GUEST POST BY Kevin R. Lewis
Our citizens need jobs. We should not tinker with, but instead completely eliminate corporate and business income taxes. This will give the U.S. a competitive edge in job creation over most other countries. This would also make the cost of all goods go down because, duh, businesses pass on their taxation costs to consumers. It would also have the very salutary effect of eliminating the political favoritism of politicians, who crassly hand out this or that tax break to this or that industry, or subset within an industry.
Zero federal income taxes on business means more jobs and a bigger and faster growing pie in the private sector and less pie for the politicians to dole out, which “merely” corrupts the public sector and distorts the private sector.
Our lower and middle class citizens need no and much less, respectively, income taxation burden. Extending the Bush Tax cuts, while a good start, provides no reform and is an inadequate and minimalistic approach. We should eliminate income taxes on all dollars earned that are subject to Social Security and Medicare tax. In 2009 that was approximately the first $107,000 in earned income.
In other words, the standard deduction would be about $107,000 and rise or fall in concert with the maximum income subject to Social Security and Medicare taxation, and each dollar earned would be subject to one tax, but never both.
Put linguistically, no income earner earning income at or below the amount that would make him or her socially secure should have to, or would have to under this plan, pay any federal income taxes whatsoever. With such a large standard deduction, we could then eliminate all other tax deductions. This would, again, leave the politicians less pie to hand out with gimmicky favoritism in the form of tax breaks. It would also provide more incentive than most citizens have now to earn income by letting them keep way more of their earnings.
To make up for the shortfall in revenue - or just most of it if we want to further boost economic growth - we should institute a consumption tax on all sales of goods. This, compared with the system we have now, would incentivize income earning, savings, investment and conservation for individuals and businesses alike. In addition, a consumption tax makes all citizens have some skin in the game, which is good for societal cohesion and would be necessary due to the elimination of income taxes on earnings within the new very high standard deduction.
While Social Security’s problems are fixable with a few tweaks (especially if we act sooner rather than later), Medicare’s fiscal problems are massive and will take time to work out, to the extent that they can be, on the cost control side of the ledger. In the meantime, our citizens need to know that this all important entitlement is and will be solvent. We should therefore, at least for the foreseeable future, institute an additional level of consumption tax on energy products including gasoline, natural gas, electricity, etc. with all the revenue generated dedicated to making Medicare solvent.
In addition to making Medicare solvent, an extra level of sales tax on energy would be a one-size fits all, and thus fair, stick to incentivize energy efficiency and independence, thereby rendering redundant and unnecessary the federal government’s providing costly carrots to this or that alternative energy industry, and making the ill thought through ‘cap and trade’ legislation once and for all a dead letter
The drag on the economy due to the waste of great talent and money in dealing with our bloated federal tax system would likely be, minimally, cut in half with the above plan. Yes, some accountants, lawyers and other tax professionals would be put out of work, but that would be because we have a saner, simpler and fairer federal tax system designed for our citizens’ prosperity, rather than a corrupt system which sidelines as a “make-work” program for these talented professionals.
Moreover, the savings in tax compliance costs would likely be in the billions annually both in the private sector and within the deservedly hated IRS. Finally, with this more enlightened approach to federal taxation we would be giving a gentle push to greening our economy without all the inefficiencies, unfairness, corruption and waste in the selective, top-down carrot approach that unfortunately seems to enthrall President Obama and the know-it-all egg heads in his administration.
Kevin R. Lewis is a Minneapolis lawyer involved in in the tea party movement