03 November 2012

We Need One Flat Tax

Not long ago the world was controlled by those who owned the property. Their children would inherit this land and the family was safe in the knowledge that they would forever rule. They, rightly, enjoyed the spoils of a world that worked for their pleasure. With few exceptions, no one would dare stand up to this oppressive system because it was the only system they knew. That is, until a few stubborn folks hanging out in Philadelphia invented the “United States of America”.

When John Adams, Benjamin Franklin, John Hancock, Thomas Jefferson, Henry Lee and the other members of the First Continental Congress gave a middle finger salute to King George, they were planning a system of government that would never allow a precious few to forever be in power. Everyone would have an equal opportunity to succeed. Yes, they also wanted a nation free from religious persecution, the right to arms, a separation of church and state and a few other crazy things, but you get the point.

So, how has this been working out lately?

Sales of ultra luxury vehicles are at an all time high. Art galleries are expanding because the uber-wealthy have clearly found nearly everyone to be a young Monet. CEO salaries and Wall Street bonuses are breaking records on a daily basis. And yet we keep talking about a sluggish economy and low jobs numbers. How is this possible? Well, it is quite simple, actually.

The two primary taxation methods in America are income and sales. They try to make these semi-progressive by adjusting it based on your income or limiting sales tax to non-necessities. However, the bottom and top one percent rarely pay either. Neither have a “job”, so they skip that 30% tax bracket business, and they already own everything (or nothing) they need but food which, surprisingly, is often not taxed because it is a necessity.

How the top end is often taxed is on capital gains at nowhere near the top income tax bracket. However, even that is often more than they will pay thanks to countless loopholes of moving funds through foreign subsidiaries. Another nifty trick is using losses on one investment to offset the gains on the other so their investments and income are rarely ever truly at risk.

This is why Democrats are wrongly harping Mitt Romney about his tax rate. When I hit a certain income level I pay more than 30% of my income to the Feds, but Mitt can get his down to a fraction of that amount. In fact, I would be disappointed in Mitt if he paid more than 15% because it is relatively easy to do. After all, why should he be the one rich person to pay more?

Instead of beating up Mr. Romney, we should be beating up our elected officials. The problem is easy to solve and could be done in a way that crosses party lines. The Republicans want to have a flat tax with no deductions. The Democrats want a progressive system that gives everyone a fair chance. Both can be achieved with the same proposal.

Create a single flat tax at a national level. Eliminate the income tax, death tax, capital gains – all of it. One tax with no deductions, no skirting earnings in other countries – no tricks. That tax percentage would be assessed annually based on your total world-wide net worth and each of us pays a flat percentage of it annually. Everything you own today totaled and you pay a fraction of a percent annually to the Feds. If you cannot pay then the IRS would keep a tally of what you owe until the day you can. Simple and fair. The entire country pays their percentage with no loopholes at the top and bottom of the ownership club.

Some will argue this is unfair to the rich since they would be paying more in total dollars than the poor, but you can take that argument up with our forefathers. Their goal was an even playing field for all and that means we all pay the same percentage. Some might argue this is unfair to the poor since they may have no income. Some day they will be earning money again and we all need to pay our share, even if they may be paying it later with interest.

If we see past the silly extremes we may find this idea would create a beautiful new tax system and allow our country to focus on the bigger problems. Heck, we could take it a step further and require a balanced budget (please!) that automatically adjusts the percentage we pay based on our government expenditures. There is nothing that would spur on a bigger change in Congress than sudden increases in taxes because they spent too much money.

Anyway, that is my crazy proposal to fix our ridiculous tax system. I am quite certain everyone will have their individual reason why they do not like it. Who has ever liked taxes? And that part, I am afraid, even this idea cannot fix.