The U.S. Road to Destitution
Politics today is more about power and ego than doing what's right, but it's a disgrace when leadership is the rare exception among those elected to lead. As citizens we should be concerned about changing the rules of Washington to eliminate career politicians and force a culture of exceptional-ism and service to the country. Clearly we are not even close and clearly "Washington" needs restraining.
The first step to reverse this pernicious path is a complete tax overhaul. Without a simplified tax plan, and then on to a balanced budget amendment, term limits, and pensions and benefits in line with the rest of the U.S, our society and representative republic is doomed to collapse under the weight of it's debt and our departure from the principles of our founders.
Several ideas have received some attention but few have defined more than the headline. The "Fair Tax" gets pummeled by liberals who can't comprehend how it might actually help poor families get ahead and achieve without a government program. I have briefly outlined a simple, fair tax system that benefits every American - Low, middle and upper income levels alike. The outline focuses initially on the revenue side of the equation. Clearly spending cuts will be required and it should eventually be tied to a balanced budget act. Eventually our representative in Washington will be forced into making real decisions - Not politically motivated decisions designed to get only votes.
The "Modified" Fair Tax
What I'm calling the "Modified Fair Tax" is our nations best chance to simplify our system of taxation and save the country from financial failure. The "Modification" portion of the traditional "Fair Tax Plan" is critical and nullifies the liberal complaint that the fair tax is actually an unfair tax to lower income individuals. Their criticism; lower income individuals pay a higher percentage of their income for basic needs - housing, food, healthcare, etc. - is valid. However, the "Modification" completely addresses these criticisms, keeps the fair tax fair, and actually reduces the tax burden for those at the lower end of the income range. It provides long term motivation for savings, investment, education, self reliance, and an independent path up the income scale.
The Plan:
The following outline – in dollars for illustration – is a conceptual starting point without benefit of CBO scoring so exact numbers would likely vary slightly. The final numbers would be indexed to inflation.
First, we start with the "fair tax" or consumption tax rate. The number widely used is around 23 percent so we will use that as our starting point. In an unmodified fair tax system every pays 23 percent on everything they purchase. Since a person who earns $20,000 spends less than the person earning $100,000, the higher the income the more they pay in taxes. That part is plain, simple, and "mostly" fair. The unfair portion is it adds a significant burden to lower income individuals. Agreed, so let's modify and fix this burden.
The Modifications or Equalizers:
In the modified version individuals and families at lower income levels will actually see their take home pay rise as we eliminate the "payroll" (social security and Medicare taxes) for the 1st $25,000 of income. Next, we exempt basic needs like food, shelter, healthcare, and education. Here are the simple and fair details to make that happen:
1st - We raise the start and end points on individual payroll taxes (Medicare and Social Security) from $25,000 up to $200,000 for individuals. Eventually we will eliminate the payroll tax altogether as we reform Medicare and Social Security, but that's another topic. Employers still pay Social Security and Medicare taxes from the first $1.00 earned. The increased limits at the high end make up for the loss in revenue at the low end, resulting in a huge tax break for lower and Middle income individuals. Those making above $136,000/year would see a tax increase – about $5,175 for individuals making $200,000 or more (A 2.6% tax increase). Everyone under $136,000 would see a decrease or neutral tax effect.
2nd - Basic housing expenses would be tax exempt – including rental payments - up to $1200/month/individual. A married couple would get $2,400 in untaxed housing payments. This effectively saves the mortgage interest deductions and extends the benefit to renters predominately in lower income levels. Those in the upper income levels living with rent or mortgage payments over $2,400/month would pay the fair tax rate on the amount over $2,400 eliminating any technique to shelter taxes by over financing huge estates. Everyone, rich and poor, gets the benefit of basic housing needs - untaxed. Those who can afford more housing pay tax above the basic needs level. Remember this is a tax on spending, but we are exempting basic human needs. This also retains the incentive to purchase. Since in theory, a mortgage payment would be higher than the typical rental payment - maximizing the tax free amount. This would apply to the first or primary residence only.
Total untaxed housing income per individual = $14,400 per year. ($1,200 per month x 12 months)
3rd No tax on utilities used to cool/heat a primary residence up to $300. Untaxed basic utility credit per individual - $3,600.
4th - No tax on most food items purchased at the grocery store. Snacks, convenience foods, restaurants and other like items would be taxed. Of course this benefit would vary by individual/family but the "fairness" again carves out the basic needs for every individual. For example, an individual spending $100 every week on groceries would effectively get another $5,200 per year exempt from the "fair tax". Single parents and young families who spend more would obviously receive a higher level of fair tax savings.
So far with just basic needs addressed we have $23,200 in income under the modified fair tax that would be exempt from taxation. (Housing - $14,400, Utilities - $3,600, Food – $5,200 per individual)
5th - Healthcare, including health insurance premiums would be exempt from the fair tax. Premiums exempt up to $2,500/year and all expenses related to healthcare would be exempt from taxation. This provides enough tax exempt premium dollars to provide a high deductible insurance policy for every American. Tangential benefit to society – lower healthcare cost as the number of uninsured is reduced as uninsured individuals purchase health insurance - by choice. (See healthcare solutions articles 1, 2, & 3)
6th - Savings and investment would go untaxed. This further provides a huge benefit for families struggling to save for retirement or college tuition. Those families and individuals would have more dollars left over to apply to these needs. Individuals disciplined to maximize this opportunity would benefit greatly. Interest, dividends, and Capital gains would be taxed like everything else – when it is spent!
I don't see how someone could argue this modified "fair tax" as unfair to anyone. Every individual gets the same basic needs exemption – roughly $25,000/year or more for everyone. Those smart, creative, or just plain hard workers that make larges sums of money will spend it or invest it. Ultimately paying more taxes, and creating more jobs. The frivolous spenders will have the freedoms conceived by our founders can spend what they earn on whatever they desire.
I believe this plan completely addresses the liberal complaints of bias at lower income levels. Only this way we do it in a fair a reasonable fashion.
Politics today is more about power and ego than doing what's right, but it's a disgrace when leadership is the rare exception among those elected to lead. As citizens we should be concerned about changing the rules of Washington to eliminate career politicians and force a culture of exceptional-ism and service to the country. Clearly we are not even close and clearly "Washington" needs restraining.
The first step to reverse this pernicious path is a complete tax overhaul. Without a simplified tax plan, and then on to a balanced budget amendment, term limits, and pensions and benefits in line with the rest of the U.S, our society and representative republic is doomed to collapse under the weight of it's debt and our departure from the principles of our founders.
Several ideas have received some attention but few have defined more than the headline. The "Fair Tax" gets pummeled by liberals who can't comprehend how it might actually help poor families get ahead and achieve without a government program. I have briefly outlined a simple, fair tax system that benefits every American - Low, middle and upper income levels alike. The outline focuses initially on the revenue side of the equation. Clearly spending cuts will be required and it should eventually be tied to a balanced budget act. Eventually our representative in Washington will be forced into making real decisions - Not politically motivated decisions designed to get only votes.
The "Modified" Fair Tax
What I'm calling the "Modified Fair Tax" is our nations best chance to simplify our system of taxation and save the country from financial failure. The "Modification" portion of the traditional "Fair Tax Plan" is critical and nullifies the liberal complaint that the fair tax is actually an unfair tax to lower income individuals. Their criticism; lower income individuals pay a higher percentage of their income for basic needs - housing, food, healthcare, etc. - is valid. However, the "Modification" completely addresses these criticisms, keeps the fair tax fair, and actually reduces the tax burden for those at the lower end of the income range. It provides long term motivation for savings, investment, education, self reliance, and an independent path up the income scale.
The Plan:
The following outline – in dollars for illustration – is a conceptual starting point without benefit of CBO scoring so exact numbers would likely vary slightly. The final numbers would be indexed to inflation.
First, we start with the "fair tax" or consumption tax rate. The number widely used is around 23 percent so we will use that as our starting point. In an unmodified fair tax system every pays 23 percent on everything they purchase. Since a person who earns $20,000 spends less than the person earning $100,000, the higher the income the more they pay in taxes. That part is plain, simple, and "mostly" fair. The unfair portion is it adds a significant burden to lower income individuals. Agreed, so let's modify and fix this burden.
The Modifications or Equalizers:
In the modified version individuals and families at lower income levels will actually see their take home pay rise as we eliminate the "payroll" (social security and Medicare taxes) for the 1st $25,000 of income. Next, we exempt basic needs like food, shelter, healthcare, and education. Here are the simple and fair details to make that happen:
1st - We raise the start and end points on individual payroll taxes (Medicare and Social Security) from $25,000 up to $200,000 for individuals. Eventually we will eliminate the payroll tax altogether as we reform Medicare and Social Security, but that's another topic. Employers still pay Social Security and Medicare taxes from the first $1.00 earned. The increased limits at the high end make up for the loss in revenue at the low end, resulting in a huge tax break for lower and Middle income individuals. Those making above $136,000/year would see a tax increase – about $5,175 for individuals making $200,000 or more (A 2.6% tax increase). Everyone under $136,000 would see a decrease or neutral tax effect.
2nd - Basic housing expenses would be tax exempt – including rental payments - up to $1200/month/individual. A married couple would get $2,400 in untaxed housing payments. This effectively saves the mortgage interest deductions and extends the benefit to renters predominately in lower income levels. Those in the upper income levels living with rent or mortgage payments over $2,400/month would pay the fair tax rate on the amount over $2,400 eliminating any technique to shelter taxes by over financing huge estates. Everyone, rich and poor, gets the benefit of basic housing needs - untaxed. Those who can afford more housing pay tax above the basic needs level. Remember this is a tax on spending, but we are exempting basic human needs. This also retains the incentive to purchase. Since in theory, a mortgage payment would be higher than the typical rental payment - maximizing the tax free amount. This would apply to the first or primary residence only.
Total untaxed housing income per individual = $14,400 per year. ($1,200 per month x 12 months)
3rd No tax on utilities used to cool/heat a primary residence up to $300. Untaxed basic utility credit per individual - $3,600.
4th - No tax on most food items purchased at the grocery store. Snacks, convenience foods, restaurants and other like items would be taxed. Of course this benefit would vary by individual/family but the "fairness" again carves out the basic needs for every individual. For example, an individual spending $100 every week on groceries would effectively get another $5,200 per year exempt from the "fair tax". Single parents and young families who spend more would obviously receive a higher level of fair tax savings.
So far with just basic needs addressed we have $23,200 in income under the modified fair tax that would be exempt from taxation. (Housing - $14,400, Utilities - $3,600, Food – $5,200 per individual)
5th - Healthcare, including health insurance premiums would be exempt from the fair tax. Premiums exempt up to $2,500/year and all expenses related to healthcare would be exempt from taxation. This provides enough tax exempt premium dollars to provide a high deductible insurance policy for every American. Tangential benefit to society – lower healthcare cost as the number of uninsured is reduced as uninsured individuals purchase health insurance - by choice. (See healthcare solutions articles 1, 2, & 3)
6th - Savings and investment would go untaxed. This further provides a huge benefit for families struggling to save for retirement or college tuition. Those families and individuals would have more dollars left over to apply to these needs. Individuals disciplined to maximize this opportunity would benefit greatly. Interest, dividends, and Capital gains would be taxed like everything else – when it is spent!
I don't see how someone could argue this modified "fair tax" as unfair to anyone. Every individual gets the same basic needs exemption – roughly $25,000/year or more for everyone. Those smart, creative, or just plain hard workers that make larges sums of money will spend it or invest it. Ultimately paying more taxes, and creating more jobs. The frivolous spenders will have the freedoms conceived by our founders can spend what they earn on whatever they desire.
I believe this plan completely addresses the liberal complaints of bias at lower income levels. Only this way we do it in a fair a reasonable fashion.
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