(Revised February 8, 2008)
We currently have an income tax which basically means we tax working people and businesses. A major problem with this is there are so many deductions available to the rich. This allows the rich to get richer, the poor to get poorer, and forces the working person to work longer and hard for less rewards.
Example
If I buy a small boat and use it to entertain my friends, I have to pretty much just consider it an expense. If a rich person buys a yacht, they can normally write it off as a business expense along with their limousine, private jet, and all associated costs.
Lower Taxes by Percentage and Raising them in $$$$$
In the past we've heard a lot about reducing taxes, but it is normal done on the percentage curves. These taxes breaks seem big to us, but they are really big to the rich. Revenue lost by these tax breaks have to result in cuts in services or raising taxes or fees in dollar amounts somewhere else.
If you normally pay $5,000 in income tax and it were to be reduced by 10% you would save $500. Someone paying $50,000 would receive a savings of $5,000. How do they make up this lose, by raising taxes in dollar amounts on items like cigarettes, liquor, fuel, National Park entrance fees, etc. As you see the rich save a lot, but still pay the same for retail items.
Recommendation
I would like to gradually raise the personal income level where people start to pay income taxes to a gross household income of $50,000 or individual to $25,000 by increasing personal deductions. When the starting taxable amount is $50,000, I would eliminate all deductions. Simply put, within two to three years, if your gross individual income is less than $25,000 or your gross household income is less than $50,000 you pay no income tax. Your personal income tax would increase similar to current scales after that; therefore, the simple one page personal income tax form.
This will allow people to spend more money at the businesses of their choosing, creating more jobs and taxable income for these businesses. This will stimulated economic grow and the additional income tax paid by businesses will make up part of the loss revenue.
I would replace the rest of the revenue with a Federal sales tax. This way a person pays a tax only when they buy something. EVERYONE is treated equally with the same sales tax percentage across the board for all goods and services.
I recommend starting with a 1% Federal sales tax and increasing it by 1% each year until the starting "taxable" income tax is over $50,000. .
The fiscal year for the sales tax would be November - October. This would give the IRS time to adjust the tax tables to raise the personal deductions based on how much they received. Keep in mind that it is no longer primarily just the working people and businesses that are contributing to the tax, but it also includes the rich, the very rich, and the extremely rich, along with visiting foreigners, illegal immigrants, and those who currently just don't want to file taxes.
Here are some examples of how this would work:
I buy a dollar burger at the fast food restaurant. I pay one cent in Federal sales tax. Some rich person pays $100 for a meal in some up scale establishment where they just raise the price to keep common people out, this person pays $1 in Federal sales tax. Neither of us will even notice the tax.
I buy a $20,000 boat. I pay $200 sales tax. I notice the tax, but when I take into consideration how much extra money I will have brought home without having to pay the income tax, I'm still way ahead. A rich person buys a $20,000,000 yacht. The 1% or $200,000 in Federal sales tax would be hardly noticeable to them, either. What before was a write off and had to be made up by the working person or business is now a substantial amount to the Federal government.
Currently in business, if someone loses money, they can write this lose off their taxes. They are only taxed if they make money. The Federal government is in a sense rewarding poor business decisions and punishing good ones. With this Federal sales tax, the tax would be collected at the time of the sale or service.
Example
Billions traded on the stock markets daily. A person buying stocks and bonds, etc. has hopes of making big money, but there is always to possibility of a lose. We tax each transaction with a sales tax. This way, we the American people/the Federal Government get our money up front. If a person can afford to "play" the stock market, they can afford to pay their fair share to the Federal government.
Collecting the Federal sales tax
Much of today's consumer purchasing is done with credit or debt cards. With these purchases the sales tax would be deposited with the IRS electronically during the credit card transaction.
For any purchase that is paid with a check, there would now be two lines on the check. The first line is for the amount owed to the seller for the item and the second line for the amount of Federal sales tax. The tax would be collected as the check is processed through the Federal Reserve banking system.
In cash and other transactions, the tax would have to be deposited with the IRS/Federal Reserve within two business days.
For small home/hobby/thrift sale type businesses that expect to generate less than $1000 per year a person could purchase on line a yearly Federal tax stamp for $5.00 that could be printed off on their printer. This would need to be purchased prior to doing business and most be displayed for the customers. With this stamp they would not have to collect and deposit Federal sales tax since they have already paid it.
Deduction Caps
I would also limit the amount of salary and benefits that a company can deduct per employee to $200,000. If they can afford to pay top CEOs and officers millions in salary and benefits, they can help pay our taxes.
Write-Offs
We also need to change the tax code to prevent companies from buying companies involved in the mortgage crisis simply for tax write-offs.