I have a pretty complex tax reform, but one that might work

[jmowreader]

Any workable tax reform plan has to meet two seemingly contradictory goals:

Goal 1: It has to increase revenues to the federal government
Goal 2: It can't leave the poor any more fucked than they already are. It should, ideally, leave them less fucked.

No tax plan extended by the Republicans meets either goal; most of them meet neither. The perfect GOP plan would be to exempt anyone who makes over $1 million per year from taxation of any kind, eliminate all social programs and dump the entire tax burden on the shoulders of the middle class. They'll never get there but they can dream.

Here is my plan. Read the whole thing before telling me how full of shit I am, please.

1. ALL income will be subject to Social Security tax at its current rate. The "let's raise/eliminate the cap but lower the rate" thing a lot of people fall into is a form of revenue neutrality - a process through which we try to make sure a new tax rate collects exactly the same amount of money as the old one did. Now hold on there Hoss: Social Security's problem isn't that every dollar earned in America isn't evenly levied for Social Security but that there's not enough money coming in. If we eliminate the cap but leave the rate the hell alone, more money will come in and that is the desired result.

2. Tax rates must go up. Simple as that. The new rates will be:

10% becomes 11%
15% becomes 17%
25% becomes 28%
28% becomes 32%
33% becomes 38%
35% becomes 41%
39.6% becomes 50%

3. The beginning and ending points of each bracket will be even numbers in $5000 increments - rather than a bracket running from $148,851 to $226,850, that bracket will run from $150,001 to $225,000. This one is not for changing the amount of taxes we'll collect, but to make it easier for the taxpayer to figure out how much tax he owes.

4. The standard deduction will be increased to 125 percent of the federal poverty level for your family size (FPLF) as of October 15 of the tax year. This date is to give the feds sufficient time to issue tax publications with the number in them because you can't print fifty million of ANYTHING, especially if it has to be proofread by lawyers, and ship it all across the country in two weeks.

5. Allow anyone in the current 10 or 15 percent tax brackets to take both standard and itemized deductions.

6. Anyone in the current 35 percent bracket must itemize, regardless of tax impact.

7. Anyone in the current 39.6 percent bracket can only deduct charitable contributions.

8. Anyone who makes over $1 million in gross income pays a flat 25 percent on 95 percent of his or her income.

9. Any business with less than $1 million in taxable profits will pay taxes using Individual tax rates, and those with more will pay Corporate rates.

10. Tax legislation may only be proposed once every 10 years.

[LiberalAndProud]

1. Leave the two lowest brackets alone.

Seriously, in those brackets you're not making it now. Those falling in those brackets are already over-taxed.

[jmowreader]

8. The increase in standard deduction and the double deduction should compensate for that

How about also, if you're in the 10 and 15 percent brackets the medical deduction isn't indexed? Right now you have to spend a certain percentage of your income on medical bills before you can deduct it, which means you need to be either chronically ill with something really expensive (kidney failure comes to mind) or you had to suffer a catastrophic condition.

[Warpy]

2. I see some problems

1. Seniors eke out their living from unearned income plus social security. Making both of those subject to OASDI is counterproductive.

2. A top rate of 50% won't do it. We also need to think about reducing the plutocracy. I can see a top rate of 70% but a confiscatory rate on incomes of, say, 100 million. Nobody is worth that.

3. They're both arbitrary, no advantage.

4. Great idea.

5. Either/or, whichever gives them the higher return.

6. You'd have a revolution on your hands. A lot of old folks with paid off houses take the standard deduction and it works. It guesstimates things like sales taxes, gas taxes, and all the other things it would take a garden shed to store every year to itemize.

7. Again, that's rather unfair to people who have out of pocket medical expenses or who have been through natural disasters. Not going to work.

8. Too low. Even their pipe dream of a flat tax is 30%+ It also doesn't allow income averaging for people with very short career lifespans, like sports figures.

9. Not all businesses are created alike. This won't work.

10. This is far too rigid. it doesn't allow for the periods of rapid inflation and deflation this country has seen.

The only tax system that has worked well has been the progressive income tax system. That progressive structure, applied to unearned income, will also generate revenue while not punishing seniors who invested for retirement. It can also apply to inheritance taxes, allowing families to pass on wealth but not plutocratic empires.

The other thing that is desperately needed is a transaction tax on Wall Street.

As long as a progressive system isn't tied to specific dollar amounts but rather to the median wage, it will continue to work. That's what killed it in the 70s, being tied to dollar amounts while inflation kept pushing middle class people into the tax brackets aimed at the wealthy. That's why they were suckers for Reagan and it's why we lost it.

[riderinthestorm]

7. +10 million on every point. I've been pushing the tax on financial transactions for years

its a no-brainer.

But typically falls flat here at DU

[jmowreader]

12. okay...

1. Since they're taxed NOW...it would be possible to make people who are 65 or older exempt from taxes on unearned income. As for the Social Security thing, that was one of Reagan's tax increases and it should die a swift death, with our legislators informing America who invented that shit every day until it's gone.

2. Since 50 percent was the top rate in the Kemp-Roth Tax Cut, we can probably sell it easier than a 70 percent cut on the theory If 50 Percent Was Good Enough For Ronald Reagan It Is Good Enough For You.

3. There really isn't an advantage, except that it makes the brackets easier to remember.

4. Thanks.

5. The intent is to allow lower-income filers to experience lower tax bills.

6. I could live with allowing retirees to take the standard deduction regardless of income. I do want high-income wage earners to pay more taxes, and this is one way to do it.

7. Obviously this isn't a cast-in-stone proposition...my thinking was, "when it comes to ROUTINE deductions - normal medical stuff, mortgage interest, tax preparation - just chop it down to charitable contributions and call it good." You wouldn't have a house fire, a tornado or some other serious casualty every year and you probably wouldn't have a heart attack every year either.

8. Willard Romney pays 13 percent income tax right now. A flat 25 percent would garner about twice as much as Willie M's money as the current code does. We can sell twenty-five percent.

9. How do you deal with pass-through entities like the corporate raider firm KKR, who had around $9 billion in revenue in 2013 but pays taxes the same way your barber does, unless you just tax by income? If you have less than a million in PROFIT - which means you earned a shitload more in revenue - you pay taxes the way a FTE does now, and if you broke $1MM in profit last year you pay taxes the way a corporation does now. Also, we need to fix the corporate write-down system so you can't pay negative taxes.

10. My intent is to take tax cuts away as a campaign tool. Ho Chi Minh could get elected in this country if he promised to cut taxes deeply enough.

BTW, how much of a transaction tax would you like? I think a 3 cent per share tax would be just perfect for three reasons: it's not crippling to normal investment activity (it's three bucks per block of 100 shares - less than the commission on the transaction in most instances), it would add a nice little chunk of change to the national exchequer, and - most important - it would make high-frequency trading too risky to do. The HFT guys buy a million shares of something, wait till the price goes up a cent and sell it before they get the chance to pay for it. No one stays in a position long enough for it to rise by four cents.

[hill2016]

3. I guess

you've never heard of AMT, Pease limits, Personal Exemption Phaseout, or you would have mentioned how your proposals would modify them.

1. How would this change the Social Security benefits for people who pay more now?

3. Are your tax brackets indexed for inflation?

7. Not even investment expenses and mortgage interest deductions?

[WillowTree]

5. Especially the mortgage interest deduction. Can't kill that one. People would revolt.

[jmowreader]

10. The mortgage interest deduction would get better for the people most likely to revolt

Under current tax code, the Married Filing Jointly standard deduction is $12,400. I don't know about y'all, but in my neck of the woods you would need a VERY expensive house, a lot of medical deductions, really high state taxes, this that and the other to break $12,400. My plan allows you to take both your standard deduction AND your mortgage interest deduction. The National Association of Realtors would be dancing in the streets over this.

[WillowTree]

13. If you say so.

[taught_me_patience]

4. interesting ideas

Interesting ideas and pretty well thought out. Du rec

[TexasBushwhacker]

6. Address capital gains as well

In the interest of senior citizens, the first $50K in long term capital gains income ($100K for couples) will be taxed at 15%, after deductions and exemptions. Beyond those amounts, and for people under 65, long term capital gains will be taxed at the same rate as wages. It makes no sense for someone who has the good fortune to have significant capital gains to pay a lower tax rate than someone who pays taxes on wages earned by the sweat of their brow.

It also makes no sense that a trust fund kid gets to pay 15% for winning the genetic lottery. Hedge fund managers and others that use the capital gains loophole should have to pay the same rates on their income as everyone else.

We must reinstate inheritance taxes. America was not built on the idea of supporting dynasties. Of course, some of the estate will be tax free off the top, and it will continue to be a tax free transfer to a spouse. But Sheldon Adelson should not be able to leave billions to his kids tax free. That's just nuts.

[jmowreader]

9. The capital gains rate is definitely worth addressing

The theory behind the capital gains rate is sound: if you risk your money helping a new business get off the ground by investing in it and leaving your benjamins in over the long haul, you should be rewarded for it with a lower tax rate. (Oh...it is a LONG TERM rate; you must leave your money in the investment for at least a year to be eligible for it.) Right now, the capital gains tax is primarily a tax cut for rich people who can afford to wait two years for their paychecks.

I would reduce the use of the long-term capital gains rate to one instance: securities bought directly from the issuer using all your own money rather than as part of an Incentive Stock Option deal, and held at least two years. If I buy Adobe stock from Adobe, Adobe can use my investment to grow its business. If I buy it from John Smith, he can use my investment to buy stock from another stock player.

[Sunlei]

11. we're paid our ss check by the income we made, right? up to the cap? if people pay in unlimited cap

then does that mean with your 'plan' they get a guaranteed ss check with 'unlimited cap' based on their income?

What I mean is there is a minimum amount a persons check could be but the cap limits the top amount a ss check can be.

I hate the IRS, its to complex. to many loopholes and to many super wealthy/Corps know just how to game it to Americas disadvantage.

Banks take 2% off the top from every debit card transaction across America. And they earn billions right off a computer program.

Isn't there some freaking way the government can take a percent, 5% even 10% off every sales transaction across America? exempt food, utilities, medicine, and some other things and do away with IRS.

Good ideas you have, thanks for the post. I can't wait until I don't have to deal with the IRS year in and year out.