Liberal socialists in our country continue to claim the wealthy do not pay their fair share of taxes, even after you show them the top 10% pay 70% of the income taxes. They continue to complain of the growing economic disparity, even though the rich become richer from their investments. In fact, income disparities are both caused by, and are a direct result of, economic growth from capital investment. It is, and has always been, the people of means that fund job creation and economic growth. It is, and rightly should be, those same people who profit from it. These same investments, that result in the economic expansion that our country needs to employ the ever-growing work force, are a benefit to all, and come at no cost to anyone.
The president, and those of his defect, continue to call for tax rate increases on the job creating investment class as the cure for budget deficits and debt, regardless of our economic condition. Due to my earlier statements regarding income taxes paid, and investments made, its obvious that this should not be perceived as a wise proposal. In fact, it would likely result in further harm to our economy, and to our governments balance sheet.
Leading conservatives believe that, if there is to be any additional money confiscated from our economy, it is best to achieve this through the elimination of special tax breaks, loopholes, deductions, and tax credits. A reaganesque attempt to catch those who have, up till now, used the system… to cheat the system. There are so many items in the tax code that could be eliminated, not simply to raise revenue, but to allow for tax rate reductions that would actually succeed in stimulating the economy, while also allowing for increased tax revenue.
With all of the Keynesian economic stimulus attempts repeatedly coming up empty in regards to actually lifting our economy out of the high unemployment, low growth conditions were currently encountering, the call for the reduction of governments size and scope, along with a more liberating, and less manipulative tax policy, appear to be the growing louder. In this past century, we have slowly transitioned into an ever-increasing semi-socialist economy, that has placed our government in far too great a role for the free market to thrive. It only makes sense that, when you get lost, you should back up to the point where things start to become familiar, and then choose a different direction. We not only need to unwind government back to its basic functions, and reduce the costs involved to the taxpayer, we need to stop pussyfooting around and fundamentally change the calculus of how government revenue is withdrawn from our economy.
There have been a multitude of tax plans proposed that would be an improvement over our current tax system. Various plans propose different ways in which to shift the tax burden, stimulate the economy, raise revenue or reduce revenue while also shrinking the size, or slowing the growth of the federal government. Most expand the tax base to the point where tax rates can be dramatically reduced, and flattened. Now, some of these plans also propose a reduction in business taxes to allow American products to become more competitive in the global markets. This seems to address more than just taxation, it repositions our standing in the global market place, and would dramatically modernize our economy. So, yes, this should be the starting point of any tax reform policy.
The problem with most proposed tax plans, is that they are merely adjustments to the existing tax code, rather that a total rethink of the idea of taxation. Former republican presidential candidate Herman Cain had garnered a massive surge in support mainly due to his, "scrap it all, and start from scratch" 9-9-9 tax plan. Cain explains that businesses don’t really pay taxes, their customers do. But he did a pretty poor job of explaining what the "Fair Tax" people have been stating for years. While undoubtedly the most radical and exciting plan of recent history, it falls somewhat short of what I believe to be ideal. Mainly because 9-9-9 continues the business tax farce, with a 9% business tax. His plan continues to make businesses add the cost of a 9% business tax to the cost of their products and services, and then imposes a 9% sales tax on top of that. So, when you buy a product, you are paying the business tax, and that tax.. gets taxed.. by the sales tax. While, I agree that his plan would reduce business costs enough, so that the final sale price is somewhat less than what we pay now, I still fail to see the reason for any business tax at all. Why would you bother to expose a secret tax in our system, and then merely reduce its size?
THE IDEA
In the spirit of "The Fair Tax" and "9-9-9, I’ve come to the conclusion that we do need to roll back the consumer price index. Reducing business costs, through the removal of business taxes and ignorant regulation, effectively causes a market deflation that does not deflate wages, or change the value of the dollar. This would result in a lower cost of living and a higher quality of life for all Americans. The current "hidden taxes", priced into the products and services we purchase, is estimated at somewhere around 20%(+ or – 10%), depending on the particular product or service. In fact, even the most conservative estimates show price reduction averages of between 10-15%! Personally, I think the conservative estimates ignore the cost savings throughout the multiple stages of production. From raw material collections, individual component manufacturing, assembly, shipping, marketing, wholesalers, retailers, supporting businesses, etc. They also likely forgot to consider the cost of tax management, from tax lawyers, tax accountants, tax lobbyists, etc.
The reason for the wide range in potential savings has to do with what the particular product is, the amount of supporting businesses in production, and the number of middle-men between the production and the eventual final sale. The cost of services is mainly a payroll and overhead calculation, and therefore will not have as many cost reductions as products would. Also, products built outside the U.S., or with parts not made in the U.S., will not benefit as much from the reduced cost structure. Their cost saving will only occur in the distribution and sales of the product. But, that’s actually a positive aspect, not a negative one. Because American made parts and products benefit more, American products will become less costly as compared to their overseas competitors. American products sold overseas are not sales-taxed here, and along with the business cost reductions, would be considerably less expensive to our foreign customers. Making the American companies more competitive, both there and here, means increased sales, creating more jobs, which means more economic growth, and more government revenue.
For instance, if you were to purchase a $21,250 new car, and you will have to pay a 15% sales tax of $3187.50. That would make your total sale price $24,437.50. But remember, were it not for the regulation reductions, business tax elimination, and all of the other cost reductions associated, they would have priced that same car for $25,000. Sure, it may not be a huge savings, but when paying a 15% sales tax can actually save you money, help our economy grow, produce more revenue to the government than the current business tax structure, and reduce unemployment, you have very little to complain about.
Due to the free market forces of competition, the cost of the products and services we buy are reduced to the lowest level allowable, while still making the sale of the product worth the time and energy involved. The company that offers the product and/or service to the market place at the best value, usually wins the larger market share and the profits that result.
Even in the worst case scenario, if you found a business adding that 15% sales tax to the old, inflated price, you probably wouldn’t have to look too far to find one of his competitors has chosen to pass on some share of their reduced business costs to undercut him. It is this price war competition that will eventually work prices down to the lowest possible margins the free market will support. It is this competition that lowers the price of goods and services as the cost of doing business in America is reduced.
THE PROBLEM
While American ingenuity and innovation make us a leader in world, in terms of productivity. Where we loose-out to our foreign competitors, other than the massive regulatory compliance costs, is our cost of labor. Now, we can’t reduce our pay to match those of less developed counties, or force them to increase their payroll to match ours, but there are other ways to reduce business costs, that result in the narrowing of the sales price difference.
Simply reducing the price of American goods and services to that of our foreign competitors would result in most American businesses drowning in debt and closing their doors. Up till now, this has forced many businesses to either outsource a portion of their operations to other countries, or relocate the entire business overseas. This has resulted in a major reduction in the size of the American manufacturing sector, causing our transition to a mainly service-oriented economy. Haven’t you noticed that nothing we buy is made in America anymore?
The American government has been slow to action. It did not adapt with the changes of the ever-expanding global market place. There were steps that could have been made to address the shrinking manufacturing sector. There were actions that could have been taken to prevent the outsourcing of many American jobs, and the relocating of many American businesses. Would they have to be bold?..Yes. Would they be politically difficult?..Yes. But they were necessary, and they are still necessary today.
THE SOLUTION
Steps need to be taken that would reduce the cost of doing business in America. Steps that would reduce or eliminate entire segments of the business model equation, used in determining the cost of American products and/or services. These steps require the federal government tread more lightly on the businesses that are responsible for employing the majority of the American workforce. It is, after all, this workforce that provides the funding required for all government functions. It is government that has reduced the efficiency of our economy, and it is only government that can release the drag it imposes on our economy. Government, at all levels, must remove itself from the private sector economy as much as possible. Over-regulation, taxes, license and permit fees… everything must go!
Governmental regulations are a necessity, sure, but they need to be limited to the health and safety of the products and the workplaces. You will never eliminate all risk, nor should you try, but there are obvious regulations supported by all. The low-percentage hazards need to be ignored. Any company found to be lacking in product or workplace safety, though not in violation of governmental regulations, will either be fined by the courts, or judged harshly in the court of public opinion. No, I’m not talking about returning to dirty water and polluted air, but there does need to be a rational cost-benefit analysis done before you go chasing every low risk to every small segment of our society. There comes a point where sacrificing economic development for the many, due to a possible risk to a few, hurts more people than it helps.
If businesses were immune to tax policy, there would be little need for the government-corrupting tax lobbyists. Subsidies, tax incentives, and government loan guarantees come from government corruption and politics that distort and confuse governments function and the free market. Anything that could even be perceived as favoring one business, or business sector, over another; corporate welfare, subsidies, etc., need to be ended. I’m in favor of making American products more globally competitive, but through regulation reduction and tax elimination for all, not cash handouts to the few. In a truly fee country, with a truly free market, government should never be allowed to choose winners and losers.
Businesses don’t really pay taxes now. They treat taxes like any other cost of doing business, and pass the costs down to their customers, worked into the price of their product or service. Rather than us secretly paying their taxes through the inflated price of goods and services, we should instead pay a sales tax. Even if it made no difference in the overall cost of the goods and services, it would at least be up front and honest. And, it could be implemented in such a way that it helps the average person with the costs of necessities. A certain level of spending could be made sales-tax-free, through a tax credit, allowing the purchaser to enjoy the full benefit of the lowered price that business cost reductions would bring.
The most important advantage of this tax system is that it makes American business more globally competitive. The implementation of a consumption tax, that is placed upon all goods and services, including imports, but immune to exports, would allow American businesses to become more competitive in the world. It would result in American products becoming more competitive overseas, while at the same time, making foreign made products less competitive here. This would then allow our economy to become more able to provide employment to the unskilled manufacturing workers that our economy has been increasingly unable to accommodate.
Prices of products and services will go down with the reduced business costs, because the forces of free-market competition are strong. Costs of support businesses, from the wholesale suppliers, shippers, packaging, just about every line of the current business spreadsheet is reduced. This will allow businesses to streamline costs and reduce prices, without any risk to their bottom line. Accounting will be simplified, tax compliance will be easier, and the time and money spent attempting tax avoidance will be pretty much eliminated. All these increased business efficiencies and reduced business costs, will reduce the costs that, up to now, were simply passed on to you in the inflated prices of all the products and services you purchase. Add the savings of having less red tape regulations imposed, plus the savings of not needing an army of lobbyists, lawyers and accountants. All this money not spent by businesses, would be money not added into the cost of every product and service that you buy. Remember, if they pay it, you pay it, plus the acceptable profit margin that free-market competition allows.
A shout out to the 99%
Now, many are appalled that I am calling for zero taxes on "big business". They claim more tax breaks for the rich is what got us into this mess. They are, of course, out of their minds, and have no idea how the economy works, but that is a topic another time. It is businesses, both large and small, that provide what economy we have remaining. They have not taken income from you, but rather, have created the means for you to have employment income in the first place. Nearly every employed person in the private sector is employed by someone of greater means. Knowone likes having to rely on another for their livelihood, but it is a fact of life, so get over yourself and accept it. Much like the actions of the labor movement, if we choose to bite the hand that feeds us, there will be less fed.
Believe me, I hate sounding as if I am the defender of "big business". Truth be told, I am a major critic of business and its involvement with, and its corruption of, the American government. It is the practice of using influence-peddling lobbyists, who push and bribe for what is essentially anti-competitive tax and regulatory legislation(corporate welfare, tax breaks, subsidies), that distort free and effective competition in the marketplace. Business influence(money) is the source of the great majority of corruption in our political system, and most of its influence over individual members of our government is completely legal. It is for this reason, above all others, that I have found the need to separate the two as much as possible. The need for them both is clear, but their relations should be indirect and coincidental. Governments purpose should be to respond to the needs of the people, and nothing more. I don’t want business to have any direct need of the government, and I don’t want the government to have any direct need of business. It is equally critical to get business out of government, as it is to get government out of business.
It may be of some interest to you "Eat the Rich" morons, that this plan does not really untax business profits.
The tax plan eliminates the corporate and business taxes, but still taxes business owners and shareholders profits the same as any other income, after exemption and deductions have been removed. It simply looks at business as a non-person, and recognizes the reality that only people actually pay taxes. Any business profit, not paid out to the owner/shareholder, is invested by the business into our economy. Any proceeds from that investment, if and when it is paid out to the owner/shareholder, will then be taxed, right along with all other sources of profit, if and when it is finally paid out. So, bottom line, all business money remaining after expenses, is eventually taxed. Either by income, capital gains, or as dividends. My plan taxes them all equally, so that there is no advantage to any particular tax avoidance strategy.
Yes.. I know, imports are not persons either, but other countries add taxes to the price of our goods, and we need to reciprocate to level the global playing field.
THE PLAN
The plan eliminates all types of federal corporate and business taxes completely, and imposes a sales tax on most products and services, set at 10% initially, but after the economy settles in to its new environment, the sales tax rate is made adjustable, on a year-by-year sliding scale between 10% and 15%, based on the economic growth rate of the prior year. In a 2.0% growth economy, people need help, so only a 10% sales tax would be imposed. In a 4.5% growth economy, people need less help, so a 15% sales tax would be imposed. It is at this time, when the economy is doing the best, when more attention can be focused on paying down the national debt. No matter the sales tax rate, only 10% is government revenue for spending, all additional sales tax revenue between 11-15% is solely devoted to debt. This variable sales tax also provides the added benefit of helping hold down inflation during the higher growth periods, without the federal reserve getting involved and raising interest rates that creates undeserved hardship on American businesses and markets.
All exported goods and services, and used goods, are sales-tax-free.
The sales tax is applied to the sale of every product and service not exported, but the plan allows for a 10-15% of poverty level income tax credit(basically a sales tax refund of below poverty level income) on your income tax form.
Most businesses will charge the 10-15% sales tax, which essentially works out to between 9.09% and 13.04% of their gross receipts. Each month, those businesses send sales taxes in, and file a sales tax report stating all taxes collected, and any sales taxes they have paid-out for business-supporting products and services.
Even though untaxing business and imposing a sales tax should work out as a net savings at your local department store, I still see the need for income tax reform as well. Not a plan that aims for a certain revenue amount. Not a set of numbers that sound cute! But an income tax based on principles regarding which of your dollars the government should be taxing. Should all income be taxed at the same rate? Is that even practical? Could we shield low-income families from the heavy burden of taxation, while still collecting sufficient revenue from the upper income families? If we do, would that overburden them to the point where less investment and reduced economic growth set us on a path to ruin?
The plan sets a 25% flat tax across the board, but incorporates a poverty level exemption to shield the lower-income earners. It also provides incentives for getting health insurance and a college education through making health and education costs tax deductible. These tax deductions not only save your dollars from a 25% tax, it also reimburses you the cost of health and education sales taxes. In total, it works out to be a 40% health and education subsidy!
The plan provides for a poverty level income tax exemption(personal / family exemption of income below poverty level), based on the poverty guidelines issued each year in the federal register by the Department of Health and Human Services. This is a huge exemption compared to anything ever proposed, but it is based on a principle that government should keep its hands-off of at least that amount of your money. Yes, I know, using H.H.S. guidelines reinstates the marriage tax penalty. I searched high and low to correct this, but finally decided to leave it as is. If your going to forgo marriage for cohabitation, in order to save thirty bucks a week, you probably shouldn’t get married.
The plan permits the costs of education, health care, and charitable contributions to be deducted from gross income. The maximum amount you may claim as a deduction is based on the nationwide average of the prior year. If the average four-year college education in 2011 is $24,000. You may claim a maximum deduction 115% of the annual average, or $6900 per year, per student. If the average for health insurance coverage is $5000 for an individual, and $15,000 for a family. You may claim a maximum deduction 115% of that average. $5750 per year for yourself, $11,500 for a couple, or $17,250 for a family. Why 115% of the average, you ask? Because education and health care will be sales taxed, and this plan allows you to claim sales taxes paid in addition to the health insurance premium or college tuition costs. The average charitable donations made per year is 3-5% of gross income. Feeling charitable, I doubled that to 10% of gross income.
Don’t forget the sales tax credit equal to 10-15% of your families poverty level income. This is a full reimbursement of all money you paid out in sales taxes up to the poverty level.
Capital gains, interest from bank accounts, and dividends are income, and are to be treated no differently. But capital gains and interest are only taxed as they are withdrawn. A statement will be provided at the time of a withdrawal, that indicates what percentage of your account is not from your deposits. That same percentage of your withdrawal is new income. When the income amount of your withdrawals are in excess of $200 in any given year, it must be included on your gross income statement portion of your tax return.
Social Security is a mess, and for those under fifty, it will not be available in its present form. Retirement assistance will be part of an "assistance to the poverty level" benefit program that no longer mandates payroll tax contributions, but is instead funded by general revenues. Government will keep your head above water, but it is your responsibility to save money for a comfortable retirement.
The plan eliminates the alternative minimum tax(AMT). the estate tax, the payroll taxes, and all federal excise taxes. (gas, energy, communications, cigs, booze,etc.)
That’s it….no if’s, and’s, or but’s! I leave very little for tax lawyers and accountants. The point is, once put in place, filing your taxes will be simple! There is no hidden tricks or procedures. My plan is meant to be so simple, that even a grade school student could do your taxes, calculate the sales tax, or report total tax collection of a large business.
You’ll simply need to gather a few numbers; your gross income earned, including capital gains, interest and dividends collected, your health and education expenditures, and your contributions to charity. From there it is simple addition, subtraction, and multiplication. There would be a single page worksheet, with the top half being step-by-step instructions, and the bottom half being a the tear-off tax return slip. The most current poverty level income figures for various sized families will be provided, along with the 10-15% of poverty tax credit allowed for each situation. All you will need to provide is the few numbers that are particular to you and your families financial situation.
Your tax deduction claims will require a vender number and a client account number, provided by each tax deductible servicer(charity, health insurance company, doctor, college, etc.). Each account, kept in record by the servicer, and provided to the I.R.S. annually, will be cross-referenced to check the validity of your deduction claim.
The upper-middle and upper income people who have not been taking advantage of the current labyrinth of tax avoidance schemes will notice a tax cut. Those who have had tax lawyers and accountants help them game the system, will finally be paying taxes for once. Even though they really do not need the poverty rate exemption and tax credits, plus whatever deductions apply, in the interest of equal rights under the tax code, they are entitled to it.
Again, you "eat the rich" morons should not worry about the size of the tax cut the wealthy receive. First, it is their money. Mind your own. Second, when they spend it, it is tax revenue for the government, which is good for everyone. Third, if they don’t spend it, it is saved in banks and invested in our economy, which is also good for everyone. All of us, not self-employed, owe a debt of gratitude to those who provide the jobs, whether it be directly(your boss) or indirectly(an investor).
Middle income people, who currently pay a 7.6% payroll tax and a couple levels of the progressive income tax, will essentially be asked to pay an equivalent of twice their current payroll taxes instead. They too get a poverty rate exemption and a sales tax credit, plus whatever deductions apply. Don’t let the sales tax scare you. The final price of the goods and services, that you are used to purchasing, should work out be the same…or less.
Low income people, who currently pay no income taxes, but pay the payroll tax will not be taxed anything on their "sub-poverty" level income, and they get all "sub-poverty" sales taxes returned in the form of a tax credit. The only money the government charges them is 25% of all income earned above their poverty level, after health care and education dollars have been deducted, and 10-15% of dollars spent on taxable products and services above their poverty level. The sales tax should not be of any actual increased cost, since it is merely a substitute for what used to be business costs. All of this, of course, is true for all taxpayers, but it is most important to those who have little to contribute.
THE GRAND BARGAIN
An optional proposal, but one that I believe is critical to reducing the size, scope, and cost of government, is the grand bargain provision. Essentially it is a negative taxation provision, which is income redistribution in its purest form, but is done in trade with closing down, or dramatically reducing the size of, the federal governments socialist departments and programs. The plan is generous in that it provides income assistance, up to the poverty level, for the working poor. In return, food stamps, welfare, and all other financial assistance programs administered by the national government, are gone forever, for those who work.
This negative income tax provision is intended to ensure a minimum level of income for all those who actually work. With this NIT, all need for current government assistance programs, by the working poor, is eliminated. Only those who do not work, or who are unable to work, would remain in the current programs. This would reduce government administrative costs to a fraction of the current system, as well as eliminate the inefficiencies and disincentives created by multiple overlapping aid programs designed for the working poor. Currently, when minimum wage workers earn a little more, they "net out" with less income because they become ineligible for the aid. They become ensnared in a socialist trap, with little incentive to seek higher wages.
In this income assistance provision, the amount of assistance is limited, and is not to exceed the gross income earned by the filer.
In this plan, if they work, and make at least 1/2 of their poverty level status, they are income assisted up to to the poverty level, without imposing any additional burden on the bloated federal buearocracy. Truth is, these people are going to get assistance one way or the other, and being able to deliver assistance based on a tax return filing, rather than through the beaurocracy, seems much more efficient.
The grand bargain provision removes or reduces the size of the socialist programs and departments that the national government never had constitutional authority to begin in the first place. While the income assistance provision in this plan was also not envisioned by our founding fathers, Pandora’s box has been open far too long for us to return everything that socialism has taken. Strict conservatives who wish to dismantle the socioeconomic safety net, are only fooling themselves to think that it could ever really happen.
The poverty level exemption, income assistance provision, and the health and education deductions, all work in conjunction with each other to replace much of the current financial assistance programs of the federal government.
Any additional educational grants or loans still needed, can be provided by the states and private organizations. Health insurance policy is covered without a government take-over of the health care system. It is my belief that, what is essentially a 40% subsidy of health insurance and educational costs, should be all that you can realistically expect from the federal government.
While this does limit the need of federal programs, it does not prevent each state from providing supplemental assistance. In fact, I expect the states to help with complementary health and education programs for the zero income, unemployed, and retired segments of our society. This type of assistance was always intended to be provided by the states, and other than this tax policy, any and all future domestic programs should be reserved to the States.
The simplicity of this plan saves you money, saves businesses money, saves the economy from a great deal of inefficiently spent money. It will improve your ability to purchase health care, pay for college, save and/or invest money, which will add to your personal wealth, and improve our nations economic health. The business sector will be unleashed in a way never seen before. New businesses will sprout. Hell… foreign businesses will want to move here. The manufacturing sector would be rejuvenated. Unemployment would not be a problem. … exports would explode… and government revenues will increase at a record pace.
It’s finally time to tell the world,
THAT’S IT!… WE’VE HAD ENOUGH!… NOW WE REALLY MEAN BUSINESS!
The Conservative Rant
Tuesday, January 24, 2012
THE MODERATE PROPOSAL OF A CONSERVATIVE
Posted by The Conservative at 10:19 PM 0 comments
Sunday, October 23, 2011
9-9-9 for dummies “A real tax analysis…. that failed”
There has been so much garbage written in past weeks regarding the 9-9-9 tax plan proposal of republican presidential candidate Herman Cain, that I thought someone who actually "gets it", should take a crack at working through the B.S, and give a real and thoughtful explanation of the plan, how it works, and its possible effects.
If you have read any previous articles on the plan, or even if you have listened to Herman Cain try to explain it, I want you to erase all that crud from your memory, and try to follow along.
There is widespread consensus that the current tax system is a complicated failure that hinders the nation’s growth while allowing the politically well-connected to manipulate the system to get special breaks that are not available to average workers and businesses. This is stimulating a great deal of interest in shifting to the simple, flat and fair taxes proposed in the 9-9-9 plan. The current income tax system punishes the economy, imposes heavy compliance costs on both businesses and taxpayers, rewards special interests, and makes America less competitive. Turns out, the proposed 9-9-9 tax plan would dramatically reduce these ill effects.
The 9-9-9 plan would get rid of nearly all current federal taxes and replace them with a 9% income tax, a 9% corporate tax and a 9% national sales tax. Sounds simple, but some have not thought it through far enough to get even a basic understanding of what that would actually mean. While scraping the tax code and implementing these taxes would be fairly simple, the transformation that would ensue is extremely complex, and as mind-blowing as the chicken or the egg causality dilemma.
The Business tax and the Sales tax
Not much discussion has taken place about the reduction of the business tax that would result from 9-9-9. Nobody really cares about business, they want to know how it affects them personally. Truth is, the business tax cuts outlined in 9-9-9 does effect each and every one of us on a personal level, because it will help to pay some, if not all, if not more than all, of the sales tax portion of 9-9-9. You really can’t talk about one, without the other, and get a real understanding of the proposal. Partisan tax analysts and political foes have taken advantage of this complexity to put the plan in a negative light.
With the 9-9-9 business tax cuts, the cost of products and services will be reduced, in most cases by more than the 9% sales tax that will be added on.
Prices of products and services will go down with the reduced business costs, and the forces of free-market competition. The business half of payroll taxes are eliminated, business tax rates are reduced, the costs of tax compliance and tax avoidance is reduced, if not completely eliminated. Costs of support businesses, from the wholesale suppliers, shippers, packaging, just about every line of the current business spreadsheet is reduced. This will allow businesses to streamline. Accounting will be simplified, tax compliance will be easier, and the time and money spent attempting tax avoidance will be pretty much eliminated. Possibly the most transforming aspect is that money spent on the, government corrupting, tax lobbyists, would be pointless. There is no tax loopholes, deductions, or subsidies allowed, unless the business is located in an empowerment zone. All these increased business efficiencies and reduced business costs, will reduce the costs that, up to now, were simply passed on to you in inflated product and service prices.
Unlike a state sales tax, which is an add-on tax that increases the price of goods and services, this is a replacement tax. It replaces taxes that are already added into selling prices. By replacing higher marginal rates in the production process with lower marginal rates, marginal production costs actually decline, which will either lead to prices being the same or lower. (O.K., I borrowed that paragraph from Herman)
The current "hidden taxes", priced into the products and services we purchase, is estimated at somewhere around 25%(+ or – 10%), depending on the particular product or service. So that means, with these business costs removed, and a 9% business tax imposed, a $100 product should be reduced to $81.75 on average. You will then have to pay a 9% sales tax on that product($81.75×1.09=$89.11), but that’s still a 10.9% savings on average, after taxes. If you follow the "+ or -" math, your new final cost could be between 1% more & 22.77% less.
The reason for the 20 point swing in possible savings has to do with what the particular product is, the amount of supporting businesses in production, and the number of middle-men between the production and the eventual final sale. The cost of services is mainly a payroll and overhead calculation, and therefore will not have as many cost reductions as products would. Also, products built outside the U.S., or with parts not made in the U.S., will not benefit as much from the reduced cost structure. Their cost saving will only occur in the distribution and sales of the product. But, that’s actually a positive aspect, not a negative one. Because American made parts and products benefit more, American products will become less costly as compared to their overseas competitors. American products sold overseas are not sales taxed and, along with the business cost reductions, will be considerably less expensive for our foreign customers. Making the American companies more competitive means more sales, more jobs, and more economic growth.
Now, this does assume that businesses actually do pass on all their reduced business costs into the cost-cutting of their products and services. They may choose to use some of that savings to raise wages, or grow their business, both of which would benefit to the economic health of the country. They could decide to pocket the money. But even then, if they spend it, save it, or invest it outside of their business, it’s still a plus for the economic health of the country. Spending is increased economic activity and government revenue. Savings allows banks to loan more. Investments allow businesses to grow. All of which promote economic growth. Even in the worst case scenario, even if you found a business charging the 9% tax over the old price($109), you probably wouldn’t have to look too far to find one of his competitors has chosen to pass on some share of their reduced business costs to undercut him. It is this price war competition that will eventually work prices down to the lowest possible margins the free market will support. Bottom line, prices will be anywhere from 9% more, to 23% less on various items at the department store. Overall, I see it as a 25% decrease, followed by an 18% increase, for a net savings of 7%.
The Income tax
When you are paid, a payroll tax of 7.6% has been deducted from your pay along with your current income tax withholding. With 9-9-9, you get all your income taxes returned to you, but you will have to pay another 1.4% of your total income. This, along with, what used to be payroll tax money, will be your 9% flat income tax. For most people, this is a huge cost saver. The people who do not benefit from this change are those who pay no income taxes, and those who not only don’t pay income taxes, but actually are reimbursed for their payroll taxes, with various income tax credits. Most of these people will be helped by the provision that does not tax "below poverty level" income. Some working poor will still be asked to pay somewhat more, and they will have to look to their state welfare department for help. They have welfare programs for a reason, you should not expect the federal tax system to be in the business of economic assistance, beyond the obvious poverty level tax exemption. This is because, in a country that champions all kinds of equal rights, we have been slow to treat everyone equally under the tax code. So, in that spirit of equality, what we do for the least of us, we would have to do for everyone. Low income people need to have "skin in the game", same as every other American worker. Being of need should not remove the mantle of shared responsibility. Sure, they may be paying in at one end and taking out at another, but at least they are first doing what is expected of them….. what is expected of us all.
With our current tax system, some of the rich don’t pay taxes, they have the means to pay a tax accountant instead. Well, those days are over! There is only one income tax deduction allowed(charity), and one exemption(sub-poverty line income). According to a new report from the Congressional Research Service, one-quarter of all households making $1 million, paid a smaller share of their income in taxes than 10 million middle class families. In addition to the 94,500 millionaires paying a lower tax rate than much of the middle class, they’ve also shown that about 7,000 of them likely paid no federal income tax at all. With 9-9-9, everyone pays an equal share of their income. No exceptions!
Effects on our economy
Yeah… well… there are many schools of thought on this. The great majority think it will add a turbo charger to economic growth and job creation. According to former Reagan Treasury official Gary Robbins, of Fiscal Associates, the 9-9-9 Plan will expand GDP by $2 trillion, create 6 million new jobs, increase business investment by one-third, and increase wages by 10%. While I agree on the positives, he did not state over what period of time this would occur. I think it would probably take a year or two for the system to adjust, prices to stabilize, and start performing at maximum benefit. But I also see growth continuing to build exponentially from that point on, like a snowball down a mountain side.
According to the Tax Policy Center, Herman Cain’s 9-9-9 tax plan would raise taxes on 84 percent of U.S. households. If that were true(and it’s not), it would cause some harm to the economy in the minds of many, but economic growth and job creation would still occur, although likely at a reduced rate. Fact is, TPC did not do a proper analysis of the plan. They simply subtracted payroll taxes, the current income tax rates, and added 25.3%(income tax) to project your new tax liability. They either did not know what to do with the business tax change, or chose to blur the issue. They rule the 9% business tax, along with the sales tax, as a new 18% business tax. They then, went on to remove that 18% from your taxable income and broke out the adding machines. Did they account for lowered costs of goods and services? No! As far as I can tell, they just used their concocted 18% business tax to calculate government revenue, and figure how much of your income, is subject to an income tax. Did they tell you that the business tax cut will, in many cases pay the sales tax for you? No!
Now, all the tax calculations in the world can’t even correctly figure the after-effects of the business tax cut on business, let alone any particular income group. Behavior modifications brought about by taxation changes are incalculable, and with the sales tax being largely a tax that can be controlled, through the amount of purchases you make, we don’t even know where to begin an educated guess.(if Tax Policy Center knows anything, they should know this) They are showing themselves as political hacks, not to have some sort of qualification on this point! If they were honest, they would have stated that there are ever-expanding parameters of possibility, not unlike forecasting the projected path of a hurriCane.
In a completely new economic environment, how can you possibly calculate what percentage of people will choose to spend more, save more, or invest more.(or less) And, even if you took an educated guess, how could you possible determine how much more?(or less) Every American family budget is as unique as the individuals themselves. I have spent a considerable amount of time researching the business tax changes of this plan, and I can’t even begin to narrow the price changes of products and services to less than a 20 point parameter.(the imported products are driving me nuts) So, I’m not going to blow smoke up your a–, and tell you that this group saves and this group doesn’t. I’m going to conclude by stating the obvious answer. I DON’T KNOW! It’s largely up to you, how you spend, save, and invest. If you save and invest, you avoid the sales taxes of spending. If you purchase used products, you also avoid sales taxes. If you buy American products, that are made -w- mostly American components, you should be saving money… maybe(it’s complicated). If I’ve learned anything by foolishly taking on this impossible project, it is; For every answer, there are two more impossible questions to this endless equation.
What I can tell you is; It taxes everything once and nothing twice. It taxes the broadest possible base at the lowest possible rates. It is neutral with respect to savings and consumption, capital and labor, imports and exports and whether companies pay dividends or retains earnings. (O.K., I borrowed that paragraph from Herman too)
What is certain, is that 9-9-9 has enormously positive potential effects on economic growth, while at the same time, it imposes restrictions on the government’s ability to pick winners and losers through legislative tax code manipulation.
Now, how could that be wrong for America?
Posted by The Conservative at 12:04 PM 0 comments
Saturday, October 15, 2011
"9-9-9″ Taxation 101. So crazy, it might just work!
The 9-9-9 Plan gets Washington D.C. out of the business of picking winners and losers, using the tax code to dole out favors, and dividing the country with class warfare. It is fair, simple, transparent and efficient. It taxes everything once and nothing twice. It taxes the broadest possible base at the lowest possible rates. It is neutral with respect to savings and consumption, capital and labor, imports and exports and whether companies pay dividends or retains earnings.
9% Business Flat Tax
- Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports.
- Empowerment Zones will offer deductions for the payroll of those employed in the zone.
9% Individual Flat Tax
- Gross income less charitable deductions.
- Empowerment Zones will offer additional deductions for those living and/or working in the zone.
9% National Sales Tax
Unlike a state sales tax, which is an add-on tax that increases the price of goods and services, this is a replacement tax. It replaces taxes that are already embedded in selling prices. By replacing higher marginal rates in the production process with lower marginal rates, marginal production costs actually decline, which will lead to prices being the same or lower, not higher.
Economic Impact
According to former Reagan Treasury official Gary Robbins, of Fiscal Associates, the 9-9-9 Plan will expand GDP by $2 trillion, create 6 million new jobs, increase business investment by one-third, and increase wages by 10%.
9-9-9 Plan: Summary
- Removes all payroll taxes and unites all tax payers
- Provides the least incentive to evade taxes and the fewest opportunities to do so
- Lifts a $430 billion dead-weight burden on the economy due to compliance, enforcement, collection, etc…
- It is fair, simple, efficient, neutral, and transparent
- Ends nearly all deductions and special interest favors
- Features zero tax on capital gains and repatriated profits
- Exports leave our shores without the Business Tax or the Sales Tax embedded in their cost, making them world-class competitive. Imports are subject to the same taxation as domestically produced goods, leveling the playing field.
- Lowest marginal rates on production
- Kills the Death Tax
- Allows immediate expensing of business investments
- Eliminates double taxation of dividends
- Increases capital formation which aids capital availability for small businesses
- Increased capital per worker drives productivity and wage growth
- Features a platform to launch properly structured Empowerment Zones to renew our inner cities
- The pro-growth, pro-job, pro-export economic policies of the 9-9-9 Plan equals a strong dollar policy
The 9-9-9 plan would sharply reduce the federal income and corporate tax, eliminate the capital gains tax, the estate tax, payroll taxes and all current federal excise taxes.
First, you ask; “Wouldn’t the lowered income tax shift a larger share of taxes to the poor and lower class?” The answer is no. The poor and middle class currently pay a payroll tax equal to 15 percent of all income. With 9-9-9, these taxes are eliminated and replaced by a flat 9% income tax, less than what the poor pay(before some extreme tax credits are factored in), and significantly less than the middle class pay(even after exemptions and deductions).
I hear you. Your saying “ahh-ha”, the poor will be paying more than they currently are, since they will lose tax credits. Yeah…. so what?(just kidding) Fact is, the poor are in need of financial assistance, and that is a state welfare department issue, not a federal tax issue. These people need to have “skin in the game”, same as every other American worker. Being of need should not remove the mantle of shared responsibility. Sure, they may be paying in at one end and taking out at another, but at least they are first doing what is expected of them….. what is expected of us all.
Then, you ask; “Aren’t sales taxes a larger burden on the poor and lower middle class?” The answer, at first glance… is yes. But when you look further, you find that they have been forced to pay the embedded costs of business taxes all along, plus the added business costs involved with processing, collecting, avoiding and/or complying with the tax code. It is, without a doubt, the most inefficient, regressive tax of them all. It has been estimated that, most products we buy have an embedded tax, or hidden tax, of between 22-30%, due to corporate taxes and tax related compliance costs. The point is, when a tax is levied against a corporation, that corporation just includes the cost of that tax (and the cost of complying with it) in the price of its product or service. So, corporations are simply collecting taxes for the government. They don’t actually pay taxes, they pass it on to you. So, with a 9% national sales tax, along with a 9% corporate tax, we should expect the same, or slightly lower, total cost at the department store, while at the same time generating nearly the same government revenue.
Plus, the sales tax not only collects from every tax payer, it collects from visitors to this country and illegal aliens living in this country – adding billions of additional dollars to the nation’s treasury. It would also tax the underground, illegal “cash economy” in the U.S. Even those successful at evading income taxes, would be still be “sales-taxed” when they spend their ill-gotten gains on goods and services.
Other factors to consider include;
- There would be a much simplified tax form for taxpayers to fill out. Both it and the business tax forms could easily be filled out by an elementary school student.
- It would tax all citizens at the same rate so that only those who make more, or spent more, would pay more.
- It would encourage savings and/or investment.
Again, I know what your thinking. More tax cuts to the rich? Wont that create even larger deficits and debt? Wont that make matters worse? The answer is no. It removes tax loopholes, exemptions, and nearly all deductions as trade for the reduced rate. It is designed to be revenue neutral, but more importantly, it’s finally fair. Plus, the amount of money taxed out of our economy is already too high. If government can’t make budgets to match the revenue these taxes raise, we need a new government.
Some fear that one, two, or all three of these taxes will later be increased to 12-12-12, or 20-20-20! To this I say…BUNK! If government does decide to impose higher taxes, take cover!! I truly believe historians of the future will be studying this point in American life as the start of the people’s revolt, leading to either a second revolution or an all out civil war. The people are angry! And the budget, along with all the bailouts and unrestrained spending since the housing collapse, has done nothing to ease that anger. Obama had an opportunity to really bring change, but traded it off for misguided political ideology and party harmony. The time for reducing governments size, cost, and its drag on our economy is now. Before events grow out of control. Beyond the current non-violent marches, protests and rallies. Unlike most liberal groups, conservatives will not just wave signs for years on end. We are a results-oriented people, and if speaking out does not work, acting out is the next logical step.
-PERSONAL NOTES-
Posted by The Conservative at 10:22 PM 0 comments
Sunday, May 29, 2011
A "full-zero" federal debt....Really ?
So again, I find myself getting repeated e-mails with comments of condemnation for backing the Ryan spending cut proposal. I'm constantly told that it does not go far enough, to bring deficit and debt down fast enough. To them I ask: "Fast enough for what?"
To be entirely honest, I've never been one to worry about deficit and debt until the Obama administration took office. Don't get me wrong, I'm a huge proponent of strengthening the limitations of government. I have championed the cause of reducing the size and scope of government most of my adult life. Sure, the size and scope of government is directly related to the deficit and debt we have accumulated, but my interests have always been related to that root cause, not the financial after-effects. I've always said that bloated spending, and the taxation associated to it, were a huge drag on the economic growth of our country. People... I'm still on the team... we still want the same thing! I just don't see the advantage of a "zero debt", so I'm not looking at the Ryan plan 50 years forward.
The fact that we need to get our deficit under control is undisputed. It is a fact that, as stated by the Ryan plan, this is a spending issue not a tax revenue issue, because the government has already has exceeded taxing and spending norms as a percentage of GDP. So I'm with you on the correction required. Cut government where and when you can to get the budget balanced and revenue projections sufficient to meet the demands of our future. If the Ryan plan does that, before we fall off the cliff of insolvency, what else matters?!!
Sure, there will be other policy disputes, more fights against government overreach, but you can't fight all these battles at once. We first must prevent government from destroying our lives, and the lives of future generations. The simple fact that these politicians are finally attempting to deal with the structural issue of entitlements is a huge win. Why snatch defeat from the hands of victory? This one battle will at least move us away from the cliff, where we can safely fight the other philosophic battles concerning the role of government in our lives.
Now..... to give you something you can rationally criticize me for.... I think the Ryan plan for Medicare and Medicaid make those programs politically palatable. I think these government systems, under the new parameters Ryan wishes to impose, would remove them from my target list for the forseeable future. He does nothing with Social Security, so it remains one of my programs of horror, but Medicaid and Medicare, with limitations on growth, are fine by me.
Paul Ryan’s plan for post-2022 Medicare spending, sets the dollar amount that each Medicare enrollee would receive, for which to purchase a basic insurance policy. If they want something better than a basic plan, they will need to pay the additional costs. The dollar amount would go up only with general inflation, not by the higher medical inflation rate, and it would be means-tested to ensure all costs required for our low-income enrollee's is provided for. It removes the governmental distortion of the health care system and reinstates the forces of competition to slow the medical inflation rate.
Indexed to inflation, or economic growth, is a brilliant way to control government cost. Cutting much further, would be gutting the system beyond any point of having a system at all. Leaving the health care consumer with some "skin in the game" stimulates cost comparisons and forces cost competition, helping to hold medical inflation to a minimum. Keeping program cost growth at, or more near, revenue growth helps to prevent the deficit and debt we are all worried about.
Now if in the future, we find the set amount for Medicare has left the average enrollee short of being able to pay the cost difference, even after means testing has been stretched paper-thin for the top income earners . Do we continue to work the debt to full zero, just for the sake of getting to zero? It used to be our goal was a balanced budget and a 40-50% debt-to-GDP ratio. The Paul Ryan plan would eliminate deficits, and get us under the 50% debt-to-GDP ratio by at least 2040. Now, this is just over 25 years from now. That's pretty good in my mind, considering the mess were facing.
I guess what I'm trying to say is, we can't foresee what the future brings. And, trying to look too far into the future is pointless. But setting an unrealistic goal of "zero debt", at anytime in our future, is just as pointless. "Full zero" should not now, nor ever be, a top priority! In my mind, if we ever start burning through debt at a substantial pace, after reaching the 50%-of-GDP ratio, we should slow that pace with responsible adjustments to entitlements, as needed, and/or, further the quality of life improving, economy stimulating, tax reductions. It took us several generations to accumulate this debt, why not set our immediate goal to getting control of it, and setting proper management rules to keep control of it. In my mind, there is little argument for "Full Zero". Why the pain, when there is Zero Gain?
Posted by The Conservative at 12:29 PM 0 comments
Sunday, April 17, 2011
Any tax increases would be too taxing on our economy.
Any tax increases would be too taxing on our economy.
taxing [tak-sing] (adj) Burdensome;demanding, onerous, and wearing
"the tax code is 10 times longer than the Bible, without the good news." -Rep. Dave Camp (R) Michigan
The centerpiece of President Obama's plan is to raise taxes on the rich (households making $250.000 or more). The only problem with this "solution" is that it is deceptive and intellectually dishonest. President Obama likes to give the impression that his plan to tax the rich could significantly reduce the deficit, a claim which is false... and Obama knows it to be false.
Everybody knows that the rich have a lot of money, so it may appear reasonable to non-economists that taking some of this wealth can fill the hole in the budget. What the public does not understand, and what President Obama will not tell them, is that there are just too few rich people in America for this plan to work.
According to the Congressional Budget Office, over the next 10 years the Obama budget would produce a deficit of $10.9 trillion, or 5.3% of GDP on average. According to the left's own calculations, and as reported by the New York Times, Obama's plan to raise taxes on the rich will generate $700 billion in additional revenue over the next decade, or just a pathetic 0.3% of GDP. In other words, the plan to raise taxes on the rich will only cover one of fifteen dollars of deficit spending. Where is President Obama going to get the other fourteen?
Any honest economist who knows the facts can tell you that a measly 70 billion in revenue per year from the rich will not come close to cover Americas future unfunded mandates of at least $63 trillion dollars. Fact is, even if we could confiscate all the assets of the rich without any risk to the economy, this one-time solution would just pay for around six months of the 2011 deficit. Also consider that the top 10 percent of wage earners already cover 70 percent of all federal tax receipts. And perhaps even more striking is that while the top 1 percent of Americans makes 22.8 percent of the wages, and they pay over 40 percent of the overall tax bill, according to the National Taxpayers Union.
Sometimes you hear from the left that repealing the Bush tax cuts will raise 3.7 trillion over the next 10 years, but that figure includes the Bush tax cuts for the middle class. The key to remember is that 3 trillion of the Bush tax cuts mainly went to households making less than $250.000. Obama has no plan to repeal that part of the Bush tax cuts. The Democrats and their allies in the media who cite the 3.7 trillion figure are playing a game of bait and switch to confuse the public into supporting their policies. I saw this trick used recently by John Stewart to deceive his economically unsophisticated audience. The media meanwhile has only a selective interests in educating the American public. When miss-perceptions help the left, the sympathetic media suddenly loses interest in their duty to inform the policy debate.
Keep in mind that we live in what has increasingly become a consumer driven economy. Consumer spending now accounts for nearly 70 percent of economic growth. Whether for the better or worse, doesn't really matter.... It is a fact - and a fact that cannot be ignored when determining tax policy. Consumer confidence has now become more critical than ever to creating and perpetuating a strong, sustained economic growth.
According to economist Mark Zandi, the top 2 percent of income earners in America, those targeted by Obama’s plan, account for nearly 1/4 of all consumer spending, the top 5% are credited with 37% of the spending, and the top 20% provide nearly 60%. Ending the Bush-era tax rates would be a perceived tax hike that would lower consumer confidence, resulting in reduced consumer spending and capital investment in our economy. Add to that, a 25 percent increase in capital gains taxes (by allowing the Bush tax cuts to expire) will certainly divert money away from job creation and sustainable investments. And sustainable investment is precisely what a recovering economy requires.
Perpetuating the policies of the past three years, and increasing taxes on the highest consumers and wealth creators, would just serve to slow the pace of economic growth and hurt everyone. Further attempts to generate more tax revenue with no regard to their effects on economic growth, and continuing to use tax credits to direct a reallocation of capital throughout our economy isn’t working. It wasn't going to work, it hasn’t ever worked, and it never will work.
The tax code is a complicated mess that annually requires 7.6 billion hours of paperwork to comply with. Paul Ryan's aim is "fundamental" tax simplification, understood the usual way — broadening the base (eliminating loopholes) to make lower rates possible. It starts out as a revenue neutral tax reform, but it has the added benefit of stimulating the economy, providing jobs, and an increase in tax revenue overall. He would lower the top rate to 25 percent — three points lower than Ronald Reagan achieved in 1986, with what proved then to be perishable simplification. Since 1986, the tax code has acquired more than 15,000 complications, using the tax code not simply to raise revenues efficiently (with minimal distortion of economic behavior), but to pamper pet causes, appease muscular special interests and make social policy. It is time, once again, to trim that fat from our tax code.
The Path to Prosperity, cuts $4.4 Trillion over 10 years if we’re going by CBO’s numbers or, if you prefer to use Obama’s cynical, unserious, catastrophic budget proposal as the baseline, it’s $6.2 trillion over the next decade.
It reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt. The proposal brings federal spending to below 20% of gross domestic product (GDP), consistent with the postwar average, with a renewed focus on growth by reforming the nation’s outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%. It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and allow some corporations to pay no income taxes at all.
A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage’s analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.
"Targeted" tax adjustments are popular complexities, favored by President Obama and his Democratic, socialistic ilk, because they serve a bossy government's agenda of behavior modification: You can keep more of your money if you do what Washington wants. The tax code should not be a "tool of industrial policy" or of "crony capitalism". Politicians should not pick the industry or socioeconomic group of the day. Returning to tax simplification, for reasons of fairness, and to reduce the economic drag that "poorly designed tax policy" imposes on our economy, is the obvious revenue strategy required to help address our growing deficit and debt issues. Removing loopholes and tax breaks for the few, that have come largely at the expense of the many, would allow for further broad-based tax rate reductions, while at the same time, increase economic activity and government revenue. By doing this, it also would help prevent the need to cut too deeply into needed government departments, when addressing our spending reduction strategy.
Many conservatives believe that, although most Americans should be paying a smaller government less taxes, more Americans should be paying taxes. The fact that 46.7 million earners pay no income tax, creates moral hazard — incentives for perverse behavior: Free-riding people have little incentive to restrain the growth of government when their not paying for it with income taxes. You've got to have some responsibility for the government you allow, the government you helped to elect.. Most people have co-payments under Medicare, and everyone should similarly have some "skin in the game" during the income tax and spending policy decisions. In addition to the one-third of the 150 million tax returns filed by individual earners that showed no tax liability, additional millions of households have incomes low enough to exempt them from even having to file. Worse yet, the bottom two quintiles of earners have negative income tax liabilities, and they receive cash payments from the government via refundable tax credits. Any payout provided by the government, not related to taxes paid into the system, should be done solely through the welfare system, and only to those at or near poverty level.
All projected budget deficits in our future will be caused by rising spending, NOT than by insufficient revenues!!
(Even with the 2001 and 2003 tax cuts made permanent)
In 2007, entitlements (excluding net interest) accounted for 56 percent of all federal spending and 14 percent of GDP--up from 10 percent of GDP three years prior.
The three largest entitlements are Social Security, Medicare, and Medicaid. Their total cost is projected to leap from 8.4 percent of GDP in 2007 to 18.4 percent by 2050.
Rising spending--not low revenues--is driving the long-term budget deficits. By 2020, spending is projected to be +6.2 percent of GDP above the historical average, while projected 2020 revenues are +0.2 percent of GDP above the historical average.
Between 2008 and 2020, the cost of Social Security, Medicare, Medicaid, and net interest is projected to rise from 10.2 percent of GDP to 15.6 percent of GDP--making them, along with the interest on the debt, responsible for nearly the entire rising budget deficit.
The federal budget historically has been at or around 20% of Gross Domestic Product (GDP). State and local government are spending an additional 13% of GDP, so the total cost of government amounts to nearly 1/3 of the economic output. Assuming rapid growth in entitlements, due to retirement of baby boomers and longer human life spans, the Government Accountability Office (GAO) projects federal expenditures at 23% of GDP by 2015, 33% of GDP by 2030, 45% of GDP by 2040. Those numbers do not include state and local spending.
How will your childs personal finances be different from yours, when their taxes are doubled and interest rates are more than tripled? It's time to get serious! For their sake...if not your own.
Under this status-quo scenario, CBO sees the deficit growing consistently as a percentage of GDP, from 7.4 percent of GDP in 2020 to 17.2 percent in 2040, 28 percent in 2060 and 42.8 percent in 2080. As for debt, the situation is similar. According to CBO, the status-quo model produces debt levels that reach 433 percent of GDP by 2060 and 716 percent of GDP by 2080.
The comparable debt numbers for Ryan’s plan are 77 percent of GDP by 2060 and a surplus in 2080.
Our current level of national debt and future unfunded liabilities are so grotesquely gigantic as to hypnotize most of the nation’s leaders. Our unfunded liabilities are at least $100 trillion — more than twice the economic output of the entire world." Traditional Medicare composes about 69 percent, Social Security roughly 17 percent and our current deficits and interest account for the remaining 14 percent. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household's income."
If I'm not able to appeal to your love of country, maybe your love of family is the way to go. I'll make it plain and simple.....If we don't fix this, our children and grand children will have quality of life far lower than we were blest with. Now.....let's get to work!
DISCRETIONARY SPENDING
Unnecessary government programs should be eliminated, such as agricultural subsidies, "corporate welfare," and tax credits for favored industries. These programs do not serve the interests of the general welfare(general public), and the beneficiaries do not need government support. Agricultural subsidies primarily benefit big agribusinesses and wealthy landowners, for example, while driving up food prices for all Americans.
Another problem is duplication. Federal programs often have overlapping objectives, resulting in "turf wars" and/or unnecessary costs to ensure coordination, e.g., several different agencies have been involved in water resources development. The solution is to pick the best programs, merge programs, and terminate the rest.
Federal grant programs should be eliminated, with the functions involved being left to state & local governments or the private sector. Some $426 billion in federal grants were paid in 2005, ranging from $186 billion for the federal share of Medicaid and the $71 billion cost of the Department of Education (mostly grants) to 50 different grant programs for the homeless in eight federal agencies. Grant programs encourage overspending for the stated grant purposes They foster the growth of federal, state and local bureaucracies to document compliance with federal mandates, and they reduce the flexibility and innovation of recipients. Is there truly some reason to believe, for instance, that the states, school districts, teachers, and parents of this country cannot be trusted to determine how our young people should be educated? Other than money, what good is the federal government, in regards to....anything the states actually provide? We need to cut out the Federal government, and the taxes they impose, and let the individual states and localities impose the taxes required for the funding they need.
ENTITLEMENTS
As already noted, over half of the federal budget currently goes for "entitlements" (Social Security, Medicare, the federal share of Medicaid,etc,) and these programs will continue to grow rapidly unless corrective action is taken. What should be done?
While many conservatives support entitlements, they do not support their increased size and scope. Multi-millionaires shouldn’t receive Social Security checks or have their knee replacements paid by Medicare. Scaling benefits to income is called means-testing, and we should all embrace it for entitlement programs. Ryan’s budget introduces means-testing into Medicare, and this, probably more than any other component of his plan, is needed to prevent our downward spiral into insolvency.
The answer for the Social-Security pyramid scheme is well-known. Chile fixed its Social Security disaster decades ago, by giving large IRA-style allowances and phasing out the government payments to younger recipients. The sooner we do this the easier it will be. Permit younger workers to use the payroll taxes that they pay for Social Security to set up individual retirement accounts in lieu of traditional retirement benefits, which would help keep the system solvent as baby-boomers retire, and make it far more equitable going forward.
Restructure Medicare and Medicaid. No one wants to oppose healthcare for people who need it, but there is no escaping the fact that the escalation of medical costs has been fueled by government policies that cut the perceived linkage between the consumption of medical services and the payment for them. To make things better, this linkage must be restored – which means reducing government control over the healthcare marketplace, not further increasing it. (There are already 100,000 pages of Medicare regulations, and what good have they done?).
THE BUDGET PROCESS
A balanced budget amendment to the Constitution, either prohibiting deficit spending except in time of declared war or requiring a 2/3 majority to approve deficit spending in any given year, would be a tremendous help -- if it could be adopted.
A biennial budget process would allow Congress to step up their oversight, with the hopeful goal of increased spending efficiency. Congress has completed only two budgets on time in the last 30 years. They’ve become a Congress of omnibus appropriations and lack of oversight. Every two years, one-third of the Senate faces reelection, as does the entire House of Representatives. As those campaigns rev up, lawmakers are torn between their legislative duties and retaining their seats. With the implementation of a biennial budget, during the off-year, lawmakers can focus on oversight and implementation, instead of debating another budget.
Also mentioned are the "pay as you go" rules that were recently reinstated, but these rules are far from a panacea. First, they have never been viewed as applying to mandated spending programs, such as entitlements. Second, their primary effect is to limit tax cuts (including extension of tax breaks enacted for a limited period of time, e.g., provisions designed to prevent millions of middle class taxpayers from being subjected to the Alternative Minimum Tax).
Posted by The Conservative at 3:11 PM 0 comments
Wednesday, April 13, 2011
Wrong-way Obama, does it again!
Taxes, even if proportioned to share of wealth, are already too high on the best and brightest.
I keep seeing articles and posts related to taxes, and how the rich somehow get unfair tax write-offs and deductions. They claim the rich are the cause of our governments deficits and debt. They claim government cut-backs are due to tax cuts passed during the Bush era. Well, they never backed it up with real numbers, so I spent the day looking and found a Department of Labor chart showing real taxes collected, who they were collected from, and what their share of the wealth pie really is.
Below is a 2006 chart of the the American workforce in percentile groups, followed by each groups percentage of all adjusted gross income(AGI) earned in the United States, the adjusted gross income threshold of that group, and their percentage of all the income taxes collected by the government.(the federal tax structure has not changed much since 2003)
Percentile----------% of income----------Threshold-------% of income tax
Top 1%................... 21.8%...........(above $388,806)..…......39.9%
95-99%................... 15.4%.........($153,542 - $388,806)...…20.3%
90-95%................... 10.8%.........($108,904 - $153,542)......10.6%
75-90%................... 20.6%.........($64,702 - 108,904)..........15.5%
50-75%................... 18.8%.........($31,987 - $64,702)......… 10.7%
Bottom 50%............ 12.6%...........(below $31,987)..….........3.0%
Now you would think with the progressive income tax scheme we currently use, people would pay the same percentage of the income tax burden, as their percentage of all American income earned. If you make all the income, you pay all the income taxes. If you make half the income, you pay half of the income tax burden. That's fair in a liberal mind, right? All people, rich..poor...everyone who earns a certain percentage of the nations income, should pay that same percentage of the total income tax collected by the government.
The poorest, as a group, make 12.6% of all of the income in this country, and to be "fair", they should pay 12.6% of all of the income taxes. (But they don't, they only pay 3%)
The richest, as a group, make 21.8% of all of the income, and to be "fair", they should pay 21.8% of all of the income taxes. (They don't, they pay 39.9%)
So, let's be radically progressive!!, and move the "unpaid portion" of the poorest 50% of peoples taxes, and send it up to the richest 1%. It's kind of socialist, but lets call it compassionate conservatism. That tax-shift would move the richest 1% from a 21.8% income tax burden, up to 31.4%. Now!!, lets tax-shift the "unpaid portion" of the 2nd poorest group. That would bring the rich tax to 39.5%...........Still less than they are currently paying!
O.K., forget about the richest 1% of Americans. I think I've showed how they are already providing tax relief for more than three quarters of the country.
Lets look at the 2nd richest group. They pay 4.9% more of the income taxes of this country, than their percentage of the income earned in this country. Why? Because the 75-90% group falls 5.1% short of their "fair" share. So if you tax-shift the "unpaid portion" of the 4th richest group to the 2nd richest, you get 20.5%......well that's a little more than they currently pay, but close enough for radical progressives.
The 3rd richest group almost hold their own and should be left alone. They fall a little short, but as we saw above, the 2nd richest took care of that.
The numbers above indicate that, even with the most extreme form of radical, progressive, tax shifting, they believe is fairness, where the richest 1% pay the unpaid taxes of three quarters of the country, and the next richest 4% pay the unpaid taxes of people making between $64,000 and $108,000, there is actually need for a tax cut for the richest 5% of income earners. This, even after moving all of the "unpaid tax burdens" up from the bottom.
I know what your thinking. The wealthy don't properly report their income, or, the wealthy pay a lower percentage of their income toward other taxes. Well, that may be true, but that's an issue concerning the governments tax enforcement and the design fairness of those other taxes imposed. I'm all for rounding up tax cheats and scraping all those other taxes, so long as your for making taxes owed directly related to wealth earned, without the tax-shifting!
I think I have properly explained that our federal income tax system is not fair, it is not just progressive, it is radically progressive. Liberals will not be happy until the two lowest groups, 75% of our workforce, pay none of their "fair share". If they achieve this on the backs of the 6 million most successful Americans, our economy will be doomed and our government will be bankrupt. They will have created a society where 90 million people, of our 120 million man workforce, will be deadbeats in the eyes of fair people everywhere.
Again, I know what your thinking. More tax cuts to the rich? Wont that create even larger deficits and debt? Wont that make matters worse? The answer is no. You could just as easily change all of the numbers above by raising the taxes on the 75% of Americans that are currently not paying their fair share, but the amount of money taxed out of our economy is already too high. If government can't make budgets to match high taxes, we need a new government. If government does decide to impose higher taxes, take cover!!
I truly believe historians of the future will be studying this point in American life as the start of the peoples revolt, leading to either a second revolution or an all out civil war. The people are angry! And the budget, along with all the bailouts and unrestrained spending since the housing collapse, has done nothing to ease that anger. Obama had an opportunity to really bring change, but traded it off for misguided political ideology and party harmony. The time for reducing governments size, cost, and its drag on our economy is now. Before events grow out of control, beyond the current non-violent marches, protests and rallies. Unlike most liberal groups, conservatives will not just wave signs for years on end. We are a results-oriented people, and if speaking out does not work, acting out is the next logical step.
Posted by The Conservative at 7:57 PM 0 comments
Saturday, March 26, 2011
Bottom up government
Why do we pay federal taxes? Well, that’s a pretty easy question, isn’t it? We pay taxes to fund the functions of the federal government.
But that's not all. Some of this revenue is passed down to states and localities, usually in return for doing something the feds want done, but do not have the jurisdiction to do on their own. It's a type of bribery, or worse, reverse extortion. It's an abusive overreach of federal power over the states, and their citizens, and it's an end run around the 10th amendment of the constitution, which was written with the purpose of limiting the power of the federal government over the people, by leaving domestic or internal government functions to the states and localities.
Worse yet, the federal government has been corrupted by private sector lobbyist and special interest money, given to support the campaigns of politician’s, but with the end goal of getting tax policy or subsidy changes that favor those interests.
Both issues above are just quick examples of what is wrong -w- federal government. Internal and external pressures to overreach, either with goals of merit or not, fly in the face of the original intent of our founders when they established the greatest democratic republic in all of human history.
For far too long, policymakers in Washington have taken the path of least resistance – a path that has, unsurprisingly, led our nation deep into debt, and that without drastic action, aims us toward certain bankruptcy. The empty, unfinanced promises made by Washington over the years have resulted in the economic hardships we face today and the increased pessimism toward our future.
Below is a, slight radical, but necessary solution that, while admittedly causing secondary issues, it at least moves those issues down to a more local level. It is a 10 point outline of removing revenue collection from the federal government and placing a 50 state check against federal budget deficits, and more importantly, the accumulation massive of debt.
Funding the Federal government
1)Federal government revenue
Is to be provided by the individual states. They would collect taxes, which are first collected by their individual counties. (it’s a whole bottom up approach)
2) 16th Amendment
Is repealed by a new constitutional amendment. This same amendment will forbid the federal government from any other sources of income, except from the limited sale of treasury bonds, specific fees for services, and where tariffs are found necessary in international trade policy.
3) States impose taxes
A nationwide, constitutionally fixed, 33% value-added tax on goods, and a 33% national sales tax on services, in place of all federal and state income taxes, corporate taxes, the capital gains tax, the estate tax, payroll taxes and all federal excise taxes. States and localities may impose further taxation, on an individual basis, as they deem it necessary, but without I.R.S. income data, they would have a difficult time imposing an income tax, business tax, or payroll taxes. The states, however, are not allowed to impose tariffs, tolls or fees on each other, unless in return for government services.
4) Revenue flow
Beginning at the local level. The localities get a certain percentage of revenue for the collection, enforcement, and data processing. States pay the feds their portion of the collected revenue, and split the remaining funds -w- localities as they see fit.
5) Equal contribution
Federal tax revenue, from the states is set as a "per capita" payment to the federal treasury. (not including unemployed, disabled, or poverty-stricken citizens)
6) Tax adjustments
Allow the federal government to pass legislation requesting a per capita increase from the states, but the bill would require approval by 3/4 of the states, before becoming law. (much like constitutional amendments)
7) Delegated powers
Act ensures the federal government uses it’s funds to deal -w- national security and international issues such as trade and treaties (external affairs). The individual states are responsible for domestic concerns (internal affairs), unless they decide certain issues are better managed at the federal level. (10th amendment "balance of power" lives again!)
8) 17th amendment is repealed
Returning a state government voice to the federal legislature.
9) Debt
Is still not allowed by the individual states, and they must pass balanced budget bills. Feds are allowed to incur debt, but no more than 15% above the previous years revenue without 3/4 of states approving.
10) Tax cuts (economic stimulus)
Allow the federal government to pass legislation requesting a temporary per capita decrease from the states. The bill would require each state to proportionally reduce the sales taxes on their people for the same period of time. This can be done without requiring the bill receive 3/4 passage by the states, unless it were to violate the 15% of revenue deficit limitation.
O.K., I know what your thinking. Good idea, but a 33% sales tax? That’s just nuts!! Well, hear me out on this.
•First: Housing and securities are exempt. Plus, a rebate feature makes this proposal non regressive. In my plan, based on each states determined poverty level for a family of four, a family of four would pay no tax on its first $24,000 of purchases each year. This is the equivalent of a zero bracket under the income tax. Assuming that the sales tax were set at 33 percent, a family of four would be entitled to a rebate of $7920($24,000 x 33 percent) for the year. The state government would send a monthly rebate check of $660 to every family of four; a $330 check to every family of two; $690 to a family of six; and so on. So, it’s mainly just your, non-essential, expendible income that comes under this tax.
Second: it is 33% over the base cost of a product or service. As a percentage of the total cost of a product or service, it is really only 25.
Third: this tax replaces all federal, state, and local income taxes, payroll taxes, and capital gains taxes. So, your going to get all your earnings, to help you overcome the sales tax. I favor a national sales tax because I believe that the income tax is incompatible with a free society. The IRS routinely intrudes on our basic civil liberties and privacy rights–and it’s intrusions are getting worse all the time. I want an America where it is no longer the government’s business how much money you make and what you do with it.
Adding to that, the base cost of every product and service would be less, because business will not have "built-in" the costs of their taxes and the cost of processing, collecting, avoiding and/or complying with the tax code. Plus, federal excise taxes, already applied to several products (gas, booze, cigs, etc.) will be eliminated. And, just because it is wrong morally, the double taxation nightmare of the estate tax is finally over.
If it doesn't work, should't we fix it?
The U.S. government’s fiscal gap is widening by the hour. The deficits are growing, and will continue to grow, even after the best efforts of congress to cut the size and cost of government. As Bruce Bartlett, a former Reagan economic advisor who supported the VAT, puts it, "The U.S. needs a money machine" A VAT, because it touches every transaction, is just that: The Congressional Research Service estimates that each one percent of a value-added tax would raise $50 billion.
Despite long-standing political opposition, the VAT is starting to get attention for the simple reason that it may be the best, among several bad options. A useful rule of economics is that if something can not go on forever, it will stop. Current U.S. fiscal trends are unsustainable. At some point, even members of Congress will recognize this fact and be forced to act. They have three options.
Taxing the rich or big business:
Always a popular idea, but the math doesn't add up. Top income tax rates are already likely to go up to almost 40 percent. An increase much above that is counterproductive, reducing incentives to work and invest while creating further incentive to find tax shelters and other ways to avoid paying. And the income tax well is neither wide nor deep enough to fill more than a small piece of the $14 trillion hole were in. Ditto for taxing big business more heavily. The U.S. corporate tax rate(35 percent) is already among the highest in the world. Raising that is an excellent way to reduce competitiveness. Any adjustments to either the top income tax rates, or the corporate tax structure, would have include an elimination of some deductions and/or exemptions, accompanied by a reduction of the tax rate itself. While simplifying the taxes would be welcomed by all, the net result amounts to little more than rearranging the deck chairs on the Titanic, while it is sinking.
Cut spending:
If government spending were brought into line with revenues, new taxes wouldn't be needed. But that isn’t happening any time soon. Even if federal tax revenues return to their 40-year average of 18 to 20 percent of GDP, the spending promises on the books start at some 25 percent of GDP. That number is hard to knock down because the majority of federal spending is for Medicare, Medicaid, and Social Security, all of which are set to grow briskly as baby boomer retirements continue to grow. Without taming these leviathans, it is almost impossible to close the gap on spending alone.
Find new sources of revenues:
If more juice cannot be squeezed from the income and corporate tax code, the logical alternative is to tap a wider base. And the logical way to do that is to pass a VAT. Alan Greenspan, for one, considers the VAT "the least worst way" to narrow the budget gap.
Most Republicans flinch at the "T" word in any form. (Interestingly, though, many GOP economists favored a VAT in the 1980s, and it was Margaret Thatcher who introduced one to the U.K.). But crisis can create opportunities for reform, and America’s fiscal position is close to crisis. This may be the opportunity to take another real crack at our complicated and inefficient tax code, something last done in 1986.
For example, in recent years the federal government has collected an average revenue somewhere near 300 billion dollars from the corporate taxes. And the states, collectively, have brought in another 50 billion. This same 350 billion dollars has been added into just about everything we buy, along -w- all of the additional business costs related to processing, collecting, avoiding and/or complying with the tax code. You pay the taxes levied on every company that makes any part of any product you buy. Your income taxes are actually quite small compared to the taxes you pay when you simply purchase things.
It has been estimated that, most products we buy have an embedded tax, or hidden tax, of between 22-30%, due to corporate taxes and tax related compliance costs. The point is, when a tax is levied against a corporation, that corporation just includes the cost of that tax (and the cost of complying with it) in the price of its product or service. So, corporations are simply collecting taxes for the state and federal government. They don’t actually pay taxes, they pass it on to you. So a 33% V.A.T. tax, in place of the corporate tax, would change little at the department store, in terms of cost, while at the same time multiplying revenues by a factor of three or four. (1.25-1.5 trillion dollars!! And that’s just from goods, roughly 20% of our economy, services are 65% of our economy)
Blows you mind, doesn’t it. I had to check the numbers three times! But wait, there’s more.
If you have read this far, you are showing interest. That’s good! Now let me address a concern you may have. First, you ask "Aren't sales taxes a larger burden on the poor and lower middle class". The answer, of course is yes, but they have been forced to pay the embedded costs of the business tax all along, plus the added business costs involved with processing, collecting, avoiding and/or complying with the tax code. It is, without a doubt, the most inefficient, regressive tax of them all. Mine is no worse. In fact it is better. Even though I've allowed few exemptions to the sales taxes. The rebate feature of the national sales tax makes this proposal non regressive. Remember, a family of four would pay no tax on its first $24,000(poverty level) of purchases each year. That’s a $165 per person monthly check for every American man, woman, and child! This is more than equivalent to the zero bracket of the income tax, because it is a full refund for taxes paid on necessities, and housing is made exempt from taxation. This more than makes up for any regressivity of the plan for the working poor, and the rebate makes safety net costs for those below poverty, that much less expensive. Plus, the basic and necessary costs in our economy, that are currently inflated, due to an embedded tax, will now have no inflated costs. So in fact, they will be cheaper!
A VAT is also relatively simple to administer, so its "dead weight" — the distortion it imposes on the economy above and beyond the price of the tax itself — is minimal. The VAT is assessed on a good at each stage of production and distribution — when the raw material is sold, when the product is manufactured, when a store stocks up, and when the consumer buys it. Each stage does not add 33% to their cost, they just add 33% to the amount they add(their mark up). When a business calculates its VAT payment to the government, it calculates 33% of all goods sold, before taxes, then deducts the taxes they paid to the previous stage(their suppliers), based on sales records every company along the chain already keeps. That’s one reason the VAT is considered highly efficient – it’s easy to comply with – and it’s hard to dodge since each link in the VAT chain keeps an eye on the rest.
Your supplier charges you $0.75 for something, after tax you final cost is $1.00. You decide to mark up the product $0.75, to sell it for $1.75+tax. You have to tax your mark up (0.75 x .33=0.25) ($1.75 + 0.25) The final sell price is $2.00
Of the $2.00 product, your supplier gets $0.75, you get $0.75, and the state gets $0.50 (33% of $1.50 exclusive)(25% of $2.00 inclusive)
At the end of a month, you calculate your total sales, before taxes (lets say that was all you sold that month) ($1.75), you deduct your total costs ($0.75), and your total taxes paid to your supplier/s ($0.25), and pay 33% of the remainder. ($1.75 – $0.75 – $0.25=$0.75 x .33=$0.25) You owe $0.25.
The national sales tax on services is even more simple, since there are no raw materials, steps of production, etc. (Service charges + 33%=final sale price)
And while all goods and services imported into the United States would be taxed at the 33 percent rate, all exports(products not sold within the United States), would not. This provides the added benefit of making American products more competitive, both here and abroad. Shifting to a business consumption tax would bring jobs home to America, and help to rebuild our manufacturing base.
The state and federal individual and corporate income taxes, the capital gains tax, the estate tax, payroll taxes and all federal excise taxes could be replaced with a value-added tax on products and a national sales tax on services. (VAT/NST).
•A 33 percent exclusive (25% inclusive) sales tax on the purchase of goods and services. (goods via V.A.T) The NST would be similar to state sales taxes.
•It would eliminate the federal and state income tax, corporate tax, the capital gains tax, the estate tax, payroll tax and all federal excise taxes.
•The states will bear the primary responsibility for administering the national sales tax. It would be administered much like current state sales taxes. All taxes would be collected by retail businesses as they sell goods and services.
•The cost of compliance is estimated at only $1-5 billion per year for businesses, as much as 500 times less than the current system.
•It would save rest the country an estimated $600 billion a year spent in complicated tax compliance.
•The IRS would be abolished, and the treasury would manage the funds sent to them by the individual states.
•Federal government is constitutionally prevented from imposing taxes and must be funded, almost entirely by the individual states.
•There would be no tax forms for citizens to fill out. And business taxes could be figured by an elementary school student.
•It would tax all citizens at the same rate so that only those who spent more would pay more taxes.
•It would collect taxes from everyone living in this country, including aliens and illegal aliens- adding billions of dollars to the nation’s treasury.
•It would tax the underground cash economy in the U.S. because people who currently evade taxes would be taxed equally when they bought goods and services.
•It would encourage savings and investment.
•It completely eliminates the ability of political groups to interfere with economic issues of taxation for special political interests.
•Analysts say it could dramatically increase the tax revenue collected while reducing the impact on individual citizens. Can you say "win-win"?
I call for a new dealer, and a reshuffle
Federal, state, and local government revenues totaled nearly $5.2 trillion in 2007. Federal revenue made up almost half of that total, states collected about 30 percent, and local governments brought in 20 percent.
•- The federal government transferred nearly one-fifth of its revenue to state and local governments, leaving it with 41 percent of total revenue, about $2.1 trillion
•- Almost all of the federal transfer went to the states, which in turn passed the equivalent of 110 percent of this revenue to local governments. States retained 29 percent of total revenue, about $1.52 trillion
•- Local governments received transfers from both the federal and state governments equal to about one-tenth of total revenue, giving them a total of just under 30 percent of all government revenue, about $1.54 trillion, slightly more than state governments.
All of government in this country currently cost us about 5.5 trillion dollars, only 40% of which is used by the Feds, even though they currently collect 50%, then dole out 10% to states and localities. I believe the states should be the tax collector who doles out the funds. States will no longer be held over a barrel for the 20% of federal money sent down, with mandates, from D.C., and the federal government would be constitutionally prevented from imposing taxes, of any kind. The feds will get what they need to fund their business, but they will not be allowed to hold the purse, preventing them from unconstitutional influence over state and local issues. Initially, the states would be reponsible for giving the feds 40% of revenue, and then split the remaining funds between their needs and the needs of their localities. (probably 50/50, if the localities are prevented from taxation)
Eventually, states will have to work together and decide which domestic programs, currently funded by the feds, are to be reclaimed by the states, and be administered individually, in the various ways of each states choosing. They may even choose that some programs should continue to be operated as one, collective policy, administered by the feds. As some programs are moved to their rightful jurisdiction, so too will the funds needed to provide for them. These programs can only be the domestic provisions of government that were specifically meant for the states, according to the original intent of the constitution. They can not take control of programs listed in the emumerated powers of the federal government.
It has been estimated that, as the federal governments domestic role and responsibilities are diminished, its share of total tax revenue will be reduced to approx 20-25%. Individual state governments will grow to approx 45-50%, and the localities would still take a 30% share. (unless more programs are furthered to local control)(23/43/33 seems about right)
It is possible that states governments will find themselves somewhat overwhelmed. It does make them responsible for the delivery of a lot more services and management. Responsibility and flexibility that they have been screaming for, for years. Be careful what you wish for, I guess. Hell, they might want to rethink the whole state government thing, and redirect some of their programs to a more local level of responsibility.
5.5 trillion dollars is a huge amount. That’s roughly 110 billion dollars per state, on average, with 6 million people per state, on average, equals a personall tax burden of $18,333 per person, again, on average. A 33% value-added tax on goods and a 33% sales tax on services would be set on a national scale (3.0 – 4.0 trillion), but collected by each individual state. This should be enough to fund all of the federal government functions, and have enough left over to, at least, prevent the need for state and local income taxes or business taxes.
Now, if you like the idea of never having to report you income to the government, any government, at any level, then this is the way to go. If you hate complicated tax forms and having the cost of everything you buy inefficiently inflated. If you want to rid the country of tax loopholes and special treatments, allowing some to stand by, while you fund the government. This is the plan!
Implementation
If you like the idea, but don’t trust the numbers, well o.k., I've never trusted others peoples calculations either. So, I offer this deal. The implementation of the plan is carried out slowly, over a five year period. A 7% per year VAT & NST is traded for a 20% per year reduction of all taxes ment to be replaced. Everyone calculates their taxes as they usually do, but then deduct the percentage of that years discount, from the bottom line.
At the end of the 3rd year, if the 21% VAT & NST is not meeting the revenues lost from the other taxes, the fourth year, or 28% VAT & NST, will not be accompanied by tax reductions on income, payroll, excise, estate, and capitol gains taxes.
This would amount to a 28% sales tax, a second year of the 60% reduction of the income, payroll, excise, estate, and capitol gains taxes, but business taxes would continue down to the 80% reduction level.
At the end of the 4th year, if the 28% VAT & NST is still not meeting revenue expectations, the fifth year, or 33% VAT & NST, will not be accompanied by tax reductions on income, payroll, excise, estate, and capitol gains taxes, but business taxes come to an end.
This would amount to a 33% sales tax, only a 60% reduction of income, payroll, excise, estate, and capitol gains taxes, but at least the most inefficient tax known to man, will have been put out of it’s misery.
Then, as the economy grows, and revenues increase even faster, the VAT & NST will strengthen to the point where delayed tax reductions can continue to their completion. The repeal of taxes and elimination of the IRS will not occur until VAT & NST revenues are sufficient to replace all of the taxes for which it was intended.
While all that is going on, the states will begin to reclaim their rightful responsibilities. Federal government will shrink and each state government will grow in it’s own way. Revenue shifting from the "top – down" will finally come to an end.
Posted by The Conservative at 5:11 PM 0 comments
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