Welcome to the three tiered tax system. What are these three tiers, and why do we want them? I'll explain that in a moment. First though, I want to ask a question: What percentage of the income earned in the United States is unreported, and therefore, untaxed? I'd insert fancy Jeopardy themed music here, but hey I told you I was a simplistic sort and like function over form. The answer is estimated to be about 25%. That's one out of every four dollars that people are cheating the current system on. As a matter of fact, many of these cheaters bilk the system for more: unemployment, welfare, low-income tax credits, food stamps, assistance with loans, etc. They actually are drainers of government services and they should not be doing it. It hurts us all. The honor system that our taxation system is based upon is (sadly) DOA. I could tell you many stories of these types, which would shock you. You and I are paying for it -- irresponsibility. I hate it.
The first tier is a sales tax of 20%. Now, before you faint, please consider that this takes the place of the FICA payroll taxes of 15.3% and for 90% of America the income tax as well. So, we're not talking a lot of difference in the amount that the normal average American pays. Some of the more savvy among you might say that hey, that 15.3% is half paid by the employer. That's true. But any economist will tell you that when an employer hires someone that they will figure that payroll tax in and reduce the wage accordingly. It's a cost of doing business as an employer and while it may seem like the employer is paying that other half, it truly is just part and parcel of the labor contract. In an economic sense, the employee is paying it. It even goes on the record of the employee. Go ahead and look at your social security record. It is there.
The only exclusions would be groceries (food items only) and real estate.
- Advantages: This taxes all income evenly. It doesn't matter if it's interest, wages, dividends, capital gains, or under the table. You buy something, you pay the tax if you're an illegal alien or a wall street executive. The more you make the more you spend and consume. Therefore, the more tax you pay. If you want to invest and save, you aren't taxed at all unless you enter into the top 10%. Then it's only 20%. We all have to buy things.
The second tier is an income tax of 20% on the top 10% of earners, and 25% above $1,000,000. The top 10% cutoff is at $100,000 for married couples and $50,000 for singles. This catches all the millionaires that would rather sit on their savings, instead of spend it. If you are a conservative, I'm sure this tier rubs you the wrong way. Most will say "Hey, why not a flat tax? That's fair." My response is, no it isn't. The richest people use more services to protect their assets. If you look at just installing a flat tax, it wouldn't work. The rate would be very high to get the revenue we do now. We have to have a balance. The rich pay more now, but then again, they also own an astounding amount of the assets in this country with the top 40% owning over 95% of the assets. Who has the ability to pay? The balance comes in that if the richest of the rich don't want to do anything (invest), they don't have to. They'll pay 25% and that will be that. Eventually that money will be subject to the 20% sales tax when it is spent. This is comparable to the amount they pay now. We aren't reinventing the wheel. We're just putting on a different brand and one that taxes all income -- under the table or not.
- Advantages: The rich don't pay any more than they do now. It keeps the tax revenue stream from the top, and those with the ability to pay it. 90% of us will not pay a dime in income tax. If you do enter into this area, you should think of this as a duty.
The third tier is a rebate on the first $30,000 of income ($15,000 for singles). 20% x $30,000 equals $6,000. Everyone will get this rebate when they file a tax return. No more squabbling over things. You earned it. You report it. You get it. If I make $10,000 I only get $2,000 as a rebate -- An incentive to work harder. If I make $65,000 and I'm married I would owe no income tax, get my full $6,000 rebate, and only pay the sales tax when I spend my money. I'd get my entire gross paycheck. I wouldn't owe the IRS a dime. It would all be automatic.
Advantages: Everyone has this exemption. Image your refund being set at $6,000 per year. Those people below $30,000 would pay nothing. This mirrors what happens now. Only if you're single do you pay much tax in this income range. This stops the sales tax from being regressive too. The poor pay very little now, and they will continue to do so under this system. The only ones that will are illegals and those who do not file due to illegal activities. That's the price they pay.
Now, you might ask: What's so great about this system? Why is it better? Well, I'd hope with a little thought that answer would be obvious. The biggest advantage is that we tax the untaxed 25% of income. What is this mysterious unreported income? It comes in many different forms: Tips for waitresses, roofers, drug dealers, prostitution, illegals aliens, and every under the table enterprise you can name. Considering these are costing us, not only in lost tax revenue, but in the extra government services (wear and tear on roads, police, border security, and increased welfare programs) that we have to shell out because of them.
Other advantages:
- People want to get married under this system. There's an incentive to do so. Keep families together. They get an extra $3,000 rebate for one wage earner families. They get an extra $50,000 tax pocket.
- People will want to report their income. Why? If they get up to, or over $30,000 they get the full rebate. If you fall between $30,000 and $100,000 you will want to show your income too. Why? For loan purposes and credit ratings.
- Under that tax system you won't quibble about a $600 deduction for 90% of us. The IRS won't care. They'll be handing out checks. Only the top 10% need care and the maximum impact there is no different than they have now. Plus, the income tax code could be radically simpler.
- Deadbeat parents will pay up. Have a deadbeat mom or dad? Good. Those people working or earning anything will have that reported to the IRS and their tax return will automatically be filed and the $3,000/$6,000 will go to that debt. Instead of driving those into the cash underground, they will have their incomes reported by employers just like W2 forms are now. There's no incentive for the employer not to do so. They would have little or no payroll taxes to pay. A win-win situation.
- Credit scores will go higher. Interest rates offered will be lower. Why? Again, people will want to report their incomes. They get a rebate. When banks see higher income (when before it went unreported), loans become easier. Credit is easier to obtain. Interest paid lessens.
- The strain on government services will decline. Medicaid, SCHIPS, low-income tax credits, all will see a relief. People want to report income to get the rebate which will drive those out of the poverty area where they shouldn't have been in the first place.
- States income tax revenue will increase, and help people locally. State programs are more important at the local level. States run pension plans, medicaid, unemployment, mental health programs, police, etc. Illegal immigrants in particular strain these services the most. Under this system, they pay the most.
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