LET THE BUSH TAX CUTS EXPIRE IN ORDER TO FORCE COMPREHENSIVE TAX REFORM

Perhaps lame-duck Democrats in the U.S. House have finally found their collective “Cojones” by emphatically saying “NO” to the lousy compromise tax package negotiated between the Obama Administration and the Congressional Republicans. Though they have no alternative proposals that could possibly pass both the House and Senate by the end of this year or anytime during the next two years, maybe just being the new party of perpetual “NO” might be a better alternative to minority Democrats for the foreseeable future. It worked wonders for the Republicans over the past two years.

TAX COMPROMISE PROPOSAL DIDN’T SOLVE MUCH OF ANYTHING

By killing the Obama-Republican tax compromise, unemployment benefits will probably not be extended. Throwing millions of financially vulnerable individuals and families under the bus is economically and ethically indefensible, but that’s life in an oligarchy. If we have to give huge tax breaks to the top 1% just to provide out-of-work individuals an average of $300 per week to prevent homelessness and starvation, we really have sociopaths and sadists running our government.

DADT, the Dream Act, the Start treaty, and a number of other bills will go no where this year or for the foreseeable future. Unless a super-majority in the Senate can agree upon any bill, nothing happens. Even a clear 57% majority is simply ineffective. We’ve had rule by minority for decades in Washington and it will continue for another 2 years. The most important minority in the nation is its wealthiest 1 percent who has bribed both parties to represent its interests over those of the vast majority of citizens. These non-tax-related bills will fail simply because we have undemocratic and unconstitutional rules governing the U.S. Senate that again preserve power to a minority. Perhaps Democrats in the House are finally waking up to this sad reality and trying to do something about it before they go into retirement and liberalism is completely discredited.

SOCIAL SECURITY AND PAYROLL TAXES

Cutting the payroll tax for social security is not a viable economic stimulus measure and it will not create any new jobs. It merely underfunds the program so Republicans can gut it later because it isn’t paying for itself. Instead, the only two worthwhile permanent solutions to social security is to (1) gradually raise the age at which full benefits kick in and (2) eliminate the $106,800 cap on wages upon which the payroll tax is imposed so all earned income is subject to the tax. All high earners – who fully share in its benefits and live the longest – should pay their full and fair share towards this national inter-generational contract of economic security for seniors no longer able to work.

LET’S GET SERIOUS ABOUT CUTTING FEDERAL DEFICITS

If we are serious about getting our nation’s fiscal house in order, we have to all contribute more in taxes – starting in 2011. That’s why the best short and long-term fiscal solution to many of our problems is to permit all the Bush tax cuts to expire. We would merely return to the tax structure we had during the Clinton years – a period when we had the best job growth (and the only time we amassed a few budget surpluses) during the past 30 years. Our government does not exist to shovel more wealth up to the oligarchy while impoverishing the rest of the nation and bankrupting the government in endless debt. Those who support tax cuts in the past, now, or in the future are simply delusional, financially irresponsible, and willfully ignorant of economics.

There are a number of Federal programs that merit strict scrutiny, shrinkage, or complete transfer to the states. We really need to honestly discuss our nation’s 21st Century defense, security and global economic competitiveness needs and goals. Other programs might be worthy of modest increases if they directly reduce unemployment or rebuild our transportation infrastructures. However we must realize that cutting waste, fraud, earmarks and foreign aid will only decrease federal spending only by 2 or 3 percent annually. They pale in comparison that we must borrow over 30 percent of our total Federal spending and interest payments alone on accumulated debt are over $500 billion annually.

A NEW FEDERAL TAX SYSTEM

As I mentioned in my prior TMV post, perhaps the expiration of all the Bush tax cuts may force Republicans and Democrats to seriously consider a comprehensive reform of our entire tax system during the next 2 years. With divided political power in Washington, both parties would have no other viable alternatives – except to do nothing – to achieve any of their political and economic goals.

A new tax system should encourage savings at all income levels (not just by the rich) and decrease our economy’s excessive dependence upon mindless consumer spending. It should radically simplify the entire tax code, eliminating all existing tax deductions, credits, exclusions, subsidies and special treatments for particular groups and industries. It should tax gross income from all passive and active sources at the same modest marginal tax rates. Wages earned from active work should be taxed the same as income from interest, rents, royalties, capital gains and dividends.

What individuals, households, businesses and corporations do with their gross income after paying income taxes should not be the concern of the government. How businesses spend and borrow money should not influence the taxes they owe on their gross sales and receipts. Net profits are such manipulated creations by most enterprises as to be meaningless except to reward inefficient businesses over more efficient ones.

Business tax rates (for all types of corporate entities) should be the same as individual rates. All cash retained by a business would be subject to a 10% excise tax at the end of its fiscal or calendar year. This would encourage its productive investment or distribution to shareholders.

4 NEW MARGINAL RATES ON ALL GROSS INCOME

A new tax system should contain some modest progressivity but it should be limited to around 4 marginal income tax brackets. Tax rates should not vary based upon a person’s marital status, age, sex, number of children, or any other factors.

Individuals with gross incomes under $15,000 a year would be exempt from all income and payroll taxes. Those who make between $15,000 and $150,000 should be in the lowest marginal income tax bracket of 10%. Gross incomes for individuals between $150,000 and $500,000 would be in the 15% marginal tax bracket. And finally, gross incomes over $500,000 a year would be taxed at the rate of 20%. These lower rates would only be possible if the entire tax code were simplified by eliminating all deductions and credits, and all passive and active types of income were included in taxable gross income.

An income tax system should principally raise revenues to adequately fund public sector programs that only government is able to provide to the general public. It should not be used as another form of economic policy or social engineering to influence business and personal decisions.

ESTATE TAXES

Estate taxes should be equalized and consolidated at the Federal and State levels, and imposed upon estates over $3 million in total assets so the 20% individual tax rates would apply. Such a simplified system would also allocate total estate taxes between all states claiming a significant interest in the estate. Estates could reduce their taxable assets by giving them to qualified 501(c)3 charitable organizations, tax-exempt foundations, or directly to any governmental entity.

UNIVERSAL SAVINGS ACCOUNTS (USA)

A tax-free universal savings account (USA) should be enacted to replace all public and private pensions and the various tax-free retirement and savings accounts. It would consolidate all 401K plans, IRAs, Keoghs, SEPs, Roth IRAs, and Health and College savings plans.

USAs could be managed by a variety of financial organizations with fees limited by law. The owner could transfer the account without charge and at any time between trustees and managers. (A special annual fee would be paid by all USAs to insure against losses due to the bankruptcy of or fraudulent activities by USA managers and trustees.)

The individual holder of the USA and his/her employer could make tax-free annual contributions to the account (reducing taxable annual income) up to a certain statutory limit and after-tax contributions to another stated limited. Individuals could not borrow against or completely liquidate a USA until after they turn 65.

Tax-free withdraws would be limited to no more than 20% of the total assets of the USA during any calendar year for a limited number of permissible reasons, including to pay for education, medical expenses, to purchase a primary residence, or to start a business. After 65, the tax-free withdraws could be for any reason. USAs would be exempt from personal creditors and bankruptcy and they could not be pledged as collateral for any types of loans.

Balances remaining in USAs when the owner dies would pass tax-free to named beneficiaries on the account and outside the imposition of any estate taxes. All public entities and private corporations could transfer the present value of their existing pension plans into individual USAs in order to free government and businesses from the direct cost of their employees’ pensions.

NATIONAL SALES (TRANSACTION) TAX

There should also be a national sales (transaction) tax of 10% imposed with revenues being divided between federal, state and local governments. It should apply to all goods, services and transactions and include those conducted over the Internet. (A higher transaction tax rate could be instituted if the new tax also replaced all the separate state sales and use taxes.) Some transactions (such as prescription drug purchases, transfers of funds between related people and entities, and a limited list of other exempt transactions) could be excluded. A VAT tax is a far too regressive and hidden tax for this nation, and it would likely distort many business and consumer decisions and transactions across the economy.

NATIONAL GASOLINE (FUEL) TAX

The gasoline (fuel) excise tax should be set nationally (replacing the separate state fuel taxes ranging from around 15 to 35 cents per gallon, and the 18.3 cent/gallon Federal excise tax). It should be set initially and universally at sixty (60) cents per gallon. It would slowly increase one (1) cent/gallon per month until it reaches $1 per gallon over a period of about 4 years.)

The revenues generated by this tax would be used solely for transportation infrastructure needs. More than likely such annual expenditures may have to be supplemented out of general revenues at the federal and state levels or by other dedicated federal and state taxes. It will collect less revenues as people eventually use more fuel-efficient vehicles, drive less, and use more public transit. Some or most of its revenues could also be allocated to an independent National Infrastructure Bank.

Most (90%) of the funds generated by the national gasoline (fuel) excise tax should revert back to the states to be spent as each state desires with a limited number of federal requirements. The 10% retained by the Federal government would be used to fund the U.S. Department of Transportation and permit Congress to allocate funds to some large multi-state projects. The state-by-state distribution would be principally based upon their total populations and on a few other factors such as the total size of their existing road, rail, mass transit, air and water infrastructures.

We have to cut off our huge and expensive dependence upon foreign oil for over 60% of our current needs. We also have to stop funding various terrorist organizations which indirectly obtain some of our oil payments. Only by setting existing fuel taxes high enough will we encourage alternate fuel sources.

SUMMARY

Unfortunately, tax reform is probably only a dream. Our political system is just too polarized, partisan, ideological, illogical, angry, fearful, impotent, paralyzed and gridlocked to tackle any of our major national challenges. More likely, with the death of the current tax compromise, Republicans will shut down the government when it is necessary to raise the debt limit in 2011. This time (unlike in 1995) the shutdown could last for months and it would likely cause a global financial and economic melt-down. Wouldn’t that be exciting?

Perhaps the sooner the bankrupt U.S. Empire (and its utterly corrupt crony capitalist system and central government collapse) the better. It would hurt hundreds of millions of people in the U.S. and around the globe. However we would finally be forced to reorganize our economic, social, and political systems to truly create sustainable ways of living both locally and globally.

Submitted on 12/10/10 by Marc Pascal from sunny and warm Phoenix, AZ.

Author: MARC PASCAL

Marc Pascal is an private enterprise counselor and independent arbitrator and mediator in Phoenix, AZ.

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