A Better U.S. Federal Income Tax System

Many people in the United States are unhappy with our federal income tax system. The key complaints seem to be that it is "unfair" and that it is too complicated.

How the system is unfair depends upon who one is. For some it is unfair because they feel that taxes should be low, "not high". This may mean that others should pay higher taxes or that the federal government should simply tax much less.

I believe that my generation - "The Boomers" is going to take an increasing amount of money to live as we become older and have increasinging medical and other needs. The younger generations are going to rebel when told that they need to pay extremely high taxes to pay for all of us.

I believe that we need to cut federal deficits significantly, if not totally, and eliminate the smoke and mirrors related to "borrowing from the Social Security trust fund" and simply not putting expenses such as for the Iraq War in the budget at all.

I believe that a new federal tax system could be fair and simple.

Assume the following:

Deductions:

1.) Individual - $10,000
2.) Spouse - if any - $10,000
3.) Children - if any - $5,000 per child up to $15,000
4.) Charitable deductions up to 5% of Gross Income - with a cap of $100,000
4.) IF deemed politically necessary - mortgage interest on a Single Residence which is one's primary interest up to a maximum of $20,000/family per year

Taxation Rate:

25% - Taxable income - $100 - $50,000
35-40% (to be determined) - ALL income above $50,000

ALL - other deductions - eliminated and all earned and other income is fully taxable including capital gains, interest, etc.

Examples of Income Tax Due:

* Single Taxpayer earning $12,000 - close to minimum wage - with no children and no charitable contributions:

$12,000 - $10,000 = $2,000 x 25% = $500 = 4.16%

* Single Taxpayer earning $20,000/year with no children and no charitable contributions:

$20,000 - $10,000 = $10,000 x 25% = $2,500 = 8%

* Fairly Low Income Family earning $40,000 with two parents and one child with no charitable contributions:

$40,000 - $25,000 ($10,000 x 2 parents + $5000 - child) = $15,000 x 25% = $3,750 = 9.37%

* Moderate Income Family earning $80,000/year with 2 children, $1000 in charitable contributions and $9,000 in mortgage interest

$80,000 - $40,000 ($10,000 x 2 parents + $5000 x 2 children + $1,000 + $9,000) =
$40,000 x 25% = $10,000 = 12.5%

* Higher Income Family earning $150,000/year with 2 children, $5,000 in charitable contributions and $15,000 in mortgage interest

$150,000 - $50,000 ($10,000 x 2 parents + $5,000 x 2 children + $5,000 + $15,000) = $100,000 = $50,000 x 25% = $12,500 + $50,000 x 35% = $17,500 = $30,000 = 20%

* Even Higher Income Family earning $300,000 - same as above except $10,000 in charitable contributions and $30,000 in mortage interest

$300,000 - $60,000 ($10,000 x 2 parents + $5000 x 2 children + $10,000 + $20,000 [interest at maximum allowable]) = $240,000 = $50,000 x 25% = $12,500 + $190,000 x 35% = $66,500 = $79,000 = 26.33%

* Very High Income Family earning $1,000,000/year similar to above except $50,000 in charitable deductions = $1,000,000 - $100,000 (parents/children = $30,000 + $50,000 + $20,000) = $900,000 = $50,000 x 25% = $12,500 + $850,000 x 35% = $297,500 = $310,000 = 31%

Such a system would tax those who:

1.) can afford to pay taxes a significant tax burden, but not a "prohibitive tax burden",

2.) have high middle income an increased burden than they pay now,

3.) have lower-middle income people a reasonable amount,

4.) have lower income - low, if any taxes.

It would be simple and relatively fair!

I suggest this as a model, needing tinkering.

Thanks for listening!

Geo