Every Republican candidate has their own tax plan. Some say a 10% flat tax across the board is fair. Some say a 20% flat tax is necessary to bring in enough revenue. Some say no income tax at all, and just have a federal sales tax. Well, today, you do the math.
FEDERAL SALES TAX
Lets get one tax plan out of the way first. The national sales tax. For anyone over 40 knows, a lot of your money is in savings or in retirement plans. So... you already paid taxes on it. Do you want it taxed again? At 25%? Not on your life. So a flat sales tax is not fair to anyone who has saved over a dollar in their lives. Only people living in debt want a federal sales tax. Like our youth.
Money in a Roth IRA already paid tax, and is a nice savings plan because it isn't subject to income tax when you finally take some distributions when you are older. (Required distributions, by the way. The feds force you to spend it or put it in a bank account.) So, why pay a sales tax when you spend this already-taxed money?
Can you get a voucher on this money so you pay no tax? Maybe a debit card with a faux starting balance, which is reduced at the point of sale. Dang, that would cost billions to implement, like our new credit card machines for smart chips. Maybe best to actually put your tax free money in a special account, put that on a debit card, and make it a smart chip card so it works seamlessly on the same device used for all other cards. This would still require billions, but maybe a few billion less, since it will only be a software upgrade.
A regular IRA (non Roth IRA) has paid no federal tax yet. Since this money came off the top of your income, it should have been taxed at the highest tax rate of your income that year. But.... we're you paying 25% at the time you earned it? Maybe, maybe not. Can you get a voucher to pay less sales tax? A PARTIAL voucher, actually.
What about the poor who now pay no tax or maybe 5% or 10% on just half of their income? Should they pay 25% on every dollar they spen? Perhaps they can get a voucher debit card has well. At this rate, ALL OUR MONEY WILL END UP IN A FEDERAL ACCOUNT!
It's a good thing that Social Security is a Ponze Scheme. It's not actually a savings account, and wasn't taxed yet. In fact, it IS tax. It came off someone's income as tax, then gets turned around and given to retirees. Then they pay tax on it as income! Ridiculous. That's like taxing your Roth IRA twice.
INCOME FLAT TAX
From my previous blog I calculated the total amount of income for America's wage earners. This came to roughly 7.6 trillion dollars for the top fifth, and 6.7 trillion for the bottom four fifths. The top fifth are averaging over 300 thousand dollars a year, while the next fifth averages 103 thousand, and the middle fifth 59 thousand, then 32 thousad, and finally, 13 thousand for the poorest fifth.
Total wages for the nation are 7.6 plus 6.7: 14.3 trillion. A tax rate of 21% would come to 3 trillion dollars for federal coffers, which is less than Obama's peak expenditures of 3.5 trillion, but still more than the Bush budget pre bailout.
Because we are currently 18.5 trillion in debt, and will be 20.5 trillion in debt in 2 years by the time a new president's tax plan takes effect, we will probably have to spend half a trillion a year paying down the debt. That leaves a budget of 2.5 trillion for other expenditures. Which means we have to cut spending by half a trillion.
This assumes all other taxes are done away with, like the whopping 15% on each wage earner of a corporation. There's also the 35% tax on corporate profits to consider.
In the table above, 19.8% is the average tax including all wage earners, from poorest to richest. This made for revenues of 2.84 trillion. Hence, an annual defecit still exists. But this means that if a 15% employee tax existed, then federal revenues would be another 2.1 trillion dollars higher.
Then the feds would be running a huge surplus. But they aren't! There's a massive defecit each year. Hmmmm... Maybe the above chart includes the 15%? Doubt it. I know what the 1040 forms say, and the above tax rates are right in line with that. Well, lets just forget that 15% business. We don't want it anyway.
So, mathematically, only a 21% flat tax would work. HOWEVER, is it fair to tax the poor a whopping 21% percent, when they are already paying 7% sales tax, 35 cents per gallon gas tax, property tax, and Lord knows what other taxes, forcing them to live on less money than it takes to pay rent? No way.
But, is it fair to tax the six figure salary earner a little more? Sure, they'll just spend their millions on yachts while their workers that earned all their company's money rot in small, sweltering apartments.
For a federal budget of 3 trillion dollars, its easy to see that taxing the top fifth at a rate of 50% would be more than enough. However, if you did that, they would lower their salaries, and pay their workers more. (At least, that's how it happened in the past.) Then revenues for the feds would drop. I'm thinking that the one particular tax plan by a certain Republican candidate was the right idea.
Right now the personal deduction and exemption add up to over $9000, so you don't have to pay tax on anything under that. But, that's not a living wage. I like the idea of $35,000 being the lower limit. (I think that's Trump's plan.) That way you can live on your horrible salary that your millionaire boss thinks you deserve.
Not only that, but the tax rate can be phased in at 1% increments, as it is now. Seriously, you can't just have a 0% tax then jump up immediately to 50%.
With this plan, only the third, fourth and top fifths will pay tax. These salaries combined come to 1.988 trillion, 2.9 trillion and 7.6 trillion for each fifth, respectively. That's a total of 12.5 trillion.
In order the get 3 trillion you need to average a tax rate of just under a fourth, which is 25%, and pretty high considering the average now is around 20%.
So, if the tax rate starts at 1%, it will have to eventually climb to 50% to average 25%. Or will it?
No, it won't. as salaries climb exponentially, the tax rate can simply climb slowly at first, and maybe go high for those nut jobs who think they are worth 9.5 million a year. Seriously, do they work a thousand hours a week?
It's a win, win, win, unless you are stinking, filthy rich. They will be forced to live on a few million a year. So sad.