do specific things. The first
thing which is to encourage corporations of all sizes to pay people
more than the cost of living in states is designed so that the
working poor will see bigger paychecks from their employer so they
won’t need as much welfare from the government at all levels. This
subsidy encourages this transfer of income to workers helps to reduce
income inequality.
the second most
important thing is all investments corporations make will be deducted
to encourage them to save and increase the amount of economic capital
they build. This will have the direct impact of increasing America’s
savings rate which increases our long-term potential growth.
Effect of a balanced budget
This will be the
automatic process for when the budget is balanced to help boost GDP
growth.
-
We will
increase the subtractor in the event of a balanced budget which has
the dual effect of increasing the number of people who get money
back in their taxes and decreases taxation for all.
-
Half of the
surplus will be allocated to public schools and sent to them to be
used as local school administrators decide. The remaining half will
be sent directly back to the people in the form of a check.
In the case of a
surplus the money will first pay off the debt early, if there is no
debt, it will be sent back to the Citizens in the form of a check
proportional to the amount of tax Citizens paid. If the government
receives a surplus for two years in a row and the debt is completely
paid off then the lowest tax bracket will be eliminated. If the
government has a surplus after eliminating the lowest tax bracket the
new lowest tax bracket will be eliminated the following year. If the
government runs a deficit after eliminating tax brackets the highest
bracket eliminated will be reinstated the following year. Congress
may adjust the lowest bracket to balance the budget, but income under
the cost of living may never be taxed. Congress may also add tax
brackets above the highest existing tax bracket to balance the
budget, which shouldn’t be necessary.
