This week I got a little long winded in my editorial for my Patch column. Big shocker, right?? Damn word limits!! So, this week my piece was in 2 parts. One ran yesterday and the other today. You can see PART ONE and PART TWO on Patch so you can view and add comments!! I will post it all as one piece below.
During this past weekend, my husband and I were discussing tax rates. I know, right…we are a couple of feisty whippersnappers!! Party on!! Neither of us are math geniuses or economists. In fact, I despised math and pretty much slept my way through econ. These subjects are not my forte and I will not pretend otherwise. So, this is why I decided to give myself a crash course in Tax Rates and Systems. Will someone please pass the Excedrin?
As my brain cells throb and my common sense is floods – I try desperately to mend our country’s fiscal woes. It is no joke that our current tax system is mindbogglingly ridiculous. But the options are also overwhelming and difficult for the lay person to completely understand. I read about proposed Flat Tax plans and I can easily see the pros as well as the cons. I read about Fair Tax proposals and can see that the term “fair” is utterly subjective.
First, here are some basic definitions (thanks to Wikipedia) to get you through this oh so exciting topic.
Flat Tax – A tax system with a constant tax rate. Usually the term refers to household income (and sometimes corporate profits) being taxed at one marginal rate. Flat taxes offer simplicity in the tax code, which has been reported to increase compliance and decrease administration costs. Flat taxes that allow a tax exemption for household income below a cutoff level are not true proportional taxes, because, for household incomes below the cutoff level, taxable income is less than total income.
Fair Tax – A proposed change to the federal government tax laws of the United States intended to replace all federal taxes on personal and corporate income with a single broad national consumption tax on retail sales. The taxes that would be repealed include personal income taxes (including the alternative minimum tax), corporate income taxes, capital gains taxes, payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes. Personal services such as health care, legal services, financial services, haircuts, and auto repairs would be subject to the Fair Tax, as would renting apartments and other real property. Exports and intermediate business transactions would not be taxed, nor would savings, investments, or education tuition expenses as they would be considered an investment (rather than final consumption).
Progressive Tax – A tax by which the tax rate increases as the taxable base amount increases. “Progressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate. Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay.
Flat Tax sounds good on the surface. But does it accomplish one of the intentions of taxation? One purpose of taxation should be to redistribute wealth. Clearly, that is not happening. 400 Americans have more wealth than half of all Americans combined. Many people believe that a Flat Tax would not take care of this problem. If there were a straight…say 17% tax for every individual in the country – that could also lead to inequality. This is because 17% at a poverty level income is much more detrimental than 17% to a billionaire. That tax money could take away the necessities for survival from some. And a mere drop in the bucket to others.
Fair Tax is another valid argument. I mean, why should we be taxed on what we earn? Should we be penalizing a person for working? Perhaps a tax on spending would bring our materialistic selves back to earth and shift our priorities a tad. But again, who will bare the brunt of this “fair” tax the most? Services such as healthcare, rent and legal fees would be taxable. But investments would not. Poor people use hospitals but not so much stock portfolios. It would also raise the cost of many services and products, making it virtually impossible to be afforded by the poorest of society.
I do believe that getting rid of all the loopholes, credits, deductions and all of the extra various taxes would be a welcome benefit to a reformed tax system. The Fair Tax would accomplish this, but it leaves too many frayed edges.
Many conservatives think that Progressive Tax is unfair to the rich. I do not agree. Robert Shapiro said in the Washinton Post, “The point of progressive taxation is not to penalize those who succeed, but to protect those who have not.” Yea, what he said. Not to mention, the rich benefit from many advantages the average person does not. We do not have lobbyists, start up capital, interest free loans, means to navigate through tax loopholes or bailouts – to name a few. They are able to become richer via our current tax system which at the same time keeps the poor and middle class in a rut.
What we have now is basically a Progressive Tax. But a very confusing, corruptible, expensive and faulty one. It is complicated – so much so that many people need to pay someone to help them fill out the pluthera of forms. You are taxed when you die, when you purchase, when you lose, when you win, when you get paid, when you pay, when you save and when you spend. It is never ending.
So, a conclusion as you can see is not easy to come by. And I suppose I was on a chocolate bunny sugar high when I thought I could attempt to solve this problem in a single afternoon. Regardless, here is my final analysis:
Let us maintain a progressive tax but with flat and fair tax components. Eliminate all the payroll, transportation, capital gains, gift, estate taxes, etc. – all of it. Get rid of all credits, deductions and loopholes. Impose a gradual, progressive tax with limited brackets which would tax above a reasonable cost of living income for every individual or family. Every family would be taxed a certain percentage of their income above the cost of basic survival needs which would be a set amount decided upon by assessing the true cost of living. All income would be taxed including dividends, interest, alimony, child support, etc. The only exceptions would be income which was already derived from taxes such as Social Security.
Want to eliminate Medicare/Badgercare/Medicaid? Let’s get back to the healthcare system many of us elected President Obama to help achieve. Not this mamby pamby do nothing plan. Healthcare for all. Now. Period. Those health related programs will no longer be needed. Impose a small federal sales tax to pay for the healthcare system.
I believe with this system we could eliminate corporate taxes. American corporations should only be taxed on profits made outside of the U.S. We need to encourage businesses to keep employment in this country. Most of them get away without paying taxes anyway and many receive tax credits and breaks (which would no longer exist) even though they do not support American workers. CEOs, shareholders and owners will be paying the flat tax on ALL income (profit) and this may decrease these insane wages and billion dollar bonuses. To ensure that corporations do not avoid these measures by outsourcing or dividing up their businesses – create fees and/or financial consequences to those who do so.
Seems like this could possibly be a win/win for everyone. (Yawn, stretch, sigh)…now, where’s that chocolate rabbit…