So now’s the time for all good men to avoid what is ominously referred to as the fiscal cliff.
That’s a package of automatic tax increases and budget cuts that go into effect Jan. 1 if Congress and President Obama can’t agree on their own deficit-reducing package.
I am not holding out a lot of hope for a compromise, but who knows.
But cliff or no cliff, I just want to look at what is being proposed with regard to taxes.
President Obama has been saying for months now that a cornerstone of his idea for deficit reduction has to be a blend of increased revenue and budget cuts.
Fair enough. I agree with that.
He has said over and over that “Rich people should have to pay a little bit more.”
I don’t disagree with that, either.
But here’s the problem. What he’s proposing is returning those “rich people” to pre-Bush tax rates. His own proposal notes that this would increase revenue by $850 billion – over 10 years.
Now certainly, $850 billion is a lot of money. But it’s over 10 years. So the revenue from the tax increase comes to about $85 billion a year.
Problem is, the government is currently running $1.3-trillion-a-year deficits. That’s $1,300 billion a year. So anyone with a slight knowledge of math can see that it would take more than 15 years of Obama’s tax increase to zero out one year’s worth of budget deficits.
And my guess is, when Obamacare is fully implemented, a $1.3T-per-year deficit will start looking pretty good. That gem of a federal program has already almost tripled in cost from its original price tag.
To get to a balanced budget is going to require lots of cuts and lots of tax increases. Not just a little “soak the rich” tax hike.
I was listening to the head of the Service International Employees Union talking about Obama’s plan. She mentioned that it only makes sense that the rich pay their “fair share.”
That, of course, begs the question, “What’s their fair share?” As it stands, according to the Internal Revenue Service and the Congressional Budget Office, the top one-tenth of 1 percent of U.S. tax returns were filed by 141,000 people reporting an average income of $7.4 million.
These returns accounted for nearly 12 percent of the nation's total adjusted gross income and approximately 20 percent of all federal individual income taxes – paying an average of $1.6 million apiece.
That was one-tenth of one percent – 0.1 percent – of taxpayers accounted for 20 percent of all federal individual income taxes.
The top 1 percent carried 22 percent of the federal tax burden.
The top 5 percent – 37.
The top 10 percent – 71.2 percent.
The top 25 percent of earners (with AGIs of $66,532 and up) earned 68.7 percent of the nation's income, and paid 86.6 percent of all dollars collected as federal income tax.
The bottom 50 percent of earners earned 12.3 percent of the nation’s income and paid 2.9 percent of all federal income taxes.
So what’s fair?
If those rich people in the top 10 percent – the people targeted by Obama’s plan – already are responsible for 70 percent of the taxes collected, what’s fair? 80 percent? 90 percent? How much more “progressive” can we make the tax code?
It seems to me the tax code is the problem here. We need to scrap the whole thing and start over. It really doesn’t make sense to have a bazillion pages of tax laws. It’s a huge drain of private-sector resources to comply with all those laws and the IRS spends crazy amounts of tax money to administer them.
And besides, as noted above, it’s completely out of whack.
I realize it likely will never happen but something like the flat tax or the fair tax seems to make a lot more sense than this crazy patchwork of IRS nonsense we’ve got going on now.
The Heritage Foundation is out with its “New Flat Tax,” touting it as “One tax system with one rate for all.”
In addition to the income tax, the federal government imposes a payroll tax, an inheritance tax and a bunch of excise taxes. The NFT replaces them all for individuals, families and businesses with one tax system and one tax rate of roughly 28 percent.
The New Flat Tax keeps the Earned Income Credit to preserve income support for low-wage workers. Low- and middle-income families also receive a tax credit of $3,000 ($2,500 for singles) toward the purchase of health insurance.
The only remaining deductions are for higher education, gifts and charitable contributions, and an optional home mortgage interest deduction.
There are other details, but that’s the main gist of it.
The FairTax is touted as fair, simple and easy to understand. It has gained a little traction over the years with several dozen members of the U.S. House of Representatives and U.S. Senate on board.
There are Fair Tax Act bills before congress – H.R. 25 and S 13. Their mission is: “To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.”
Everybody in the U.S. would pay a sales tax on purchases of goods and services, excluding necessities. No more federal income tax. No more IRS.
It’s collected only once, at the final purchase of new goods and services for personal consumption. Used items and business-to-business purchases for production of goods and services are not taxed.
The FairTax rate after necessities is 23 percent and equal to the lowest current income tax bracket – 15 percent – combined with employee payroll taxes – 7.65 percent – both of which will be eliminated.
Social Security and Medicare Funding reportedly wouldn’t change.
The legislation calls for a “prebate” – which provides every legal resident household an advance refund at the beginning of each month so that purchases made up to the poverty level are tax free. This prevents an unfair tax burden on low-income families.
Flat tax and fair tax proponents both say their plans would raise more revenue, are easier to administer and fairer to taxpayers than the current convoluted system.
I would tend to agree.
There’s a lot of information out there about alternative tax plans. Mash the Google key. Get informed and then lean on your representative in Congress
Tax reform is essential if our government ever hopes to truly get its fiscal house in order.