A Simple and Fair Federal Income Tax

America is in the midst of an economic crisis. We have a federal debt in excess of $20 trillion dollars, we are running annual deficits of more than a half trillion dollars, we have 13 million people out of work, 50 million people on food stamps and one in five of our children lives in poverty.  While job creation is essential, so is reducing the annual deficit by cutting unnecessary federal spending and by raising revenue.

Studies have found that the richest Americans are paying at an average rate of only 17%  for their annual federal income tax and that half of American households pay no federal or state income tax at all.

There has been much discussion about changing the tax code to make it simpler and more fair.  Conservatives want a flat tax with everyone paying the same rate.  They want to reduce the highest rate while expanding the base, meaning that more people would be paying taxes while the richest pay less than they already are.  The last time tax rates were lowered in favor of the wealthiest Americans, under the Bush/Cheney administration, the result was no new jobs,  record deficits, a Wall Street crash and the tattered economy we are now suffering.

I have a recommendation that would simplify the federal and therefore the state income tax code for individuals and couples, not including the self-employed.  My plan would be very simple, fair, and would raise at much as $100 billion a year in new revenues.  This figure could be adjusted as can be the recommended tax brackets and standard deductions.

Under this plan taxes would have one purpose - collecting revenue with which to fund needed government services.  The tax code would not try to encourage or discourage behavior with deductions or credits.  It would treat all income equally be it from work (minus FICA deduction), dividends, pensions, insurance benefits, bonuses, interest, lawsuits, lotteries etc.

As of 2008, people’s income from stock dividends has been taxed at 15% while income from savings interest can be as high as 35%.  Actual capital gains are also now at the 15% level, down from 35%, while only a maximum of 85% of Social Security benefits are taxable and legal settlements are not taxed at all.  Under this new system all these income sources would be treated as equal.

Under this plan there would be no itemized deductions, only a standard one.  For discussion purposes it could be $20,000 for an individual or $40,000 for a couple.  There would be no deductions for children, medical care costs, charitable contributions, education costs, mortgage payments, state income tax etc.  Currently there is no itemized deduction for buying food for the family or for eating at restaurants with the kids, but people do it.  There is no itemized deduction for buying the family clothes, but people do it.  There was a deduction for interest paid on credit cards and car loans but that was dropped 30 years ago. People still pay interest on them even though they can’t write it off.  The three martini lunch was dropped as a business deduction, but people still have them every day.

There would be only five tax brackets that would range from (after the standard deduction) 10% for net incomes up to $50,000, 15% up to $100,000, 20% up to $250,000, 25% up to one million, and 35% for income over $1 million These brackets could be adjusted to raise or lower the tax burden.

Here are some examples:

Imagine that there is a couple that earned $50,000 in net salary (after deducting FICA), $20,000 in Social Security benefit payments, $10,000 in interest and $5,000 in capital gains.  The total is $85,000.  The couple would deduct $40,000 in a standard deduction, leaving them a net income of $60,000.  The first $50,000 could be at a 10% tax rate or, in this case, $5,000.  The remaining $5,000 of net income would be taxed at 15% or, in this case, $750.  The total tax would be $5,750 or 6.7% of their gross income.

Let’s say there is a couple who earned $200,000 in net salary and $310,000 in capital gains.  Their total would be $510,000.  Using the standard deduction, they would net $470,000.  The first $50,000 would be at 10%. The second $50,000 would be taxed at 15%.  The next $150,000 would be taxed at 20% and the remaining $230,000 (net income over $250,000) would be taxed 25%.  So in this case, the couple would owe $5,000+$7,500+$30,000+$57,500 = $100,000 in taxes. That equals a 20.8% tax on their gross income.

As a third example has a couple making $5 million in capital gains, (including dividends also currently taxed at only 15%).  They would have a standard deduction of $40,000 and then owe $230,000 for the first $1 million and $1.2 million for the remaining $4 million for a total of $1.43 million or 28.6% in federal income tax.  

This tax code would not give an Earned Income Credit or a Making Work Pay Credit to low earners who currently not only don’t pay taxes but actually get paid taxes costing $115 billion a year.  The lowered rates for the wealthiest, under Bush/Cheney reduced tax revenues by almost $100 billion a year.  There would be no credit for student loan interest or for taking care of one’s young children.

That does not mean that those in need of relief for college loans, income supplements, special medical needs or anything else currently credited in the tax code would be ignored.  With the money saved, hundreds of billions a year, there would be money for these purposes.  More college grants and very low interest federal loans could be awarded to deserving students; low income workers could receive a reduced cost for health care benefits, help with rent payments, access to food discounts - benefits targeted at those in need of help.

But what about the loss of deductions for home mortgages and for charitable contributions? Will people still buy homes or give to charities?  Good question.

While home mortgages have other problems now, if people see buying a home as a lifetime investment in their own well being, they will continue to buy homes.  With some of the revenue raised by eliminating this deduction, more affordable mortgages can be funded to qualifying families.

With charities, it is an open question.  I have found in my own case, now that I have subjected my family taxes to the standard deduction, I still pay as much for charities and feel better about it because I am not also having to keep track of every receipt and tally them to see how much I can save for my kindness.  This way it is just out of the desire to help others without any expectation of reward.

I believe that this recommended tax code change would raise needed revenue by both expanding the base, meaning more than just half of all families will be paying some tax and by getting the rich to pay more but at a lower marginal tax rate. 

Then, if this plan is adapted and revenue is raised, it must be put to good use.  Government waste including fraud, inefficiency, ineffectiveness, duplication of effort and international overreaching must be reduced as much as possible.  Our tax dollars should go to good use. 
                            

Surely, Their 15 Minutes Are Up

I always liked Andy Worhol’s idea that everyone wanted and eventually got their 15 minutes of fame.  One of the current news shows now has a segment called “Your 15 Minutes Are Up.” I think that this good idea should be applied more broadly.  The media should stop quoting certain people who have long since been irrelevant.  Here are some suggestions:

In the field loosely called “entertainment” we have already seen some famous quotables disappear from the public eye and ear.  Remember Paris?  Remember Nicole?  Remember Brittany?  No?  See how it works?  So how about no more stories about Lindsay, Charlie, Ted, the Donald,  Jessica, Kim or Khloe? Aren’t their 15 minutes way more than up? Who are they and what do their lives have anything to do with us?  Why should we care what they were or weren’t wearing?  Why need we know what they did wrong lately?  Why are they getting paid for being celebrities? Last year while 13 million Americans were unemployed, Kim made more than $10 million.  For What?  For whom?  Let us live without major news stories about these celebrities in name only. If we want to hear about them, we can tune in to our favorite celebrity gossip show, but let’s keep them off the Nightly News, please. They are narcissists and coverage only encourages them.

But what about politics?  We have forgotten Spiro, most former House speakers, many former mayors, almost every unsuccessful candidate for Vice President and even some villains from the previous administration like Rummy, Wolfowitz, Perl, Gonzales and Ashcroft.  Can we start forgetting to mention people like Karl Rove, Dick Cheney, Sarah P., Michele B., Newt, Herman, Glenn, Sean, Rush, Rick P., Rick S. and most of the Fox News cluster of political hacks?  Must we continue to hear hatred and disinformation from a group that claims to represent a part of our country that should not be encouraged? Do we think that they will someday say or do something that seems honest or intelligent?  Really? Let’s try to name one thing that any of them ever said that reflected intellect, education, wisdom, insight, decency, kindness, goodness or compassion.  Give up? Let’s try to remember why these political prostitutes ever got our attention. Can we? So let’s not quote them anymore.  Their views will always be welcome on their party’s official propaganda network of fixed news.  Let that be the quarantine of their hypocritical negativity.

They too are narcissists and coverage only encourages them.

What would our daily news be without stories and opinions involving the above mentioned who are well past their 15 minute time limit?  The news could be about important issues of the day.  The news could avoid hyperbole and easy fixes by not interviewing the brave souls who survive some of the natural disasters that are occurring almost weekly now. “It was a miracle that even though we lost everything, no one was killed and that’s all that matters.”  We know and appreciate your faith and courage, but we have heard it a million times. We can live without reporting on tragedies night after night until we no longer care.  We could live without interviews of people on the street to get their views.  We don’t care.

So what could the mainstream news be like?  It could be like the PBS Newshour which briefly covers the day’s events but then focuses on three or four stories to get an in-depth analysis of each issue and its context. There should be a minimum of speculation which almost always turns out to be completely wrong - more about the speculator than the speculation.  Many reporters are timid and they propose timid concerns rather than facts and figures.

We could be given more facts and figures rather than a lot of adjectives and adverbs.  If we hear a report about a labor dispute, give us the numbers.  How much do they make now and how much do they want?  If we are talking about unemployment tell us who the unemployed are: what is the percentage of the 12.5 million by age group, educational status and type of work.  That way we can start focusing on the solution instead of thinking it is happening everywhere, to everyone.

When inviting experts to represent each side of an issue, let it be respected experts with no political axe to grind.  It makes no sense to ask lobbyists or politicians who have a clear bias to tell us the way it is when we know that these people have lost their integrity years ago.  Do we believe Paul Ryan, John Boehner, Eric Cantor or Mitch McConnell?  Really? Do we respect Paul’s grasp of macroeconomics or John’s emotional facial expressions and his imitation of penguins walking or Eric’s denial that he was adopted or Mitch’s impression of Huckleberry Hound or of Tommy the Turtle that he offers up daily to distract us from his real intent?  Clearly the Speaker should never play poker because he has no poker face - it reacts badly every time he lies and the cameras seem to always catch it because of its frequency. And must we be subjected to John McCain insisting that we go to war - with everyone: Libya, Egypt, Syria, Iran, Russia and soon maybe North Korea, China and all of Africa? When grapes turn sour and bitter must we be expected to swallow them? When will their 15 minutes be up?

When interviewing political figures, reporters can start not only quoting their sometimes absurd comments or answers, but also challenging them.  When the Republicans in the House were trying to blackmail the President into concessions in exchange for raising the debt ceiling, their leaders said that it was a balanced approach and was needed to force cuts in our bloated budget.  They said that we have kicked the growing deficit down the road too long.  The press should have asked if they remembered that at the end of the Clinton administration in early 2001, we were running surpluses and planned to eliminate the accumulated deficit by 2003.  They could have asked him if he remembered what happened to derail that prospect and drive us into $15 trillion in debt.  They could have asked him how it was balanced when the debt had to be raised as it had eight times under the previous administration as it had been without debate dozens of times in the recent past.

When the very unsuccessful candidate for President in 2008 said that we could not deport people here illegally because they were G-d’s children, why didn’t every reporter, or at least one, ask him that with that logic aren’t all creatures G-d’s children and if so how can we go to war with them or put them in prison when they commit crimes?  When this same candidate accused Barack Obama of wanting to use taxes to redistribute wealth, why didn’t the media point out that that was the very function of government and always has been.  When the press is given a photo of a crime victim to show on T.V. and realize that instead of being of a 17 year old football player who is over six feet tall, it is of a small 12 year old, they could demand a more up-to-date picture.

This November, we will be given an opportunity to tell many members of Congress that their 15 minutes are up.  My hope is that the majority of freshmen members of the House are encouraged to rush back to their lives of obscurity and let us hear from intelligent, responsible representatives whose integrity is still intact.   But an informed electorate is dependent upon accurate information.  The mainstream media could take it upon themselves to change their ways and begin focusing on serious reporting.  If a candidate being interviewed is saying something that doesn’t make sense, the reporter must pursue it.  “What does that mean?” or “Could you be more specific?” or “Can you give me an example?” or “Do you want to listen to the tape yourself to hear what you said ten minutes ago?” or even “Are you kidding?” or finally, “Are you crazy or something?”

I could say so much more about this, but I’m afraid that my 15 minutes are now up.