Monday, June 04, 2007

Taxation - Values and Perhaps the Economy

This morning I heard an "expert" explain how if all the CEO's salaries and compensation packages were lowered from their extremely high figures it wouldn't raise the wages of the hourly workers who make a fraction of their top boss'es earnings.

I realize that I'm a "crazy radical" and naive as anyone! It seems to me that our taxation policy should reflect certain key values. We should encourage people to work. We should encourage employers to hire workers. We should do all that we can to allow people to live independently and not be dependent upon the government or others.

Why should employers be responsible for paying much more than the wages that they pay to their employees? Why should health care and other benefits beyond perhaps vacation pay be their responsibility?

Why shouldn't employees simply pay income taxes and no other taxes on their income? Why should "passive income" and "unearned income" be protected in various ways from taxation and wage earners pay as many taxes as they pay?

I realize that I'm a crazy dreamer!

I could imagine in my wildest dreams a society in the U.S. where wage earners paid progressive income taxes and no other taxes on their income. Social Security and Medicare costs should be paid out of the revenue from all taxation. Healthcare should be a nationally funded program that families and corporations pay based upon income (and in some cases "receipts" as income is endlessly avoided and deferred in some cases).

Taxes should be paid on income and on inheritance and minimally on our purchases that we make. We should have a fairly high deduction for ourselves and our families, and then perhaps two or three tax brackets.

I'm part of a family of four with two children and two adults. Perhaps we should have a deduction of $10,000 for each adult and $2500 for each child. Thus we have $25,000 tax free.
Then perhaps we should pay 10% taxes on our first $50,000 in taxable income and maybe 35-40% on all additional income. There are no other deductions. Based upon our taxable income we pay for our medical treatment with a deductible, copayments and a family maximum that we pay.

Under such a system a family of four, like ours would pay taxes (if 35% highest rate) as follows:

Gross Taxes Percent

$25,000 $0 0%
$50,000 $2,500 5%

$75,000 $5,000 6.667%
$100,000 $13,500 13.5%
$125,000 $22,500 18%
$150,000 $31,250 20.83%
$200,000 $48,750 24.375%
$500,000 $153,750 30.75%
$1,000,000 $328,750 32.875%
$10,000,000 $3,478,750 34.7875%

If the marginal rate were 40% the rates would be marginally higher at lower incomes and moderately higher at higher incomes.

Now estates could be taxed perhaps with an exemption of somewhere between: $5,000,000 and $10,000,000. This should exempt most "small business people".

This to me is a fairly simple, progressive tax system. The real estate industry would oppose it because there is no real estate exemption to benefit mostly middle and upper income home owners. Charitable organizations would oppose this because donations would lose their tax savings particularly for higher income individuals.

Lower and middle income workers would be a lot better off! Those with investments but not a lot of income from them would similarly do well. Small employers would no longer be paying a lot of payroll taxes and benefits for social security, medicare, and health benefits.

Yes, the super-rich might be hurt! Yes, the reasonably rich might be hurt!

Sorry! Thanks!

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