If I were President: ! TAXES !

Every time I think about taxes, taxation, and the IRS I think of something new. In some ways I think a flat tax would be a lot cheaper to manage, but if a flat tax is installed one would have to count all income. The example I used was Lee Iacocca in the 1970s with Chrysler. Mr. Iacocca took a salary of $1 for the first years of his contract. Under a flat tax on income, should Mr. Iacocca have gotten the same servies as others in his neighborhood who make $20,000? $40,000?

All wage statistics are taken from the US Department of Labor.

Interesting poverty statistic: 25% of African-Americans and 20% of Hispanics are living in poverty. The overall rate is 12.5%. I do not believe this means whites are better workers or that non-whites are lazy. I do believe this is a subtle form of racism (more on the negative affects of this in my next post).

Suppose I install a flat tax of, say, 15% on all income. To be fair (see the Iacocca question), all income must be taxed, including dividends and capital gains. Welfare and unemployment insurance is not income, nor is Social Security above a certain minimum (more on that in a bit). Currently capital gains are taxed at 15%, so its inclusion as income would have no effect on investments.

Interesting poverty statistics: for one person, the US defines the poverty level as roughly $10,500 per year. For a married couple with no kids, the level is $13,500, which isn't much of a gap. For a married couple with two kids (my situation), the poverty level is about $20,500. Now, for a rent of $900 a month (a typical two-bedroom apartment in a suburb), that means roughly one-half of the family's income is spent on shelter. This to me seems unreasonable; it certainly puts home ownership beyond the means of most people.

Some people say taxing dividends as income amounts to double taxation. They're right; a company pays dividends out of its profits. Profits are taxed, and then the dividends are taxed again as income when a person declares them on their income tax. I can say three things in response to that. One, that is the current situation; making dividends subject to a flat tax doesn't change the current tax structure. Second, companies routinely make more money than their profit margins appear to be, as they get tax breaks we individuals do not get. I am not personally against these tax breaks; their purpose is to encourage businesses to keep doing business where they are rather than move to a cheaper location. However, it does weaken the argument over double taxation because not all company income is taxed. And finally, it is reasonable to ask companies employing thousands of people and making millions of dollars (sometimes billions!) to pay more taxes than does a single, four-person family. This is one of the reasons I sometimes lean toward a flat tax on everything.

Interesting poverty statistics: a minimum-wage job at the current US minimum wage is $6.55 (it is different in different states, so I'll use the overall average), which amounts to a salary of $13,600 per year. This is not substantially above the poverty level; an extra $3,000 a year is only $58 per week. You can barely buy a decent pair of sneakers for that. If a family has children and they both work, where can they find daycare for $115 a week? If they alternate shifts, one parent will not see the other except on weekends. That's almost like having a divorce. They might be able to save a few bucks on daycare, but then they need insurance... and what if they do not work for a company providing insurance?

One last flat tax comment. This is how it would work. I have not checked these calculations with an economist, so I have no idea if it would work; this is just a "fer instance" exercise. My "flat tax" would have the following attributes.

• 15% tax on all income (dividends, capital gains, salary, commissions, everything).
• Below two and one-half times the poverty line (based on filing status and indexed to inflation) the individual will pay no taxes at all.
• Social security income over five times the poverty line (again based on filing status and indexed to inflation) would be taxed at normal income rates.
• Personal deductions will remain for one home, one home equity loan, local and state tax payments, day care expenses (say, $7,000 per year per child under 15, indexed to inflation, limited to $28,000 per year), student loan interest, and certain savings programs (with an upper limit on income to be eligible) such as 529 plans.
• Paycheck deductions for 401-K, 403-B, and other retirement and IRA will remain as well.
• Tax credits I have yet to work out, but at least one would be for teachers spending their own money for school books etc.
• Company profits will be taxed at the same 15% rate, with certain (to be worked out) deductions for R&D. Further, money paid out as dividends will not be taxed.

There are some incentives to work out. I would like to see people work for a living and not be on welfare. I think I stated (in an earlier post) I would create a federal jobs program. I would like to see everyone be able to afford housing, food, clothes, and companionship (essentially Maslow's basic needs). I would like to cut down on corporate welfare; they don't really need it. It does not seem fair for the US government to limit profits or prices; however, it is perfectly fair (and expected!) to collect a fair and reasonable share of the companies within its borders. Governments exist for the good of all, not just the good of corporations.

Interesting poverty statistics: a person in the US cannot get insurance unless that person is rich or working. This means a large number of people in the United States cannot get health care of any kind. To me this is backwards; the people most in need of preventive care are the poor. Health insurance should be a basic right, not based on your job.

It's probably hit you already: I said I was going to tax Social Security income. To clarify, I am going to tax some Social Security income. This is to prevent people who earn a lot of money and collect Social Security from gaming the system. In addition to the above taxation, people earning Social Security with additional income greater than five times the poverty level would have their Social Security checks reduced by 5% for each multiplier they are above the poverty line. For example, today five times the poverty line is $67,500. If a person was receiving non-Social Security payments totaling, say, $95,000, they would receive 85% of their expected social security check each month (five percent times three). Naturally all of this would be indexed to inflation.

If a flat tax can't fly, then we need to revamp the current system. Did you know the IRS rules now run to over 1,500 pages? Are we kidding? Many of those pages are tax loopholes or outright breaks for corporations, or limits on income so individuals cannot get tax breaks they may need. I'd certainly roll back some of the Bush tax cuts; re-evaluate the business tax situation; install a higher Federal minimum wage (starting at, say, $10 an hour) and index it to inflation; and look to overhaul the government's budget through GAP (general accounting practice) and the GAO (government accountability office).

One last comment on taxes. These sound like either really good, or really bad, ideas. The big problem I see is politicians are now so concerned with getting re-elected they will never vote to raise any taxes, or even talk about it. As I said in my first post, when I pick my cabinet members I will make sure to immediately start a knowledgeable task force to study our current tax and budget situation to improve all of our standings relative to the companies and their CEOs making astonishing amounts of money most of us can only dream of.