In a previous post, I suggested implementing a combination of sales and income tax to fund the federal budget. Since the national sales tax is widely unpopular and it has been left to the states to have the freedom to impose one, I’m going to back down from the national sales tax recommendation.
In response to Barack Obama’s State of the Union, I am honestly perplexed that he truly believes targeted tax exemptions will have a large impact on the behavior of corporations. He’s a Democrat, and Democrats just cannot bring themselves to use the phrase “tax cut”. Even when it makes sense to do so, they simply cannot use the phrase.
Fact: The corporate tax rate for manufacturers in the U.S. is non-competitive with the rest of Europe, and the world. So don’t merely give tax breaks for some corporations and not others. Make the tax structure fair for all. Reduce the tax rate on all manufacturing. Small manufacturing companies and startups should have an even lower tax rate on income than large corporations – but even the highest tax rate should be competitive with the rest of the world.
With regard to Individual (Household) income tax, I disagree with Republicans who say that the capital gains tax should be eliminated or reduced (to encourage investment). The truth of the matter is that individuals will still invest money, if they have it to invest. Taxes should be applied equally to all income. Period. The minute we start talking about tax exemption for this or that, it becomes a tax that favors some and punishes others, because when you eliminate certain kinds of income from taxation, other kinds must then be taxed at a higher rate to make up the difference. Using the tax code as a form of behavior modification DOES NOT WORK. People on both sides of the aisle need to stop playing politics and acknowledge this fact.
According to the IRS, a “Capital Gain” is the following: “When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.” What is a capital asset? “Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.” Your house, car(s), boat(s), RV(s), land, stocks, bonds, estate jewelry, works of art, … it’s all considered to be part of capital.
Americans will not stop investing just because they may get taxed on the gains from those investments. We will not stop putting money into an IRA or other savings account. Just make the standard deduction (per household member) high enough to give middle income folks room to put something into savings and retirement.
What I proposed – and still propose – is the following: report ALL income, including capital gains, interest (foreign and domestic), and subtract ALL major losses, including alimony, income lost to tuition payments for yourself or a dependent, qualified major medical expenses paid (non-cosmetic and non-elective) as well as loss from investments, personal property loss (catastrophic) that was not recovered by insurance - the result is your “Gross Income”. No more $200 here, $300 there – qualifying deductions in each category must reach a threshold of $4,000 or more to be deductible. This reporting of income and loss is the means by which major life events are taken into account when taxes are calculated.
Take a standard deduction for the household. If two or more members of a household file income tax, only one may claim the household deduction. This standard deduction should be in the neighborhood of $22-25,000. Definition of household is: individual who is not part of a domestic partnersip or domestic partner(s) and their dependents. To be a domestic partnership, you are either a married couple or have filed for civil union and live under the same roof. Standard deduction for dependents is $6-8,000 each.
After standard deductions, whatever income is left is your “taxable income”. If your taxable income is less than $100,000 you pay 15%. If your annual income is $100,000 up to $249,999 you pay 19%. Those whose income is $250K or more pay 23%. Even millionaires should not be punished for making money. Making the tax rates a bit lower may prevent folks from feeling the need to hide income or lie on their tax returns. It’s a strategy that makes sense, is compassionate to folks who suffer loss as well as asking a bit more from those who have been successful without being punitive.
