Taxes

I think priorities for Congress and the President have been a little off since the Affordable Care Act went through.  Don't get me wrong, I love the changes made to the healthcare system and it is all for the better.  I started out on the fence with the mandate, but as I educated myself on the issue it became more and more obvious why it is needed for many of the changes to be successful.  There is going to be a little roughness as things roll in from the program, but in the end its for the better.  Most of the opposition to the act centered around the mandate and pretty much all of Obama's political capital was spent on that one thing.  He paid the price for it in the 2010 election, and so did the American people as Tea Party ideologues came in.  The opposition from the Tea Party candidates was directly responsible for the volatility of the market all last spring through summer and into August.  This wasn't a spending issue, it was a living up to our responsibilities as a people issue.  All it was was repaying our debt and instead it became tainted and twisted into some big spending problem.  I'm not saying that we don't have a spending problem, its pretty clear we do, and it needs to be tackled immediately with Tax reform and cuts to military spending as well at a good look and cuts to various other areas of the government.  But the debt ceiling was not the time nor issue to draw the line on.  As a result our credit rating was downgraded, as I said, the market went wild, which, since we are such a driving force in the world, also affected the world economy at large.  I think all of this could have been avoided if President Obama, following the Affordable Care Act, dove straight into tax reform.

              Now, while there is significant blame to go around to all parties, a much larger chunk can be attributed to Republican action than to Democrats.  The Bush tax cuts were meant to spur the economy back into action, and it did, a little bit, for a short while, but they weren't paid for so in the end we're cutting our income and thanks to the neocon war machine, increased our spending massively.  So here are a few things that are current problems or arguments proposed by Republicans .

1.)  Tax Cuts create jobs

      No, they don't.  They relieve pressure during tough times on businesses, but there has never been a correlation between tax cuts and hiring.

2.)  Small Businesses fall into the top tax bracket.

      No, they don't, or at least any businessman worth his beans would not operate his business so that he is filing his business income with his personal income tax.  Like any good business man with a good business plan, would have a salary or wage for himself and attach the profits to the business itself.  Doing so allows the business a lot more tax freedom and allows the owners personal taxes to be significantly smaller.

3.) Trickle down economics

      Reagan's idea that more money in the hands of the richer people trickles down into the other income ranges and everybody benefits.  This is patently false and if you look at the wages, wealth and social mobility from Reagan's presidency through today there is a gigantic increase in the upper levels while pretty much everyone else is staying at roughly the same income or in some cases, their incomes have decreased.

4.)  Tax Brackets

The Tax Code brackets are set monetary levels that do not account for inflation/deflation so as a result, as time passes the brackets effectively lower themselves to hit more and more people who proportionately are making less and less.  This would be fine if we had typical inflation/deflation cycles, but we haven't had a particularly significant deflation cycle in decades, so the end result is the upper middle/middle class paying more of the income out in taxes.

5.)  The Tax code is bloated and full of holes

          This is probably one of the biggest problems with the tax code, though the closing of loopholes doesn't add up to nearly enough to fix the revenue/spending problems we have, in its current state it is dramatically tougher on people who cannot afford to hire big name accountants and tax lawyers to get them the big breaks.  Rick Perry had a fantastic idea in how his plan could fit on an index card that would resonate in a HUGE manner with most of the country, even if the rest of his plan was idiotic.
  The best thing that can be done now to fix this is, like I've stated so far, a rewriting of the tax code.

6.)  The economy is at its best when everyone is doing well

        This isn't a statement advocating communism or something.  An all encompassing government, ie communism, is as implementable as libertarianism in its pure form.  Neither work.  But if you look at the operation of the economy, a majority of product movement and monetary movement centers around those in the middle class and below.  When there is high demand in those income ranges that means people who run businesses are going to be selling at a pretty good rate.  That in turn means they're able to employ more people, which keeps the unemployment rate down and demand steady.  Instead, we've had cuts to higher income levels, which is good for keeping supply going, but we don't have a supply problem right now, so all it does is keep that money in the higher areas and the rest of the country is left struggling.

7.) Wealth Inequality

       This is something I've always struggled with because I really despise the idea of income redistribution.  The problem is, if you look at history, the larger the gap in the higher percentage of wealth owners and the lower percentages, the more likely the civilization collapses.  Obviously I don't see American civilization collapsing, and a lot of the free market system inherently protects against that, but the social unrest that comes with that is the real problem.


8.)  Capital Gains Tax

           Removal of the capital gains tax has been a huge issue for republicans for ages.  The problem you have there is high income earners, CEOs and such, transfer their earnings directly into stock and by living on the profits from said stock, they end up paying a lower tax rate than people who make significantly less than them.  Case and point, Warren Buffett, one of the richest men in the country, paid a lower percentage than his secretary.  You also have people who can live solely off the money generated in the stock market and end up being paid for doing nothing.  Also, if you remove the tax, the market will be significantly more volatile.  One of the main reasons behind the tax is to encourage people to keep their money in the market.  Without it you would have people trading on the slightest shifts and the volatility involved will be the likes of which has never been seen.


9.)  Estate Tax

            There is a huge roadblock to America being a meritocracy, that is the wealth and connections provided to certain people simply because of their birth.  That dramatically decreases social mobility which can be a real hindrance on society at large.  Now, of course people will just gift it before death and such, and there really isn't anything you can do about that, but you need to combat it anyway if you really want people to have wealth that they have earned.  That is why I would advocate high percentages on estates.

10.)  Corporate Taxes

          The US has pretty competitive rates when it comes to Corporate taxes, so its not a huge issue for myself.  I am kind of outside the typical democrat position on this.  I don't think we need to raise taxes on corporations.  In fact, I think they would be fine if they were equal to personal income tax rates.  We just need to close loopholes so we don't end up with stuff like GM paying nothing in taxes despite huge profits.

11.) Repatriation of foreign profits
          
           Currently there is a large sum of money owned by American corporations, or multinationals with a good portion of their focus on the USA.   We have a tax on bringing those profits back.  Now, in the past we have had a moratorium temporarily placed on this, and in the end, nothing really comes of it and once that moratorium ends the money just starts building up again.  The tax needs to be scrapped all-together, or at least be extremely small, like 1%.  Something to encourage them to invest the money back in our economy because there is a proportionately small loss to the tax versus the profits made on it once it has returned.

12.)  Flat Tax

           I often hear that a flat tax and the fair tax, which is a misnomer by the way, are fair solutions to the tax system.  The problem is that it could not be farther from the truth.  They are both extremely regressive taxes and the less and less you make the harder and harder it hits you.  For example, say a family of four makes $40k a year, and another family of four makes $400k a year.  Even with the second family perhaps paying for higher quality goods instead of being as frugal as the first family, the amount of their total earnings going to basic necessities like food, clothing and a home is going to have an enormously larger impact on the first family versus the second family.  In effect they are left with a much lower percentage of their total income to spend on non-necessities and have to scrape along to survive.  In turn, the higher income family is left with a huge amount of their total income.  Example:  The cost of living in the area is $35k, including the flat tax.  That leaves $5k for one family and a whopping $365k for the other.


Finally, my proposal for the new tax code.  Obviously this is just an amateur proposal, but it is rooted in arguments I have heard before from all sides and I suspect it would accepted rather positively for most people.

1.)  One of the very important points is that these percentages don't apply to all of the earners income.  Each bracket applies to that set amount of money, the next bracket to the next portion of the money.  So a person who makes 2 million dollars, would pay one rate on the first million, and a second rate on the second million.  That lends itself much more towards a fair impact on everyone involved.

2.)  Another important point is to clean up the overall tax code.  Scrapping nearly all the exemptions would be ideal.  I would suggest leaving exemptions that are targeted towards benefiting the poor, such as exemptions for children.

3)  The tiered bracket system HAS to be adjustable for inflation and deflation.  For the sake of this proposal, I'll use set numbers though.


$10k and less, No income tax
$25k to $50k, 5%
$50k to $100k, 10 %
$100k to $250k, 15%
$250k to $500k, 20%
$500k to $1 million, 25%
$1 million to $10 million, 30%
$10 million to $50 million, 35%
$50 million to $250 million, 40%
$250 million to $500 million, 45%
$500 million to $1 billion, 50%

These numbers are strictly for example,  I do not know what the total tax revenue would be, but the idea is to demonstrate a much broader tiered tax system.  In this example, Someone who earns $50k would pay $1250 total (5% on all money above $25k).  Someone who earns $100k would pay $1250 + $5000 = $6250.  Someone who earns 1 billion would pay $1250 + $5,000 + $22,500 + $50,000 + $125,000 + $2,700,000 + 14,000,000 + 80,000,000 + 112,500,000 + $250,000,000 = 459,403,750

That is an effective total rate for the $1 billion earner of 45.9%.


Once again, there is no logic behind these specific numbers, this is just to illustrate a broader tax base with a more comprehensive tiered system which has less impact on lower percentage earners.