Wednesday, February 4, 2015

U.S. Taxes - a Solution

In 2014 the U.S. Federal government collected more taxes than all the U.S. states, cities and local governments put together. Meanwhile, people who work extra jobs to earn more money, to pay for a child's college education, to start or advance a business, hit the wall of increasing tax rates the harder they work. A person with one job that pays 25% of their income in taxes, working double time, realizes that suddenly the government collects 34% of their  newly increased income.  The 'Progressive Tax' system effectively disincentivizes people from growing. The only way for a person to realistically start or expand a business, or send their children to college, is to borrow from wealthy individuals or groups who control a large pot of cash (Think 'Shark Tank').  As a result, our entire economy is dependent upon a complex system of powerful lenders.  The very 'Progressive Tax' system that is touted as being protective of the little guy forms a straitjacket, bolstering the importance of the powerful money manager.

When George W. Bush was notified in his last months in office that the banking industry was under threat from insolvency, his advisors sufficiently scared him that he, a Republican, supported a private industry (banking) bailout.  In reality, our economy is like a heroin addict, completely dependent on the lending/controlling classes.  The concept of savings and personal growth is a myth in our current tax and economic system.

The fact that federal government tax revenues exceed the total revenues of all states put together, plus all cities and local governments, should make anyone pause. One can understand the need for the federal government to exceed the revenue of any single state or small grouping of states, as happened in the Civil War, but all put together?

Today we are disincentivized from working too hard, as we get put in a higher tax bracket as a result. Suppose we were to disincentivize excessive taxation instead?  

By passing a law that allows the federal government to tax subsidiary governments (States), and similarly allows states to tax a percentage of revenue of local governments, the federal government could create a tax disincentive.  A percentage tax (say, 30%) on state revenues (currently approximately $2 trillion) would create $600 billion + in revenue. Further, the states keep detailed records on their revenues, so millions of Americans would not need to stay up nights assembling records for those taxes.

If states in turn taxed the revenues of subsidiary governments (who earned about $1.5 trillion in 2014 in revenues), at 30% of revenue, the states would gain $500 billion from that taxation. Thus in this scenario State revenue would become $2.5 trillion, the federal government would get $800 billion, and the states would net $1.7 trillion.

Clearly, under this scenario, the states would be in the position to increase their taxes - however, by having 50 different states with competing ideas, States that come up with good taxing solutions would be most successful. States that have wasteful taxing strategies would be at a disadvantage and would be able to learn from the successful states.

Finally, in taking this strategy, by creating a 1 or 2% national federal sales tax, the federal government could have an additional revenue source which allows it to be independent, if necessary, from the state revenues.  Millions of Americans would save billions of dollars in labor, worry and sleepless nights in place of filling out tax returns; the American ideal of personal saving and growth would be reborn; the billions spent on the Federal IRS would be saved; and our toxic economic dependency on the very wealthy and powerful group of lenders would be reduced.

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