A mostly conservative tax plan

As the presidential race and GOP primaries heat up, each candidate is coming forward with new tax proposals. I was asked to propose one at a business conference in August. I had posted it here from memory a few weeks ago, but after looking at the proposal as written, I realized some of the numbers I posted were different, so here it is again.

As a disclaimer, I don’t think this is perfect. I don’t expect any candidate to read this diary at all, let alone read it and decide “wow, this guy is SMART, let’s see if he will work with us”.

SO – here is “my” tax plan.

A. Two tax rates: 15 and 25 %.

B. Eliminate FICA taxes

C. A flat deduction of $10,000 for a single taxpayer, $20,000 for a married household and $5000 per child.  These deductions would be indexed for inflation. The only other deductions are to charity, and they have to be cash contributions.

D. Cap Gains would be taxed as ordinary income, but indexed for inflation. There would be a simply multiplier for inflation provided each year. Cap losses would be a write off against income in the year taken.

As an example, if total inflation for a 12 year period was 50%, and the stock you bought 12 years ago for $10,000 now sold for $15,000, you made no REAL profit, so your tax is $0.

If this stock was worth $20,000, your profit is $5000.

E. Dividends and Interest Income are taxed as ordinary income, regardless the source. This includes muni bonds. Muni bonds pay higher rates than we can get from banks, and the idea that people can make 6 digit incomes tax free would have to go. As with Cap Gains, this income would be indexed for inflation. If you earned a 5% dividend and inflation was 3 % that year on a $1,000,000 dollar stock, your earnings are $50,000 less $30,000 for a net $20,000. The same math would apply to interest income.

F. Inheritance tax eliminated.

G. The 15% tax would be up to $150,000 after the standard deduction and charitable contributions. This $150,000 level would be indexed for inflation. If inflation is 3 percent in year one, then the threshold becomes $154,500 in year 2.

H. Income over this threshold is taxed at 25 percent.

I. Corporate tax is eliminated. Since all income to shareholders, employees, board members, etc, is taxed on a flat basis, this would be a HUGE boost to businesses wanting to expand. This would make our exports cheaper. Overseas companies would want to build here.

J. Expatriated profits welcomed back with no taxes.

K. Earned Income Tax Credit eliminated.

All of these ideas are pro growth. They assist families. They are not regressive. They encourage the working poor to make more without them having to worry about losing “goodies”.

By taxing all proceeds paid by corporations/businesses to the board members, executives, etc …  as ordinary income, but keeping the levels no higher than 25%, everyone has what most will consider to be a “fair” plan. I am personally not too fond of the word “fair”, but maybe it fits here.

The title of this thread is “mostly” conservative tax plan. I say this because it is still “progressive”. The family of four that made $80,000 gross with no charitable contributions would have a net of $50,000 income, which means a $7500 tax bill. This is a 9.375% rate.

The Hedge Fund manager (AKA the guys the press love to villify) that made an inflation adjusted $10,000,000 would show a net income of $9,970,000 under the same conditions as above.

Ont the first $150,000, he pays $22,500. On the remaining $9,820,000 he pays $2,455,000 in taxes. This is a rate of 24.775%.

The ACME corp making widgets in Iowa that made $1,000,000 can keep the entire $1,000,000 for business expansion. When the CEO takes the $1,000,000 out as bonuses, it becomes income.

Comments welcome.