Better Taxes to Stimulate Economic Growth

To illustrate the range of flat tax rates needed to generate $2.6 trillion consider some different combinations of one, two or three tax bases:
• 4.9% of individual net wealth [too progressive], or
• 25.2% of sales [like Fair Tax, very regressive], or
• 19.1% of personal and corporate income (above $13,000 individual exemption), [like Steve Forbes flat tax, optional elimination of corporate taxes, regressive], or
• 12.6% of sales and 9.5% of personal and corporate income [like Herman Cane's 9-9-9 plan, somewhat regressive], or
• For individuals: 2% of net wealth (above $15,000 cash exemption, and retirement funds) and 8% Individual Income tax; and for business: 4% VAT and 8% Income [2-4-8 Tax Blend, balanced]

It is reasonable to ask why net wealth has not generally been taxed in the United States. After all in biblical times, wealth was the measure of taxation but an honest taxman was hard to find. For over 100 years wealth taxes have been levied in more than a dozen countries against only the very rich – creating complaints of both unfairness and burdensome paperwork. In the United States constitutional issues had been raised long ago about whether wealth tax rates would have to be apportioned among the states or simply taxed as part of a deferred computation of income (like capital gains).

Today, for the first time in history, computers and internet databases have enabled the efficient implementation of a simple and fair net wealth tax for rich and poor. This technical advancement of the information age may have eluded the handful of liberal attorneys, sociologists and economists that periodically publicize suggestions to tax only the wealth of multimillionaires (on top of already progressive income tax rates). This tax-only-the-rich mentality is awful and undermines capitalism. The ill-considered soak-the-rich suggestions have also led to many intelligent professionals dismissing consideration of any wealth tax out-of-hand (almost as if the great and powerful, Grover Norquist, might personally add their name to the official wall of traitors should a new tax idea enter their mind, pass their lips and establish the high crime of conspiracy to "feed the beast").

Advantages of individual tax reform using both wealth and lower income tax rates include:
• $2.1 trillion in federal revenue
• The same (2% wealth and 8% income) tax rates for rich and poor are progressive and fair
• The 8% income tax rate is lower than the current payroll taxes for social security and Medicare – (which would be eliminated)
• Everyone takes home 92% of their earnings (encouraging consumer power and economic mobility)
• The wealth tax exemptions of $15,000 in cash per person encourages both saving and a modest level of liquidity
• The wealth tax and income exemption for qualified retirement funds encourages necessary social security supplements (but tax exemptions may be limited based on need)
• Capital gains taxes are unnecessary (because value changes in assets are included in the wealth tax)
• Estate taxes are unnecessary (because large accumulations of wealth are taxed gradually rather than one time at death)
• Gift taxes are unnecessary (but transfers outside the family, including transfers to and from trusts, may be taxed as income)
• Deductions for mortgage interest would not be necessary since the unpaid principal is an offset to net wealth computation

Advantages of business tax reform using both VAT and lower income tax rates include:
• $0.5 trillion in federal revenue
• Elimination of business tax expenditures would produce same rate for all types of business
• 4% VAT and 8% corporate income tax would be lowest business tax rates of all major economies
• The VAT is easy to administer and is fair to imports and exports
• Low rates would permit elimination of deferral of foreign taxes
• Reliance more on business income/sales and less on profit (and identical rates for corporations and individuals) helps close the tax gap between C corporations and other types of business which pass-through the tax liability to the owners.
• All business tax returns would also be digital and available to the public in order to encourage both tax compliance and public confidence in business.

The rates of the 2-4-8 Tax Blend also make it easy to quickly estimate the tax that would be owed for any individual or business. There is no good reason you should settle for incremental reform.

Other reader comments on this item

Comment on this item