Here are some compromise
solutions that Congress is ignoring. Obviously, congressional Republicans
are resisting any solution that the administration might claim credit for
during the next election cycle. Regardless, here are some ideas that we
can push for.
Absolutely Needed to be First Understood -
Social security payments are NOT taxes! They are annuity payments for a
future flow of income. Medicare payments are NOT taxes. They are
health insurance premiums. Everyone must realize that the "employment tax" IS
Social Security? MSNBC's
Lawrence O'Donnell explains how Herman Cain's 999-plan would destroy
Social Security and Medicare. It is not just Cain. Paul,
Perry, and other Republicans are out to destroy all forms of
"entitlements."
It is currently estimated that the "Employment Tax
Holiday" as configured will cost Social Security over 1 1/2 billion
dollars! See our separate discussion regarding Social Security.
Here are a few bed-rock facts that must be included in any income tax
discussion.
1. Only
53% of U.S. citizens are paying income tax. The remaining 47%
include low income families, 15%, and seniors living on Social Security,
22%. Adding together unemployed, low income and seniors represents about
90% of those paying no taxes. The remaining 10% include those
receiving tax-free interest on municipal bonds, loss carry-overs from previous years, educational
credits, etc.
2. The top 1% of earners pay 36+% of all income taxes
(2009 figures). The top 10% of earners pay 70+% of all income taxes.
See 2009
chart.
3. Individual Income taxes represents about 41.6% of the
federal budget and corporate income taxes represent about 8.9% of the
budget. Social Security represents about 40%.
See 2010 chart.
4. Tax opponents argue that the U.S. corporate tax is
about the highest in the world at 35%. Fact is that 35% is the
maximum, incremental tax and the average corporate effective tax is closer
to 17%. Tax rates for partnerships, LLC's and small businesses, etc.
are actually individual tax rates as all profits are passed through to the
owners and is reported on their individual returns. Most owners of
small businesses do not make over $200,00 a year.
5. The U.S. tax code, while overly complex and riddled
with congressional favoritism, is more that just defining taxes.
The tax code is used to encourage individuals and corporations to support
charities, engage in research, make long term investments and to encourage
emerging technologies, etc. If long-term gains were to be fully
taxed as ordinary income it would encourage speculation and discourage the
kind of investments that build our nation for the long haul.
The U.S. is far from the only nation
supporting these ideals. China, for instance, is extremely involved
in supporting emerging industries and their competition with other
nations.
6. We must maintain the tax exempt status of municipal bond
income and other special issue bonds issued in emergency situations.
Our tax code needs to encourage these investments and support for local
municipalities. Municipalities receive a lower interest rates than
taxable bonds because the investor receives a higher "after tax" income.
Most municipalities are taxing bodies. Should the tax exempt status be
removed, municipalities would need to create higher bond debt levels to
cover the higher interest rates. Individuals would end up
paying higher taxes to pay off the bonds. In the end, we would
simply be hurting our local communities just to channel more
dollars to the federal government.
Discussion:
First of all, out political parties are
enormously split regarding taxes. Attempts to reconcile debt and taxes get
muddied by the issues of "entitlements" which should be treated
separately.
We obviously need to address our ballooning debt level
or face serious national and international repercussions. The fact is that
we have spent beyond our short-term capacity to pay off the created
debt. The bills are coming due and we must face the fact defaulting
is NOT a reasonable option!
A compromise is needed including spending cuts to
reduce a deepening debt and tax increases to pay for what we have already
spent. This will require a delicate balance to avoid damaging our ability
to increase investments and employment.
Summary:
The U.S. tax code, and various regulations for that
matter, are probably the most politicized areas of legislation.
Between political contributors and lobbyists the pressure on Congress is
enormous to play favorites - even at the cost of sound financial
management of the country.
Taxes and regulations are probably the
greatest areas of "The Big Lie" as described on our "Getting Realistic"
page. Many tax revision proposals actually contain ways to pull more
money from individuals directly or indirectly without openly raising
published tax rates. Sneaky and dishonest but all too common!
Suggestions to Revise Our Tax System:
1. Increase taxes for higher income individuals by
4.5% to the earlier level of 39.5%. The really high income
individuals do not create jobs with their own income (mostly from
investments). Their corporations create jobs!
2. Offset the negative effect for small business owners
with a 10% re-investment tax credit for putting profits back into their
businesses. There's a lot of wrangling over taxes hurting
employment. So... businesses could use the tax credit IF they
re-invest. Otherwise they are just "blowing smoke."
3. Create a large independent panel of experienced
CPA's actively working in various areas of individual, small business,
corporate and trust tax preparation. The purpose of this panel would
to be identify needless regulations in their areas of expertise and
recommend changes that would be tax neutral. All work would be in
secret without outside lobbying! Consensus and recommendations would
not be released to the public in a way that would subject participants to
outside pressure.
4. A flat tax would be nice and our tax code can be far
more streamlined but not simplistic. Further, our tax code must reflect
the differences between individuals, trusts & charities, small
businesses and large corporations. Some "tax revisionists" calculate
that various tax breaks and incentives, etc. cost the U.S. $1 trillion @
year! That is sophomoric and misleading at best as it ignores
the broader role of the tax code. We absolutely do need to revise
the tax code but it is not, by any stretch of the imagination, a simple task. Also see #5 above.
5. Encourage the repatriation of foreign profits with tax
breaks linked to actual re-investments in the United States. A
significant reduction of excessive regulations would be needed to make
this effort a reality.
6. Finally, Pass no more unfunded mandates that create
financial burdens on state and local governments. All mandates must
be accompanied by an accurate plan for financing the regulation, etc.
Unfunded Mandates:
See
Item. From GovTrack
Unfunded Mandates
from GSA
More on
Mandates - Congressional Research Service, Detailed 48 page paper.
Example from New York State Board of Education,
List of Mandates
NY group seeks local government mandate relief from Wall Street
Journal
Beneath all the political verbiage there
are significant, ignored facts and considerations that we need to be aware
of. And, this is what Fogcutters is all about.
Fogcutters.net
- Finding Where Truth Hides
