TAX REFORM
THOUGHTS AND IDEAS
THOUGHTS AND IDEAS
I don’t
like to complain without offering solutions or ideas. So, with that said, let me try to put
something forth for you to consider on Tax Reform. First, however, please bear with me for a short bit as I explain some of my rationale. If you
would rather just check out my proposed solution, you can skip to the bottom.
"It's
going to make life very simple"
and "This is a complete redesign of the code, so
we can simplify it so much that 9 out of 10 Americans can file using a
postcard-style system". These are
statements from the President and GOP Rep Brady talking about their new tax
reform proposal. Somehow, this administration seems to equate
‘simple’ with ‘better’. They tried to do
it with healthcare and continue that line of reasoning with tax reform. Can these complicated issues be simplified
and condensed? Sure. To a point.
But, much of the bulk is in place in an effort to help clarify, protect,
and create fairness and we’ll run into the same problems that caused those to
be written again if they are simply cut out.
Ironically, having said that, I have to make this fairly short since it
is a blog and no one will read it if it gets too long!
Nobody
really likes having to pay taxes. On the
other hand, most people realize that taxes are an essential part of a
well-functioning society, and it’s not a bad thing assuming that the government
handles their financial responsibilities fairly and efficiently. Ah, there’s the crux of the problem!
I’m a fan
of capitalism. Sure, it has its issues
and creates a certain culture of greed, but it also allows for individual
growth, encourages a working society, and rewards innovation and
ingenuity. I’ve seen a lot of people say
that it’s unfair that the wealthy have to pay more in taxes, that the bulk of
tax money comes from the richest among us, and so on. On the other hand, way too many people have
obviously never been in a situation where you don’t visit the doctor for
serious issues, even with insurance, because you can’t even afford the copay or
when paying a little more in taxes means making tough choices on essential
living items or working more overtime. A small amount of tax difference among the lower earners is relative pocket change to the
government, but can make a tremendous impact to the individuals themselves. Taking 35% of a millionaire’s income still
leaves her with more than enough money to survive in luxury. On the other hand, taking 15% of someone
making $25,000 a year already makes substantial impacts. In a Utopian society and an ideal situation,
I’d love to see our government be in a position to be able to offer a low enough and
sustainable tax rate that could be equal for everyone that wouldn’t hamper
those in the lower and lower-middle class while encouraging financial
growth for everyone. But, that’s not where we are. Not even close. With out-of-control national debt and
deficit, we absolutely must be smart and efficient and the amount of money
needed to be raised from taxes is far too much to be able to tax evenly across
the board. In addition, on a good note,
while perhaps not ideal, we are in a good situation right now in terms of jobs,
low unemployment rates, and steady growth.
Simply put, it is irresponsible to create cuts that add substantial
amounts to the deficit while at the same time leaving very little wiggle room
to help the economy when we face a strong downturn.
While I
understand the general idea being pushed that increasing the standard deduction
will cover the proposed cuts of some popular and more specific deductions, that
mentality overlooks significant issues.
One big issue is that many of those deductions help incentivize specific
important segments of the economy and society.
That would include higher education, home ownership, adoption, and charitable
contributions, among others. There has
been a lot of detail already published concerning these, so I won’t go into
detail here. But, one that really gets
me is the proposal on education and student loans. While it’s not necessary, it is a fact that a
large majority of millionaires are college educated and have advanced degrees.7 Education is important. To make matters worse, tuition has increased
so much over the past 20 years that middle class families are already
struggling to justify getting advanced degrees while those in the top 10%, and
especially the top 1%, are spending more on education1. The obvious implications being that the
wealthy will continue to pull away from those in the lower and middle class as
they have easier access to basic opportunities, as has been building over the
past several decades. There are some simple
explanations as to why the gap between classes continue to widen. By taxing waved tuition and stipends while
eliminating the deductions, a bigger burden will be created on many just
starting out, a barrier placed on entry for many who would decide the cost isn’t
worth it, and it would hobble future research and academic advancements. Another issue
is that many give to charities because of the tax incentives in place
for doing so. Of course, I would hope
that many would still donate but I also realistically know that there would be
a sharp reduction in charitable giving under the provisions of the proposed
plans2. In addition, including
the provision that the individual tax cuts expire and including the cut to the
individual mandate as part of tax reform is a cheap and irresponsible play.
I have one
more issue with the proposed tax plans that hasn’t been discussed much. Having fewer tax brackets sounds nice and
simple. But, it seems that those that
write these have never been on the lower end of the spectrum because it’s common
as one grows in many careers that their income will go from, let’s say, $45,000
one year to $45,500 the next (or $38,500 to $39,000 for the senate plan). This would result in a large jump in tax rate from
10% to 20% or 12% to 22% depending on the plan, which makes a substantial difference
for this group. This is also the case with
the current tax brackets as it jumps from 15% to 25%. While some people will see lower taxes at a
certain income level under the new proposals, they don't solve the issue of some having to pay much
more in taxes after being rewarded with a raise at work.
I haven’t
even brought up corporate taxes yet. The
misleading statement that the US has the highest taxes in the world just isn’t
true. Plus, there are so many incentives,
loopholes, and breaks that the effective rate is more around the 20% range as
proven by our own US Department of Treasury.3 Again, I’m all for business succeeding and
given fair opportunities to do so.
However, large tax cuts right now are not the way to go. The money would go to large investors and the
idea of most of it ‘trickling down’ just doesn’t happen. Even so, I’d perhaps be willing to give
some components of it a shot if we were in a different situation, but adding to the deficit in
such a manner in the situation we are in is reckless, if not immoral.
We can do better. Obviously,
there is a lot more to the bill, both good and bad, than listed here. But, I’ll trust you to look those up if you’re
interested.
* So, here
is my proposal
(caveat: I've focused on single payers below, but the concept would be the same for other filings. Also, I don’t have a CBO score and
haven’t run the numbers to see exactly how it affects the deficit, so I would need
to see how those come out when I have the time, money, and people 😉. ):
THE DAVID K. WILLIAMS
PROPOSED TAX PLAN
·
Continually increasing tax ‘brackets’
o
The highest income in each current bracket would see no change.
o
The rates would increase steadily between the current brackets on a
percentage of income basis
o
Rates would increase from 5% to 40%
o
It is very SIMPLE with no large jump in rates
o
No one would see a tax increase, with the exception of a mere 0.4% increase for those
making over $450,000, and most would see at least a little bit of a reduction. (I could be persuaded to possibly make the
top level $500,000 depending on how the deficit numbers work out)
o My proposed rates for single filers can be found below
·
Reduce corporate tax rates from 35% to 30%
o
This would give a bump to corporations to help further stimulate
growth
o
This is much more realistic than the reduction to 20% that has been
proposed
·
Keep the deductions common among the lower and middle classes and
which help important segments of society.
·
Allow a $4,000 personal exemption (down slightly from $4,050) with a slight increase in standard deduction to $6,500 (from $6,350).
·
Make long term capital gains tax rates 15% up until the top bracket,
which would continue to be at 20% (wealthy investors often record little, if
any, ‘income’ and thus pay 0% in the current system.)
·
Adjust the second-home mortgage interest deduction to debt as high as
$250,000 (currently at $1 million)
·
Reduce or severely limit other ‘special interest’ deductions such as
the Carried Interest Loophole and golf course tax while leaving others, like the
estate tax, as is5.
o
The 0.4% increase on the upper levels along with these changes would
help pay for the other tax cuts without hampering any individual’s way of life.
** This plan allows for easy manipulation, as
required, due to changes in the economy.
Simply adjust the rates evenly either up or down, lower the top rate and
adjust the others accordingly, adjust the income levels more fairly or evenly
throughout the scale, etc.
*** Much
more would obviously go into it, but this would be the general backbone and
starting point.
CURRENT LAW
COMPARED TO THE HOUSE AND SENATE TAX PLANS:
THE DAVID K. WILLIAMS
PROPOSED PLAN
TAX BRACKETS FOR SINGLE FILERS
5%
|
$
-
|
$ 1,865
|
21%
|
$
70,321
|
$ 75,715
|
6%
|
$
1,866
|
$ 3,730
|
22%
|
$
75,716
|
$ 81,110
|
7%
|
$
3,731
|
$ 5,595
|
23%
|
$
81,111
|
$ 86,505
|
8%
|
$
5,596
|
$ 7,460
|
24%
|
$
86,506
|
$ 91,900
|
9%
|
$
7,461
|
$ 9,325
|
25%
|
$
91,901
|
$ 125,150
|
10%
|
$
9,326
|
$ 15,050
|
26%
|
$
125,151
|
$ 158,400
|
11%
|
$
15,051
|
$ 20,775
|
27%
|
$
158,401
|
$ 191,650
|
12%
|
$
20,776
|
$ 26,500
|
28%
|
$
191,651
|
$ 236,660
|
13%
|
$
26,501
|
$ 32,225
|
29%
|
$
236,661
|
$ 281,670
|
14%
|
$
32,226
|
$ 37,950
|
30%
|
$
281,671
|
$ 326,680
|
15%
|
$
37,951
|
$ 43,345
|
31%
|
$
326,681
|
$ 371,690
|
16%
|
$
43,346
|
$ 48,740
|
32%
|
$
371,691
|
$ 416,700
|
17%
|
$
48,741
|
$ 54,135
|
33%
|
$
416,701
|
$ 417,550
|
18%
|
$ 54,136
|
$ 59,530
|
34%
|
$
417,551
|
$ 418,400
|
19%
|
$
59,531
|
$ 64,925
|
35%
|
$
418,401
|
$ 424,720
|
20%
|
$
64,926
|
$ 70,320
|
36%
|
$ 424,721
|
$ 431,040
|
37%
|
$ 431,041
|
$ 437,360
|
|||
38%
|
$ 437,361
|
$ 443,680
|
|||
39%
|
$ 443,681
|
$ 450,000
|
|||
40%
|
$ 450,001
|
$ 450,001
+
| |||
Standard
deduction: $6,500
Personal exemption: $4,000
Personal exemption: $4,000
Think it could possibly work?
