The sheer size of this proposal is very daunting...especially since I'm doing all the research by myself, as I don't exactly have an army of staffers to do all menial work... :-)
The enormous scope of the tax code has also been an enormous point of contention for me. It currently touches Medicare/Medicaid/Social Security/welfare. I've already posted the bare framework of my proposal to reform Social Security (I'm still working on fleshing it out and will post the finalized product whenever I get there). However, I have no plans to tackle Medicare/Medicaid/welfare anytime in the near future, so that will be a gap in my tax proposal until I eventually get around to that point. Eh, that's not entirely true, I suppose. I've been tossing ideas regarding welfare around with Meredith S. for six or seven months now, but haven't put them into a formal proposal. I suppose that would be the first of the big three remaining proposals on my docket.
Anyways, I'm pulling data from the Office of Management and Budget (OMB), Congressional Budget Office (CBO), Census Bureau, Internal Revenue Service (IRS), Joint Committee on Taxation, Bureau of Economic Analysis (BEA), and the Bureau of Labor Statistics (BLS). And that's the main reason I've been slogging away at this thing for a year--there is an insane amount of data to sift through, and much is duplicated to one degree or another by several of the agencies I'm using data from. As an aside, that's a perfect of government duplicative work--one 224 page report was produced/more or less duplicated with variations by the BEA, OMB, BLS, and IRS. The latest complete tax data from the IRS is from 2009, so that's the baseline I've been using for my calculations. Between the seven groups I'm pulling data from, I've accumulated nearly 3000 pages of information (thankfully, I don't have to print it out!). Sifting through it by myself is one heck of a way to begin to consider that I may be a masochist...
All the background out of the way, here is the framework of my proposal. This doesn't include my scoring of the proposal--like my Social Security proposal, I'll post those later on, once I've ironed out the details.
- Completely eliminate the current tax code
- Base the new tax code on the Department of Health and Human Services poverty guidelines
| Persons in Family | 48 Contiguous States and D.C. | Alaska | Hawaii |
|---|---|---|---|
| 1 | $10,890 | $13,600 | $12,540 |
| 2 | 14,710 | 18,380 | 16,930 |
| 3 | 18,530 | 23,160 | 21,320 |
| 4 | 22,350 | 27,940 | 25,710 |
| 5 | 26,170 | 32,720 | 30,100 |
| 6 | 29,990 | 37,500 | 34,490 |
| 7 | 33,810 | 42,280 | 38,880 |
| 8 | 37,630 | 47,060 | 43,270 |
| For each additional person, add | 3,820 | 4,780 | 4,390 |
- Any income above the applicable poverty level is taxed at a flat 12%, no matter the source of income
- Salary, dividend, inheritance, gift, capital gains, proceeds, anything and everything--if it's money in your pocket, it's taxable at the 12% rate
- There are no credits/exemptions/deductions with the exception of the foreign tax paid deduction
- To determine your tax bill, you'd simply look at what your applicable poverty level is on the chart, then figure out what 12% of your income above that level is--see below for two case studies
- Unless the size of your family decreases during the year, the only way you'd get a refund at the end of the year is if your taxes during the year don't take into account the poverty line (eg, if your salary for the first seven months of the year puts you below the poverty line, but the 12% tax has been assessed on it)
- If you don't pay income taxes, you don't get any money back, and if you do pay in, it would be impossible under any circumstances to get back more than you paid in
Molly is a married woman with three kids in Louisville, KY, and her household income for the year from all sources is $730,900. Looking at the chart, she notes that the applicable poverty level for her family is $22,350. To calculate her taxable income, she subtracts the poverty level from her gross income, which gives her taxable income of $708,550. She then multiplies that by .12 to determine her family's tax bill, which comes out to $85,026. That gives her family an effective tax rate of 11.63%.
Case Study #2
William is a single man with no kids in Charleston, SC, and his income for the year from all sources is $25,000. Looking at the chart, he notes that the applicable poverty level for him is $10,890. To calculate his taxable income, he subtracts the poverty level from his gross income, which gives him a taxable income of $14,110. He then multiplies that by .12 to determine his tax bill, which comes out to $1,693.20. That gives him an effective tax rate of 6.77%.
Here are a few things I'm currently trying to figure out, besides scoring the proposal:
- Should the tax rate be 12% or 15% (15% was my original rate, but I recently lowered it to 12%, and am now struggling over which works better)?
- Should the poverty level be the base, or should the tax be on ALL income, regardless of how much or little you've made during the year?
- If the poverty level is the base, should it be a flat rate across the contiguous US as it currently is, or should it be adjusted based on geographical region? That is, should NYC have a higher poverty level than Middle of Nowhere, KS?
What do y'all think? Any comments/thoughts/criticisms/suggestions?
NOTE - This is part one of three on the preliminary scope of my income tax reform proposal before I fully score it.
Though the post is "Anonymous," it's actually your older sister number 2.
ReplyDeleteAnyway, I like your tax proposal, with the exception of the blanket tax rate for the 48 contiguous states. As the cost of living is wildly different across the country (e.g., a house in Concord, NH, may be up to 5 or 6 times more than a comparable property in Detroit, MI - and those aren't even the most disparate cities), I believe accomodations should be made for that fact. And the adjustment should be made to the baseline poverty mark, not to the tax rate. I would be interested to hear where you might draw the boundaries for the poverty baseline, though. Should it follow state lines, or by counties, or what? What would give taxpayers the greatest benefits without creating a bureaucratic and governmental nightmare?