Home > Perspective

Our Tax System is a Joke.

by Conservativity Staff,
Originally Posted: 10/12/2015 3:47:07 PM

The present income tax system in The USA is a joke. The previous statement is likely an understatement.

Let’s examine the system now:

The Old System and Its Idiocy.

First, There is the general Federal Income Tax. There are differing rates based on “adjusted gross income,” a term which means what of your income is left over after deducting for charity, medical expenses, and a host of other deductions. The Intuit TurboTax interview takes hours to complete as it navigates a choking set of deductions. The highest-income people manage to generate a host of deductions, and often end up paying a much lower share of their income than the lower-earning population.

Second, we have the FICA (Social Security) tax. The brainchild of the Left, this tax is indeed truly regressive. As of 2015, It is a fixed percentage of income, but the withholding is capped at a percentage of 6.20% of your first $118,500 of gross employment income. Since it is capped, the more you make over $118,500 per year, the less you pay as a percentage of your wages. While it is true that the rich pay over 80% of all of the dollars in the Federal Income tax, this backwards system is tilted in precisely the opposite direction.

Third, we have the Medicare tax, which is truly flat. 1.45% of all of your gross earnings.

Fourth, your employers match the Social Security 6.20% and Medicare 1.45%, to the same limits as you pay.

Finally, corporations have a tax on net profit, but with numerous offsets and deductions, including the “tax-loss carry-forward,” which enables the business to gain a tax advantage for losing money. That is correct – the business receives a reward from the USA for being lousy at business!

The above system is rigged to benefit the cheats and clever accountants.

There Has to be a Better Way.

Carly Fiorina and Rick Santorum are both proposing dramatic changes to the tax code; they want to simplify and flatten it. Conservativity wholly endorses this notion, but believes that neither candidate’s plan goes far enough.

The candidates’ hearts are in the right places, but they still carve out deductions. We propose to eliminate every single deduction and replace it with an exemption that promises to make the tax code completely fair, and advantageous to young families starting out.

Our Proposal

Conservativity proposes the following:

1. Eliminate the Employee side of Medicare and FICA

Step one is to eliminate the employee side of Medicare and FICA, and roll them into the overall income tax. However, we propose that the employer side of those taxes be retained and the income cap removed.

2. One flat rate of 26%, with an exception of the first $25,000 of yearly income.

Simply put, everyone pays 26% of their income above $25,000 per year. Married couples enjoy one deduction for each spouse. Therefore, a low-income married couple with $50,000 per year keeps 100% of their paycheck.

The beauty of this plan is that the elimination of all deductions creates an inevitably truly progressive tax. If Bob the IT Worker makes $100,000 per year, this tax is ($100,000-25,000)*0.26 = $19.500 or 19.5%. If Sam the CEO makes $10,000,000 per year, her tax is ($10,000,000-25,000)*0.26 = $2,593,500 OR 25.93%. Even if Sam is married and her husband makes no money and they take advantage of the second $25,000 credit, the tax is still $2,587,000 or 25.87%. No weird tax shelters that the IRS spends millions to investigate. Flat rate. Always a flat rate. Always the exact same deduction. No Earned Income credit to attempt to offset FICA’s regressiveness; no Alternative Minimum Tax because there are no tax shelters. The tax return becomes a one-page wonder and could easily be filed online in seconds, especially if the government has the W2 form on file.

3. Corporations pay 15% of profits.

15% of profits. Eliminate the tax-loss carry-forward. Don’t reward businesses for a failure to perform. It’s enough that they don’t pay in years where they lose money. Eliminate all of the labyrinth of taxation laws that make money only for attorneys and accountants, and which even the IRS cannot adequately figure out.

4. No Taxes on Inheritance or Capital Gains.

This will anger the left. However, inheritances consist of income already taxed once. Capital gains are money invested into businesses. The last part is not a deal-breaker to us. For example, capital gains could be taxed as income. However, inheritances must be left alone.

Summary

We need to do something that funds the government and simplifies things. Conservatives can like the simplicity of the system and the flat tax rate. Leftists can rejoice that the actual taxes paid are guaranteed to be progressive, without being so oppressive that the wealthy are motivated to invest time and money into evading payment.

Time to apply the KISS principle to our ridiculous tax code.