Posted on by Californiacontrarian

Nobody Will Like This

In the last line of George Will’s recent column about federal income taxes he said that the best tax bill might be one that Rep. Bob Goodlatte has introduced multiple times. This “Tax Termination Act” would scrap the existing cumbersome and extremely complicated present four million-word tax code for a much simpler version – ” one designed on purpose.”
I have a reasonable tax plan that would be fair, quite simple, and designed on purpose. The entire tax code could be on one page!
In my plan there are three principles that cannot be changed. While there are parts that will be negotiable, the three major principles are not negotiable.
1) Everybody, who has earned income, pays taxes.
Those who make very little will pay taxes and those who earn a lot will pay a lot more in taxes. To my way of thinking, if one is receiving the benefits of being a US citizen, then that person should have to contribute (everyone needs to have some skin in the game!)
2) There will be three income tax brackets. The rates in the upper two brackets will ultimately be determined by the tax rate is for the lowest group of income earners.The rate for the lowest bracket will initially be set, and then the rates for the other two brackets will be incrementally related to this lowest rate. If the lowest bracket started at 5%, then both the middle and the upper tax bracket would pay a 5% higher rate compared to the bracket below.
For example, if the lowest rate is set at 5% then the middle rate would be
10%, and the top rate would be 15%. The corporate tax rate would be the
same as the highest individual tax rate.
This leads to the first negotiable item – in my example the increment between the different levels was 5%, but perhaps for this to be revenue neutral the lowest rate would have to start at 6% then with the same 6% incremental increase between levels; or perhaps would start at 8% with an 8% incremental increase between levels.
What is also negotiable here is the income level at which the rates change. The upper middle bracket cut off would be a 10X multiple of the upper level of the lowestbracket, but again this is a negotiable part. For instance, if the lower bracket were extended to $30,000, then the middle bracket would extend to $300,000 or if the lowest bracket were to extend to $15,000, then the middle bracket would extend to $150,000.
My suggestions as to the income cutoffs for the different rates would be $15,000 and $150,000 with the middle tax bracket being those who earn between $15,000 and $150,000.
3) The tax would be a flat tax. No AMT. Other than deductions for medical expenses, there would be no deductions and no credits.
Let me be clear on this . . . No deductions for state and local taxes; no mortgage deductions; no property tax deductions; no charitable donation deductions; etc.
No standard deduction. No tax credits.
So to summarize, for example (with high rates at 10, 20, & 30%) if the lowest bracket went up to $15,000 and if one earned $15,000, he/she would pay $1,500 in taxes at the 10% rate.
Continuing on, if one earned $150,000, he/she would pay $28,500 in taxes. ($1500 for the first $15,000 of earned income at the 10% rate plus $27,000 for the other $135,000 of earned income at 20%)
Finally if one earned $500,000, then he/she would pay $133,500 in taxes. ($1500 for the initial $15,000; $27,000 for the next $135,000; and $105,000 for the last $350,000 at the 30% rate)
Remember, no deductions, no standard deduction and no credits.
Other than being very simple, the beauty of this system would be that no one would like it, and that can only be good!
The Democrats would not like this example, because the working poor would have to pay something (in my example, their rate would be 10%), and so they would plead to lower the rate on the lowest level. However, perhaps the Democrats would not be anxious to follow their initial instincts to lower the tax rate to 5% on the lowest income groups, as this would also lower the tax rate percentage on the other two groups to 10% and 15% respectively.
The Republicans would not like it because all of their deductions would no longer be there. Imagine no deductions!! Capital gains would be taxed the same as ordinary income. No one would like losing his/her deductions, but the lower tax rates would compensate.
States with high state tax rates would not like it.
Charities would not like it.
Realtors would not like it.
Etc., etc. would not like it!
So what do you think?
I hear ya sayin’, “We don’t like it!!”
No surprise!

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