Posted on 17 April 2012.
By Michael Charles Master
The tax system in the USA is a disaster. It is used by politicians to divide Americans in class warfare. It is used to reward political supporters. It is so complex that it caused the creation of an entire industry of lawyers, accountants, and IRS employees who suck capital from the economy for their services that could be used by Americans to purchase products that would employ many more Americans.
As a fix for these problems, let me propose these 8 simple changes to the tax code:
1. Tax credits for charitable contributions up to 10% of owed taxes and elimination of pre tax charitable deductions. Today, the tax law allows deductions from income for contributions to government approved nonprofit organizations before the tax obligation is calculated. Therefore, the real impact of charitable deductions on taxes is only equal to the tax rate of the individual, so no real incentive is achieved. This change eliminates pre tax deductions for contributions to nonprofit organizations. It will only be a tax credit. Therefore, all individuals are motivated to make charitable contributions up to the 10% tax credit amount and deducted from the tax obligation. Nonprofit organizations will be forced to advertize in the light of day to Americans to receive contributions rather than lobby government officials. The government will be removed from making contributions to nonprofit organizations. Lobbyists will no longer be needed by charitable organizations because the federal government will be out of the business of funding nonprofit organizations. The individuals who are paying the taxes will be making the decisions as to who receives the contributions rather than the government making those decisions.
2. Tax credits for purchase of healthcare insurance up to $1500 per person with rebates for payments larger than the tax obligation. Once the tax obligation is determined, then the tax payer can deduct a tax credit up to $1500 per each person represented on the tax return for documented payments to purchase healthcare insurance. And if the tax obligation is negative after the tax credit is applied, then the government will refund the negative amount to the tax payer as an overpayment rebate. Each person will be motivated to purchase some healthcare insurance, even if it is only catastrophic insurance. A mandate forcing people to purchase insurance will not be needed. And even low income Americans will file tax returns to receive rebates.
3. Elimination of taxes on corporate profits, elimination of all subsidies to corporations, and an increase of tax rates on stockholder dividends and capital gains as “ordinary income.” Today, the stockholder is taxed twice for profits made by a corporation … once as profits to the company at an approximate rate of 35% and then again as a disbursement of cash at 15% for a total of approximately 45%. That encourages stock holders to take money out of the corporation that could be used to grow the company. Instead of this double tax that many Americans do not understand, a tax will only be charged to the stockholder as “ordinary income” on disbursements and capital gains. All taxes on corporate profits are eliminated. This will encourage corporations to locate their businesses to the USA and it will encourage them to leave their profits in the companies as retained earnings to grow the businesses. All subsidies to corporations will be eliminated because there are no taxes on corporations to apply subsidies. This will increase jobs in America and it will eliminate the class warfare and pandering used by politicians.
4. Elimination of the AMT. The Alternate Minimum Tax should be eliminated. It adds an extra burden on all Americans. It eliminates charitable contributions and other deductions that are needed to motivate spending in America. And it adds taxes on higher incomes that are not recognized by lower income people who wrongly believe that higher paid earners do not pay a fair share of taxes.
5. Flat tax rate and a standard set of deductions for all people. This is one tax rate and one set of simple deductions for all Americans. My suggestion is to implement a 35% tax rate after these deductions are used to adjust the taxable income:
a. $10,000 deductions for each head of household and for each dependent.
b. Mortgage interest payment deduction up to a maximum of 20% of “ordinary income.”
c. Education deduction up to $5,000 for actual receipts per each person.
d. Out of pocket medical costs up to a maximum of 10% of “ordinary income” for appropriate receipts.
The average family of 4 individuals with income of $50,000 will probably pay no income taxes while the average family of 4 with income of $500,000 dollars will pay an approximate tax of $115,000 (23%). A family of 4 who earns a million dollars will probably pay about $270,000 (27%). A single person who makes a million dollars with no other tax deductions will pay $347,000 (almost 35%). Taxes will be simpler. Class warfare is eliminated. Loop holes that favor the rich are eliminated. Marriage vs unmarried penalties/advantages are eliminated. And all Americans will have an interest in what the government is doing with tax regulations.
6. All laws/taxes apply to all Americans equally. All too often, politicians pass laws with imbedded taxes or benefits or subsidies that only apply to selected groups. And politicians make selected groups exempt from laws/taxes. These practices cause support for those laws/taxes from people who benefit from those actions. That is detrimental to a democracy. Many groups supported the Affordable Healthcare Act because they would not be affected by it, like unions, government employees, and major contributors to the Democrat Party, not because the law helped America. At the same time, laws that help owners of some businesses are passed to secure the support from those businesses … like with farm subsidies and oil company subsidies. To cure our tax inequities, these practices must end. All laws/taxes must apply to all citizens with no special privileges or exemptions so that all Americans have a vested interest in what the politicians do.
7. Repeal of the Sixteenth Amendment. While the Sixteenth Amendment was meant to give more flexibility for taxation to our elected officials, the Sixteenth Amendment has been abused by politicians to tax America much more than could ever have been imagined and for uses that clearly are not for the common defense and general welfare of the United States.
8. No American funds to foreign entities. No monies collected in taxes from American citizens can be used to make any type of payments to foreign entities. Today, tax monies from Americans are used by the federal government to pay foreign governments, to purchase foreign products, and to employ foreign workers. All of these actions dilute the integrity and industry of America. These actions lead to corruption of American political leaders by foreign entities. The government can use taxes collected from foreign entities like import taxes to make payments to foreigners. But payments to foreign entities from taxes paid by Americans must end.
If our political leaders are serious about fixing the inequities in America, then they must implement programs to fix the tax system. Otherwise, America is doomed to follow the same demise as all other great societies who allow their tax systems to succumb to corruption.
Michael Master is the author of “Rules for Conservatives” and “Save America Now!” They can be ordered at www.saveamericanow.us.com