Another Look at Taxes

by

John Wright

 

Budget proposals and related program ideas from presidential candidates are one of a number of hotly contested areas in the coming election. As usual, I put no credence in any promises or estimates, as they are universally silly on all sides. Candidates take philosophical positions before elections, but the Congress produces the legislation after the fact that helps or hurts us. Still, I found myself thinking about income, sales, excise, gasoline, property and other taxes that afflict we common people, and how corporations are doing their best to dump the tax burdens back on the common people. As I looked backward in time I remembered that our first major moves to "reduce the size of government" came during Reaganís terms as governor in California and then as our president. That really got me started.

Reducing the domain of the federal government in income redistribution and income collection (by tax reductions) did not remove the need to spend money. It simply shifted the burden onto state and local governments. The obvious result was that tax structures below the federal level have become ever more punitive, yet not in any standardized manner. Trying to figure out how to manage the tax burden is more than difficult and subject to state and local differences for taxpayers of all different age groups. For example, New Hampshire has very high property tax and no income or sales tax, which makes it a terrible state for a retiree but perfectly okay for a young professional. California is bad in all aspects of taxation. Florida favors retired people with low property taxes.

The very differences and different penalty types and levels found across the states and within the states caused me to conceive my own notion of fair taxation Ö I call it the Maximum Tax Plan. Here is how it works Ö for any level of income or alternative assets based tax calculation there is a maximum tax amount that the individual can be obligated to pay annually, that covers federal, state, county and municipal taxes. In short, if the maximum tax amount for an income or taxable asset base of $50,000 is $20,000, then it is up to the governments to figure out what to do with that $20,000 Ö it is fair across the entire country Ö and nobody can demand more of the individual for any reason. For example, if I spent my life frugally and paid off my mortgage, I donít have to leave my home for inability to pay absurd property tax from my fixed and limited retirement income.

One might quickly argue that an income only tax hurts workers and favors retirees. There are good arguments on all sides of the income, property and sales tax issues and I admit that. The solution is to eliminate the problem by letting any and all levels of government assess anything they want, but be forced to take a proportionate share of the total collected Maximum Tax. This means there would be only one collection agency, and that individuals who paid their various income, property and sales taxes would have amounts rebated annually that were in excess of the Maximum Tax Rate. Thus, you would file a single return listing proven or provable sales taxes paid, along with property taxes and income taxes of all types. If you have paid more than the limit, you get the difference back, at interest.

This plan halts irrational and truly unfair tax differences in different states and municipalities. It also allows us to again include all forms of income to capture, for example, dividend and interest income.

As to corporate taxes, a different fixed national tax rate table can be used against net worth. That includes all assets less all liabilities, excepting the bullshit stockholders equity that produces a clean balance sheet, and is assessed to contain the size and total wealth of all corporations, making the upper levels of "big" become extremely expensive. Of course it is a graduated tax!

For those of you who want to apply that approach to individuals, I say okay. Yes, individuals can have too much, just like corporations. An asset based alternative tax rate for individuals would work just fine. There, isnít that a fair answer to the workers who donít want fat cat retirees to live off tax free interest and dividends and other amassed wealth without paying their fair share? Of course it is.

It is easy to see how taxes would evolve in most states Ö the property taxes of today would be replaced with creation or modification of an income tax and a sales tax. The only folks who would be negatively impacted with the alternative assets based tax would be those with expensive property, and all property values could be kept current through annual assessment of local values based on sales. Areas subject to decline in value due to things like loss of industrial jobs would find this system would help keep needed investment money local, for the wealthier working and retired people would have less reason to leave if the valuation base for their taxation resulted in lower taxes.

So, as an individual, you calculate your maximum tax based on either income or assets, not both, and pay based on the higher amount. Nobody gets a free ride. No, money you have saved that is sitting in a bank account or stock mutual fund will not be taxed repetitively, only interest or dividend gains will be taxed along with so-called real property.

Yes, my plan is sensible, and it makes the governments all play by the same set of rules. Well, okay, at some point abuse in setting maximum tax rates could result in all of us getting hosed anyway Ö but at least it would be a more equal hosing. For example, a national health plan and entitlement programs like Social Security could be simply and accurately accommodated through the federal component of the maximum tax rate. Why, we would be just like Sweden!

John for president? Donít all shout at once. But do think about the tax mess.