Earlier today (August 8, 2011), I proposed via Twitter that to balance the budget and get spending under control, we should look at an option where for every $1 in tax increases, there should be a simultaneous cut in spending of $4.
Then I did a little research…
Not so many years ago, Canada was in dire financial straights, and their credit was in the toilet. The Canadians took just such an approach, but a little more aggressive.
For every dollar they increased taxes, fees, and other revenue sources, they cut seven dollars in spending.
That is even better. Someone care to do the math for me to see how fast we could reduce the debt to zero?
More importantly, this nonsense of a “fair and balanced” approach being to increase taxes on any one group is far from fair, balanced, or even workable. Tax increases must be across the board.
In fact, a flat tax is the way to go. Everyone pays the exact same percentage of their income no matter what. No deductions, no adjustments, no nothing. Also, the source of the income doesn’t matter. No exemptions for alimony, child support, retirement, Social Security, and all the rest. No lower limit on income below which you get a free ride. No upper limit on income above which you have a million loopholes. Finally, all individual taxpayers would be subject to this structure, and for the purposes of tax law, all businesses of any form would be considered “individuals” under the tax codes. Foreign businesses selling products in the US would be subject to a national sales tax. See later in this blog.
Caveat: Self-funded retirement accounts would be an exception. See later in this blog.
Just to pick a number, and I have no clue how close this would be to the actual number needed, let’s say the Flat Tax Rate (FTR) is set to 15%.
If you make $50,000 in income this year, you would pay $7,500 in taxes. End of story.
If Bill Gates makes $5,000,000,000 in income this year, he would pay $750,000,000 in taxes. End of story.
If Billy-Bob makes $400 in income this year, he would pay $60 in taxes. End of story.
I would bet dollars to doughnuts that for the vast majority of people, their tax rate would go down, while the Treasury would collect far more money.
Additional savings would come from the fact that the IRS is now redundant and could be fully eliminated. Your tax form just became a post card.
Again, I have no clue and no motivation to look up what the budget of the IRS is, but I will again bet that it isn’t peanuts. I also suspect the number would probably depress the hell out of me.
This needs to be coupled to a National Sales Tax. (NST)
Every item that is sold is subject to the NST. Again, there are no exceptions, exemptions, or other loopholes. If you buy it, you pay the NST on it.
Now, there may need to be two different NST rates: One for end-user sales, and another for items to be resold. That’s a detail for the economists to work out. Personally, I see no problem with a single NST that applies anytime an item is sold.
Also, the NST would apply to EVERYTHING, including items sold to government agencies, non-profits, and services provided.
Now, on to my vision of a few of the details…
I would see the NST as being fairly low, maybe as low as 1%, but probably around 2% is more realistic. I suspect that the FTR would be about 10% or so. Again, these numbers have NO basis in any calculations. They are 100% pure gut feeling.
Let’s assume a person making $60,000 a year and putting $12,000 a year into a retirement account. They would have the choice of paying taxes on the retirement account funding now or when they draw it out at or after retirement age. Let’s assume they elect to pay now.
Their taxable income is $60,000. Their tax due would be $6,000. This leaves them $54,000 in their pockets for mortgage payments, food, utilities, clothes, gas, and all the rest, but remember that everything they buy, including their mortgage, is subject to the NST.
Let’s assume that their monthly expenses, before the NST, come to $4,000 a month. At 2%, the NST would be $80. This puts another $960 a year into the Treasury.
So, for one taxpayer as above the total income would be $6,960 a year. That comes to a tax burden of 11.6%.
For someone making ten times the amount above, just multiply everything by 10 except the tax burden. It would stay the same.
Once our taxpayer reaches retirement age and starts to draw from their retirement account, since they paid taxes on that money when they deposited it, no new tax is due except on the interest earned. That is another detail that the accountants can work out.
Now that is fair and balanced.
I would love to see someone who has the time and expertise in accounting work out some numbers for the FTR and NST that would give the Treasury the same income as they have now. Then see what happens when we trash the IRS and the related maze of agencies that are involved.
I think it’s pretty clear that the income of the US Treasury could be increased while reducing the tax rate for 90% or more of Americans.
Couple this increase in revenue with a 1:7 reduction in spending, and we’re out of the hole in a matter of a few years.
More importantly, our kids and grandkids are out of the hole, too.
Melodee Aaron, Erotica Romance Author
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