Not So Flat Tax

Per Fareed Zakaria’s article in the October 31, 2011 issue of Time Magazine, the US federal tax code with IRS rulings is now 72,536 pages with 16,000 pages of actual code and the statist French have a code of 1,909 pages. He says that the Russians, Czech Republic and Estonia have moved to a flat tax with considerable success. And, according to Zakaria, John McCann pointed to the tax code as the foundation for the corruption of American politics. Special interests pay politicians vast amounts of cash for their campaigns and in return they get favorable exemptions or credits in the tax code. In other countries this sort of bribery takes place underneath bridges and with cash in brown envelopes. In America it is institutionalized and legal but it is the same – cash for politicians in return for favorable treatment from the government. The US tax system is not simply corrupt; it is corrupt in a deceptive manner that has degraded the entire system of American government. Congress is able to funnel vast sums of money to its favored funders through the tax code – without anyone realizing it. The simplest way to get the corruption out of Washington is to remove the prize that members of Congress give away: preferential tax treatment. Zaharia say a flatter (not flat) tax code with almost no exemptions does that. 

According to Zakaria, the US today has the second highest corporate tax rate in the industrialized world (our highest tax rate is 35%). Yet, of the 500 big companies in the stock index, 115 paid a total corporate tax rate – both federal and otherwise – of less than 20% over the past 5 years. Of those, 39 paid a rate of less than 10% (don’t forget – Romney paid 14%). So we have a system that appears unfriendly to business, invites companies to game the system and raises only a modest amount of revenue. Zakaria says the US is the only rich country in the world without a national sales tax or value-added tax (VAT). He quoted the rates for Germany (19%), Britain (20%), and Korea (10%). My research showed these countries as the 4^th, 6^th, and (South Korea) 15^th largest economies. He also says the US government gets 41% of its revenue from individual incomes and profits, compared with 29% in Germany and 21% in France (the balance comes from the VAT). Zakaria offers the following solution: 9% for 1-$149,000, 18% for $150,000-$499,999 and 27% for $500,000 up and he would keep deductions for state/local taxes and charitable contributions and enact a 50% inheritance tax. He said he would also lower the corporate rate to 18% and would impose a 9% VAT. I don’t think this idea is a viable solution as I’m sticking with a national sales tax hurts the lower income people most.

Companies have businesses expenses and all the options I’ve heard don’t tell me what a business deduction is and I do believe that the cost of running a business should be deductable as it’s not true income. I really think the bottom line is to level the field. For example, capital gains should be treated the same way earned interest from a savings account, money market, CD, stock dividends, etc. are (income is income). If you can deduct alimony then you should be able to deduct child support and day care. There are no tax credits to corporations other than those for hiring; everyone would get credits for using energy efficient products. My thing with education being written off is that private schools include supplies, uniforms and more while there is no write off for the same items for public schools; to be fair only those expenses that are paid by the government for public schools should be written off by those sending their kids to private schools. I agree that charitable donations and state/local taxes should be deductible. There are more changes that can be made to even out the playing field between the average American and those with the money for extra curricula or luxury expenses and investment. Now let’s get to the percentage of tax. I paid $1 for my $22 earnings in 2007; 4.5%. I believe that anyone at or below the poverty level shouldn’t pay any federal income taxes. To stick with somewhat of a 9/9/9 plan I’d have incomes of poverty +$1 up to $149,000 pay 9%, $150,000-$499,999 pay 18% and $500,000 up for individuals and corporations pay 27%. On February 22, 2012 the President proposed lowering the corporate tax from 35% to 28% and making it less for manufacturers in an effort to bring jobs back to the US (it’s close to my proposal). I know the inheritance tax is geared to the rich but middle income families also inherit property so I think I’d have a different tax for above and below $500,000 (27%/9%).

On February 25 I heard that Romney said his new plan would cut income taxes 20% and raise the age for Social Security (SS) and Medicare saying we need to balance the budget. Here we go again with ridiculous proposals; he can’t balance the budget without increasing taxes unless he at a minimum raises the age of SS to 70 and Medicare to 75 – I don’t think this is a good idea.