Wednesday, November 4, 2009


This post will sit poorly with liberals. The sad thing is, it will sit poorly with many conservatives as well.

However, what I am about to propose will solve a myriad of problems that are a direct result of the power yielded to politicians as a result of a very deliberately complicated tax code.

A major portion of the so-called "special interest group" lobbying that goes on in Washington D.C. is related to seeking tax breaks in one form or another for some business category, or some professional group, etc.

These groups invite, encourage and sustain corruption among politicians.

"Hidden" federal taxes raise the cost of absolutely everything we buy.

The price of a loaf of bread is 40% taxes. So is a gallon of gasoline.

The tax code is so complex that even government tax accountants, indeed, the IRS, itself cannot keep up with it.

I have had personal experience with IRS audits on two occasions.

Each time, different IRS agents have given me different "advice" about the exact-same issue.

It is clear that the tax code needs to be simplified.

Paperwork Reduction Act of 1980 resulted in a net INCREASE in paperwork of over 175%. With it came an increase in the number of tax laws, further complicating the whole mess.

Such is the government's definition of "simplification."

One suggestion that has been bandied about to help simplify the tax code is the so-called "consumption tax." It works like a states sales tax, only on a national level.

Whenever you make a purchase, a percentage is tacked onto the total. This is the consumption tax.

If you buy a $20,000.00 automobile, you would pay, let's say 12% on the amount over a certain level, let's say $5,000.00.

Thus you would pay 12% of $15,000.00, or $1,800.00 in taxes to the federal government.

Remember, in many states (as in Florida where I live), a state sales tax applies, too.

A car sold in Florida would have a 6% sales tax as well, assuming that the state keeps its sales tax...and that's on the $20,000.00. It amounts to $1,200.00.

So your total cost of the car would be $23,000.00 plus title and registration.

That would price many people out of the market for that particular automobile.

There are many issues connected to a consumption tax that are difficult to deal with: how to calculate the base line, how to enable folks to make a purchase, pay the consumption tax and wait to have it reimbursed to them if they are below the government established "poverty" or "base" income level.

I know, I've had many "consumption tax" proponents "explain" the issues away, but never successfully. They can't.

And if it's too complex for a person as brilliant as I am to understand (I know I'm brilliant; my father always called me "Sun."), then we're right back to the complexity that is one of the failures of the present system.

I have the answer.

It is simple.

It is sweet.

It is non-manipulable.

It is far, far less prone to corruption.

It is a simple, straightforward single percentage income tax that is paid on every earned dollar in the U.S above the "poverty" level.

There would be no deductions of any kind for anyone, but nobody could be taxed twice on the same earned dollar. This would leave the door open for genuine charitable contributions, which charities would not pay taxes on dollars on which taxes had already been paid.

("Earned dollar" would be defined as a dollar received for goods produced - at both the wholesale and the retail level - or services rendered.)

For the sake of discussion, let's say it was established at 9%.

A base line "poverty" income would be established, on which no taxes are paid. Then 9% of every earned dollar over that poverty line would go to the feds to do with as we tell them.

(That last part might be a pipe-dream).

Let's say I, as an individual have a company manufacturing widgidoodles, from which I personally earn $35,000.00 per year. Let's further say that the poverty level was established at $20,000.00.

My personal taxes would be 9% of the difference between what I earned and the poverty level, or 9% of $15,000.00, or $1,350.00.

Then let's assume that my company makes a NET before tax profit of $150,000.00. Allowing the first $20,000.00 profit to be tax-free, 9% of that would be paid in taxes, equalling $11, 700.00 in corporate taxes.

That would leave me an after-tax profit of $118,000.00 from which I could pay my investors and/or put back into company growth. Still a good payroll was met, as were my expenses.

All other federal taxes would be done away with totally. Absolutely.

At the present time this 9% system would afford the government would an estimated $3 trillion per year and every person and corporation would have the incentive to grow based on being able to keep 91% of everything earned.

There would no longer be cheating over this deduction and that deduction.

Talk about simplified tax returns! (I earned $35,000.00, deduct $20,000.00 "poverty allowance" and pay 9% of the difference).

The government problems would no longer center around, "How can we get enough money to meet the budget, the issue would only be how do we properly divide what we take in."

I would suggest that a fixed percentage of income be assigned to each budget item such as 30% for national defense, 30% for all federal salaries and benefits, and so-on.

The consumption tax people will jump up and down, yell and scream, turn red in the face and get angry at me for not liking their plan.

Government lobbyists will hate this plan, because 60% of them will be unnecessary.

Politicians won't know what to do with themselves if they can't come up with new ways to tax people and then tell them they are going to lower taxes...taxes will never go up or down because of the federal government, only because of increases or decreases in earnings.

What? You have an argument against my plan?

Save it.

I've heard them all, and none of them holds water.

The final answer is: for you Consumption Tax People, yours isn't ever going to happen.

Sadly, neither is mine.



Tom said...

The flat tax isn't a new idea, but will not be implemented for the reasons that you state plus a couple more (one is.

The power of the politicians is tied to the amount of taxpayer dollars they command and redistribute. Politicians will never willingly give up that power.

Politicians also want the power to raise taxes for their pet projects, such as universal health care. This is also how they would consolidate their power base among their supporters and patrons.

Joe said...

Tom: Power is the name of the game, after all.

Dan said...

"The consumption tax people will jump up and down, yell and scream, turn red in the face and get angry at me for not liking their plan."

I'm a consumption tax person but I'm not going to jump up and down. I'm kind of like Jerry Clower's coon hunting buddy up in the tree fighting the lynx. He said "just shoot up here amongst us, one of us has got to have some relief". I spend hours every year as slave labor, that is I work for free for the IRS with not even a thank you; gathering up and storing information that the government has no business asking for, just so I can keep money that I've already worked for. I'll take anything, and vote for anyone that is willing to forward anything that will get government, and the fear it imposes, out of life.

Dan said...

And Tom is right, it is all about power.

Bryan said...

Hey, maybe they should tack a special tax on politicians each time they are caught lying or doing something unwise. :0)

Chris M. said...

Both seriously and joking I have to wonder how ACORN and NPR would go about getting theirs with this plan.
One of the best recommendations for the plan is how much bitter opposition it would get from K Street and within Congress.