Some Thoughts on Taxes

Since the MSM is starting to make note of the fact that the IRS won’t be processing itemized tax returns until next Monday (!#@#$##@ it!!!), I thought I’d go ahead and post my thoughts on a better tax system.

First, let me make it clear that I have not really looked at the “Flat Tax” or “Fair Tax” proposals that are already out there. It’s entirely possible my idea duplicates part or even all of it. At most, it was the idea of a flat tax rate that started this idea that’s been kicking around in my head for a while now.

So, here’s my idea for a Reasonable Tax.

  1. Only the states may levy taxes on citizens of that state or corporations based in that state, and ONLY on citizens of that state or corporations based in that state.
  2. Only income may be taxed. Income is defined as salary or wages for employment, interest and dividends from investments, earnings from rental property, or similar earned monies. Sales tax, property taxes, and “inheritance” or “estate” taxes will be eliminated.
  3. The maximum tax rate allowable is 10% of total income, annually. Period. Local taxes are deducted from this 10% maximum (e.g., if your county tax amounts to 2% of your income, the state can only tax you up to 8% of your income). States may restrict the maximum percentage localities may set for taxes.
  4. States may tax businesses or their owners/stockholders, but not both (no “double-dipping” by taxing a business’s income 10% and then the owners’/stockholders’ incomes 10%).
  5. The federal government may levy taxes on each state, and only on the states, and no more than 10% of the total taxes received by that state.
  6. The 10% rate is a statutory/Constitutional maximum. Each state government may elect to tax less than that 10% maximum. The federal government may elect to tax the states less than the 10% maximum.
  7. Tax rates must be flat. If a state sets the rate at 8%, it is 8% for all citizens regardless of income level. However,  states may set a “poverty level” below which all taxes are waived (all or nothing). The same rules apply to the federal government in taxing states.
  8. Tax rates must be set by legislative act, which cannot be delegated, and are effective for a minimum of 3 years. The legislature may raise the tax rate within that 3 year period only with a 3/4 majority vote. Such override shall be effective for no longer than one year. At the end of that year, a new bill must be passed, again with a 3/4 majority vote of the legislature, or the tax rate automatically resets to the lower previous rate. The rate may be lowered at any time with a simple majority vote.
  9. Any bill changing the tax rate must specifically address only the tax rate, in the form of “Effective [date], the state income tax shall be X% calculated annually. Those with an income of $Y per year or less shall be exempt from any income tax.” Any bill changing the tax rate can only take effect at the beginning of the next tax year.

There are probably all sorts of specifics that would need to be worked out to reduce potential abuse and loopholes, but this is really more of a base to start from than a complete plan, anyway.

The intent here is to limit the power of both the federal and state governments by limiting the power to tax, to prevent the ruinous taxation of the people by setting an absolute maximum rate, and to motivate the states to limit the federal government’s power by placing the burden of funding of the federal government directly on the state governments. Additionally, it makes income tax more fair by taxing everyone the same percentage.

Thoughts?

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3 Comments

  1. perlhaqr

     /  February 18, 2011

    Your #7 point should be amended to deduct the “poverty level” from the total income for the year taxed. Otherwise, there’s a huge jump at the breakover point where a person would actually have less total pay if they break the poverty line.

    i.e.: Say the poverty level is set at $20,000. A person earning $19,999 pays no taxes, and takes home $19,999. A person making $20,001 pays 10% in taxes, and takes home $18,001.

    If the “poverty amount” is deducted from the taxed income, you get a more gradual transition, and no advancement penalty.

    I’d also like to add a #10: No withholding. Everyone has to write a check (or buy a money order, or whatever) on Tax Day, for the full amount they owe. Tax Day will be moved to one week before Election Day.

    Reply
    • Re #7: That’s a good point. I think just subtracting the poverty level would place too much restriction on state income and make it difficult to even pay for legitimate .gov programs (emergency services, roads, courts, and the like). Perhaps some “window” where a graduated tax rate is allowable to minimize that result. Or a graduated rate while subtracting the poverty level, until reaching a “break even” point where switching to a flat rate won’t leave you taking home less than before that raise. You also don’t want someone to get a raise without an increase in take home pay, after all. Honestly, I was hesitant about allowing a cutoff at all – everybody benefits from government services, so everybody who has an income should pay something towards the costs of those services – but decided that leaving the decision to the states was a fair compromise.

      Re #10: That would be a rather pointed reminder to both the voters and the politicians, wouldn’t it? 🙂
      Sadly, I think withholding would be more practical – otherwise, I’m afraid the sheer number of people who would get to tax day without enough money left to actually pay their taxes would simply overwhelm whatever system was in place to collect them.

      Maybe optional withholding, but making it mandatory for anyone who couldn’t pay the previous year’s taxes?

      Reply
  1. Alternative Tax thoughts « Curses! Foiled Again!

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