Some of the proposals contained here will almost certainly meet resistance from those who have a vested interest in the status quo, or who just naturally object to change. However, it is hoped that the potential for real gain to the nation will outweigh such resistance, and that the short-term pain for some will yield to the long-term gain for all.
I – Tax Reform Rules
There are two separate classes of taxpayers: personal and business.
A. Personal Taxes
1. Personal taxes will be paid on ALL income; there will be no tax-exempt or tax-deferred or tax-free status for any kind of income from any source, nor will there be any other form of deduction or exemption for anyone, in particular no special interest exceptions for those in positions of power.
2. There will be a simple formula to calculate an exemption which will apply to all personal income, determined by the two variables: personal total Gross Income (GI), and national Median Income (MI), as follows:
Exemption = a percentage of GI equal to GI / (R x MI) up to an income of GI = R x MI; above an income of R x MI, the exemption will remain constant at the value R x MI / 2. R may have any value between 1 and 2. My preference is R = 2 as this best protects the poor from over-taxation while having a minimal effect on total tax collected. This results in:
Taxable Income (TI) = GI x GI / (2R x MI) up to GI = R x MI.
For incomes above R x MI, TI = GI – R x MI / 2.
3. A third variable, Flat Tax rate (FT), is needed to calculate the tax, so that:
Income Tax owed will then equal TI x FT, for all taxpayers.
4. Each year the value of FT will be updated to reflect Federal Spending (FS) and the Total Income Tax (TT) collected for the preceding year as follows:
FT(new) = FT(old) x FS / TT
If Congress spends more than it collects, FT will increase; if it spends less, FT may decrease. A small surplus should be figured into each new FT value to gradually pay down the National Debt; however, in years of serious economic difficulty, Congress may, by 2/3 vote of both houses, waive all or part of a required increase. It might be reasonably expected that this feature will not only act as a brake on Congress’ spending habits, it may well prove to be more effective than Term Limits for replacing unrepentant over-spenders in Government.
5. The above restrictions do NOT allow extra deductions for dependents, regardless of family size or condition. Social Engineering is not a proper agenda for the Federal Government. The maximum exemption under the above formula -– R x MI / 2 — is greater than the “poverty level” that Congress has defined over past decades, so this exemption should be more than adequate for any normal household situation.
6. See Figures 1 and 2 for tax tables with MI = $50,000 and R = 1 and 2.
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