Ideas for Improving America
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Towards a Fair Income Tax System: Part 1
Wed Nov 26, 2008 9:43pm

Personal Income Tax

Current income tax is highly regressive. In other words, lower income people pay at higher rates than higher income people. Of course, many will deny this, but the denial is specious.

Income tax consists of two distinct parts:
1. So-called graduated income tax
2. Payroll and self-employment tax (including medicare, etc)

While the so-called "graduated income tax" seems to tax the higher income cohort of the population at a higher rate than the lower part, that is entirely an illusion. The reality is that the tax code has been crafted into a 70,000+ page monstrosity consisting of 10 pages of tax code and 70,000 pages of exceptions for special interests who make generous campaign contributions to congressmen who write tax laws. The result is that the plethora of deductions and special deals permit the rich to pay "graduated income taxes" at no higher, and often lower rates than the rest of us.

The 15% payroll tax is not applicable to the rich. (Actually, they pay 15% up to the cutoff, about $100,000, and zero above this. Since their incomes are much higher than 100,000 per year, they pay nearly 0% payroll tax.)

The result of this combination is that, on the average, the rich pay somewhere about 15% to 20% lower rates (based on total real income) than the working folks.

My proposal is the elimination of this discrepancy. My tax system would consist of a single tax rate of, say 28% for everybody, with personal exemptions of say $8,000 per person and abolition of all payroll taxes. No deductions are to be permitted. The entire personal income tax code will be reduced to 10 pages or less.

This tax instantly does away with the marriage penalty and all other such unfairness. It also makes juggling of dependents useless, since the tax equals 28% of income minus $8,000 per person regardless of how it is distributed among the family members.

Zero deduction allowance is the central feature of this plan. The deductions are what constitute the 70,000 pages of special deals for the rich. Some people making millions of dollars per year of personal income pay little or no personal income taxes.

Zero deductions! This makes all of the fiddling impossible. It eliminates the special deals. There are only two parameters that Congress could change: the single fundamental rate and the personal exemption per person.

It may sound less fair than the phony "graduated income tax" of today, but this tax is a fake and is actually regressive rather than progressive.


Warren Buffet [richest person on Earth] Pays 17.7% Tax Rate; His Employees Pay 32.9%

Interesting report from the Hillary Clinton fundraiser last night: Warren Buffet complained that he paid a 17.7% tax rate on his $46 million of taxable income in 2006, while his employees paid an average 32.9% tax rate (his receptionist's tax rate was 30%).

David F Mayer

    • Needs update (nm)David F Mayer, Tue Oct 4 10:52pm
    • Why allow a personal exemption at all?PureStevil, Mon Nov 12 8:49am
      Just lower the rate and eliminate all deductions and exemptions.
      • is that an individual probably should not be taxed out of the basic necessities... If it takes 15K a year to SURVIVE, one probably shouldn't have to pay taxes on the first 15K one makes... After... more
        • the future of the nation. It costs more money to have kids. Many years ago the average figure that it costs to raise a kid from infant to young adult was about $100K. A nation's future is primarily... more
        • Here we disagree. I see it PER PERSON, not per taxpayer.David F Mayer, Mon Nov 19 10:38pm
          A family of 4 would have 4 personal exemptions, and so forth. Any deviation from this "per person" rule immediately makes possible various dodges to split income, etc. The thing I really like about... more
          • No.PureStevil, Tue Nov 20 11:27am
            Allowing deductions for children removes a portion of the financial responsibility of the decision to have a child. There are plenty of people on earth. If you want to add to that, then you and you... more
            • It cannot work that way.David F Mayer, Tue Nov 20 1:32pm
              This leads to income transference. Daddy puts income producing assets into name of minor, who thereby becomes a taxpayer and creates an exemption. Besides, we need to recognize that kids cost money.... more
              • Why would we allow you to "transfer" income?Sprout, Tue Nov 20 4:21pm
                Your income is your income, and you pay taxes on ALL of it... If you LATER give some of that money to your child, that is fine. Then the child has income and must pay income taxes on ALL he gets...
                • Hoist on my own petard. I yield.David F Mayer, Tue Nov 20 9:21pm
                  You are correct. This would amount to a deduction. Opening the door for JUST ONE deduction, opens it for thousands. Thanks for pointing out my error. David F Mayer
          • Why?Sprout, Tue Nov 20 10:42am
            Each tax filer pays full income tax on their own income minus THEIR OWN single exemption. Period, no way to cheat there.... Everyone who makes INCOME must file taxes and gets their own exemption. No... more
            • This is what happens. In order to add exemptions, the ownership of investment is distributed. Husband transfers stock to minor. Minor becomes a taxpayer and an exemption has been created. With tax... more
              • You miss my point....Sprout, Tue Nov 20 4:16pm
                If the father recieves INCOME, he pays taxes on it.... if he then PAYS his child with some of that POST-TAX income, that is then INCOME for the child and the child must file... If the family wants to ... more
      • I cannot think of a reason why the Gateway, Thu Nov 15 12:51pm
        first $20,000-25,000. should not be tax free. The figures I use are arbitrary and for discussion. It would simplify the tax reporting for millions and save the government in reduced costs. Above this ... more
      • to subsist.
        • That removes, or greatly diminishes, the consequences of the decision to procreate. If there must be an deduction it should just be 1 exemption for each taxpayer. It should not factor in a number of... more
          • One exemption per taxpayer justDavid F Mayer, Mon Nov 12 3:45pm
            forces everybody to file separately. The ONLY form of income taxation that averts circumvention by lumping or splitting of taxpayers is the one I mentioned: One uniform rate with one exemption per... more
            • Perhaps a better way to describe it would beSprout, Mon Nov 19 5:07pm
              one exemptions PER FILER... Per TAXPAYER... A child isn't a taxpayer and isn't a filer, and therefore shouldn't be calcuated into the equation.
              • I don't see it that way. Per Person exemptionDavid F Mayer, Mon Nov 19 10:41pm
                is the ONLY way to make tax liability independent of how income is distributed. This is not an opinion, but a theorem, which I will prove here if you want me to do so. I invite you to sign my... more
                • False..... completely false....Sprout, Tue Nov 20 10:46am
                  It is really very simple. If Bob makes income Bob pays income tax, and can claim one exemption... If Susan makes income, Susan pays income tax and can claim one exemption. If Billy makes income,... more
                  • Wrong.David F Mayer, Tue Nov 20 1:28pm
                    The point is that, by transferring income producing assets to some minor, a new taxpayer and corresponding new personal exemption is created. Hence tax liability is reduced. The ONLY way that tax can ... more
                    • If one indivdual "transfers" wealth to another indivdiual that is INCOME for the other indivdual, who must pay taxes on it... AFTER the first indiviual payed taxes on it in the FIRST PLACE... Dad... more
                      • Not so. Transfers occur all the timeDavid F Mayer, Tue Nov 20 5:29pm
                        in the same family, to a trust fund, etc, etc. I have never heard of them being called income, although that would be in the spirit of my flat rate tax. This is an interesting matter that requires... more
                        • Every transaction is a "transfer"....Sprout, Sun Dec 9 9:23am
                          Folks just USE that word to AVOID it sounding like they are paying... If I "transfer" twenty dollars to you, you have been paid twenty dollars. It doen'st matter WHY. Now, it is possible that you... more
                          • True, but this is constantly used to evade taxes.David F Mayer, Sun Dec 9 1:40pm
                            The new tax code must consider ALL transfers as income, which is certainly NOT true at present. David F Mayer
                            • scratch with none of the existing loopholes... If someone gives you money it is income... I think some extremely limited exceptions might be in order such as a person under the age of 16 can recieve... more
                              • What happens is that Mr X signs a contract with Y.David F Mayer, Wed Dec 12 1:44pm
                                Y is required to pay, NOT Mr X, but Mr X's wife, son, daughter, dog, etc. Sure, it is taxable income, but such subterfuges permit the income and consequent tax to be spread to several individuals. Mr ... more
                                • And when the audit comes in....Sprout, Thu Dec 13 11:33am
                                  And because it WILL when an 8 yr old claims 20K in income without being legally able to work, it will be amply clear that that money is actually compensation for Mr. X's job, and Mr X will then be... more
    • Deductions & PAY MORE TAXES just to force multiMILLIONAIRES&BILLIONAIRES to pay higher rates. Flat-earth taxation will NEVER happen, thank goodness!
      • Not the way to do it.David F Mayer, Mon Nov 12 9:14am
        Deductions and tax credits are hidden and ill-conceived methods of subsidizing various activities. The purpose of the Tax Code should be entirely single-minded: Revenue. The Tax Code should NOT be... more
    • of the Income Tax:;article=1398521 ; My response:;article=1398562 David F Mayer
    • The United States Needs a FLAT RATE INCOME TAX.David F Mayer, Thu Nov 11 8:22pm
      I have mentioned this before and it is time to renew the discussion.
    • Bringing This to the Top (nm)David F Mayer, Fri Jun 12 7:28pm
    • Flat Tax (moved from below)Sym, Sun May 17 9:34am
      Originally posted Thu Apr 23, 2009 12:20pm I have often felt that the structure of taxes allow for way too many loop holes and wiggle room that inevitably seem to help the "big guys" vs.... more
      • humm would flat tax be a straightsym, Sun May 17 9:38am
        Originally Posted: Thu Apr 23, 2009 1:06pm percentage and how would we determine that percentage?
        • Ahh... I may have misinterpreted....Sprout, Sun May 17 9:39am
          Originally Posted: Thu Apr 23, 2009 3:57pm I consider a 'flat tax' to be where everyone pays the same dollar amount... ie. Everyone pays 100 dollars. If ya make 20 thousand you pay 100... more
          • Originally Posted: Thu Apr 23, 2009 6:13pm is that I would be bloody grateful for minimally SIMPLIFICATION. Reading tax law is worse that stereo instructions LOL
            • I think David has had an excellent suggestionSprout, Sun May 17 9:41am
              Originally Posted: Fri Apr 24, 2009 4:54pm that he has made many times over the years... Essentially that the tax code should not be more than a pamphlet... I think at one point, he even ... more
              • HA give them a wordcount that they HAVEsym, Sun May 17 9:42am
                Originally Posted: Fri Apr 24, 2009 6:45pm to stick to (would also decrease the cost of distributing the information greatly - grinz) Hey, I'll write it for them!
                • One page, 80 columns, 60 lines.David F Mayer, Sun May 17 2:04pm
                  Let them try to hide anything in THAT. Trying to get the current bunch of loophole and favors in a one page document is like trying to hid a herd of elephants in a thimble.
      • IMO simplicity is key....Sprout, Sun May 17 9:36am
        Originally Posted: Thu Apr 23, 2009 3:52pm As you point out, loopholes are a problem. And I think that loopholes are inherent in tax code as complex as ours... IMO the key is to cut the ... more
        • sorry sprout somehow i missed thissym, Sun May 17 9:37am
          Originally Posted: Fri Apr 24, 2009 11:27am I agree - simplify, simplify... it should be our mantra and NOT just on this issue.
    • stalemate? (nm)?, Sat May 16 7:44am
    • Not a bad idea....Sprout, Wed May 13 1:36am
      For an entirely different idea look up the 'fair tax plan' as supported by libertarian Neil Boortz... It is based entirely on sales tax. No income tax at all. Just tax paid on money that is... more
      • Sales taxes are regressive.David F Mayer, Wed May 13 6:02pm
        Rich guys spend large quantities of their money on things not covered by sales tax such as further investments, construction of mansions, expensive hookers, foreign vacations, and so forth. I think... more
        • Who said thatSprout, Wed May 13 9:16pm
          mansions are not taxed? If there are no exemptions for products (again, your proposed simplified tax system), then anything you buy will be taxed... Sure, the cash you spend in Morocco won't be... more
          • to sales taxes.
            • Indeed....Sprout, Thu May 14 7:43am
              But, you have proposed a TOTAL revamping of the tax code.... Why would that exemption remain? What the 'fair tax plan' also proposed is a total revamping of the tax code. Why assume that such an... more
              • The personal exemption of perhaps $6000 per personDavid F Mayer, Thu May 14 3:34pm
                would be so that poor people do not starve in order to pay their taxes. Since it is the same for everybody, and it affects ONLY the poor significantly, it would be a requirement for a tax code that... more
                • I agree....Sprout, Thu May 14 9:23pm
                  Which is why the 'fair tax plan' provides a rebate (called a pre-bate) that is paid to each individual. This returns to each individaul the amount of taxes that they spend on the basic essentials...... more
                  • I prefer income tax to sales tax.David F Mayer, Thu May 14 9:38pm
                    Sales tax hits everybody. Income tax hits people only when they have income. Retirees, unemployed persons, etc, etc, would not pay any income taxes, but WOULD pay sales taxes. I say, pay it when you... more
                    • Likewise.Poppet, Fri May 15 9:19am
                      Sales Taxes are, by their very nature, regressive. Even when exceptions are made for certain necessities like food and medicine, the overall effect is to collect a far greater portion of the income... more
                      • VAT = Universal Sales Tax at All Levels. It stinks.David F Mayer, Fri May 15 10:25am
                        VAT is another example of how "liberal" Europe kisses the butts of the rich guys while taxing the hell out of the working classes. So are "Payroll Taxes". They are equally regressive, having a cap on ... more
    • Let's write to D.C.ruthie lancaster, Sun May 10 9:40am
      Your tax plan sounds a lot better than theirs.
      • It must be done en masse.David F Mayer, Sun May 10 10:30am
        A few letters will not do much. But tens of thousands of letters can have an effect. We need a 10 page (or even a one page) income tax code. No tax credits. No deductions. No tax shelters. No... more
        • As much as I hate to appear pessimistic....Sprout, Wed May 13 2:09am
          I am uncertain that a letter writing campaign would be sufficient to enact this large a change.... I suspect that this scale of change cannot be enacted until the while mindset in DCchanges. Until... more
          • situation. DC is drunk on money, and it is hard to take booze away from an alkie. But, we must start SOMEWHERE. IMHO, RIGID campaign spending limits and banning of ALL contributions are the key to... more
            • I agree. (nm)clint (I), Sun Dec 12 5:49pm
            • There are conspiracy nuts of all stripe....Sprout, Fri May 15 10:27pm
              And I have heard some who think that a second civil war or second revolutionary war is coming.... I don't buy it. Overall folks are too apathetic IMO. It would take a LOT more before any significant... more
        • David perhaps you could createsym, Sun May 10 11:40am
          a sample letter that people could adapt and link to it? A lot of folks really don't know how to write a decent letter that logically outlines the goal in a way that's comprehensible in a red-tape... more
          • I would like the members to contribute ideas.David F Mayer, Mon May 11 9:33pm
            But it is VERY important that each person express the ideas in his own words. Cookie-cutter letters are automatically discounted by congressional staffers. I await suggestions from members on topics... more
    • Brought to the front. (nm)David F Mayer, Sun May 10 9:07am
    • Sounds reasonable but...T-Man, Sat Nov 29 3:06pm
      many will fight it tooth and nail. Claims will be all the accountants, assistants, IRS agents, etc. who will be out of work! It would be wonderful to have a simplified tax return with only a couple... more
      • You are certainly right about people aboutruthie lancaster, Sat May 16 2:56pm
        tax accountants fighting it tooth and nail. Many of those people earn really big bucks for filing taxes for people that actually qualify for free online tax preparation. One woman made a special trip ... more
      • Not much simpler than today.David F Mayer, Sat Nov 29 7:39pm
        Only deductions will disappear. Calculation of income will be the same. Tax tables are trivial. David F Mayer
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