PROPOSED FAIR SHARE TAX REFORM PLAN

DETAILED SUMMARY

 

This is the same proposal made in the Website Summary and the Tax Reform Essay, where the rationale for these reforms are explained.

In summary, at all levels of government:

 1) regressive, inefficient, and hidden indirect taxes are eliminated;

 2) the income tax is greatly simplified and its rates are reduced;

 3) an annual net-worth (accumulated wealth) tax is substituted for current real estate, capital gains   

      and estate taxes; and

 4) corporate taxes are ended (taxes on corporate profits are paid by the investors owning the

      corporations).

Details:

1. •Eliminate payroll (Social Security, Medicare) taxes (regressive; instead these programs paid from general tax revenue)^
   

2. •Eliminate state income taxes in their current form (inefficient; instead states set & receive a surcharge on federal taxes)
   

3. •Eliminate sales and use taxes (regressive)
   

4. •Eliminate property taxes (very regressive; instead municipalities set & receive a surcharge on federal taxes)
   

5. •Eliminate capital gains taxes (currently most gains go untaxed; instead tax all gains indirectly through the Net-worth Tax)
   

6. •Eliminate estate taxes (instead collected in manageable bits through the Net-worth Tax)
   

7. •Eliminate corporate taxes (currently half are paid by employees and consumers; instead the human owners of corporations are taxed directly - see below)
   

8. •Eliminate tolls and lotteries (regressive, exploitative and inefficient)
   

1. •Reform the Federal Income Tax, eliminating nearly all adjustments and deductions, with a uniform 20% tax rate on all income and compensation, excluding only the following, which are taxed at 3%:
   

2. •income below a realistic poverty line ($30,000 for a household of three (1-see notes below)
   

3. •large medical expenses and reasonable medical insurance benefits exceeding 6% of income(1), and  
   

4. •limited contributions to tax-free accounts.
   

5. For a typical family of three, the effective federal tax rate would be: 3% on $20,000; 10% on $65,000;  15% on $140,000; 20% on $20,000,000+.  All households pay a minimum $100 tax.
   

1. •Institute a new 2% annual Federal Net-worth Tax on the portion of households’ net-worths (that is, accumulated wealth) over about $800,000 (45 year-old couple with one child).(2) Only the wealthiest roughly 12% of households would be subject to any Net-worth Tax.
   

2. This tax is paid once a year tax on household net-worth as of December 31 and replaces current property, capital gains, and estate taxes.
   

3.   The effective federal tax rate would range from 0.4% ($4000 tax) on a typical household’s net worth of
   

4.   about $1 million up to 2% on net worths of $32 million or more.
   

1. •Small businesses and corporations with operations or sales within the US are required to calculate domestic US profits(3) using honest, standard accounting practices (without gimmicks, like accelerated depreciation). These domestic profits, excluding up to 30%(3), must be distributed annually to each business' owners and shareholders in proportion to their ownership stake. These distributions are taxed as ordinary income and paid by the owners or shareholders. Taxes on distributions to those who are both non-citizens and non-residents are withheld from the distributions at a standard 20% tax rate.
   

2. •Add a 6% War Tax surcharge on the Federal Income and Net-worth Taxes (e.g. increasing a $10,000 annual federal tax bill to $10,600; minimum $50 tax per household) whenever the nation is at war and two years after the war’s end (as a reminder of our obligation to our veterans).
   

3. •Fund state and municipal governments through a surcharge on each household’s combined Federal Income and Net-worth Tax (excluding any War Tax), with the surcharge rate set by each state and municipality. For efficiency's sake the federal government could collect the taxes and pass them directly (under law, free of any conditions) to states and municipalities. The average combined surcharge for funding state and local governments would total 50% of a household’s federal tax bill at first, but decline over the years.
   

4. •Retain excise taxes only on actions that society would like discourage since they have costs not reflected in their price. These include fossil-fuel-based energy, cigarette purchases, and failure to maintain Health Insurance Coverage (under the ACA, “Obamacare”). Except for the last they are charged at the time of purchase. For all poor and middle class households, this tax would be much more than offset by the reduction in their other taxes. For the very poor, a small annual prebate could be given to cover the typical costs of excise taxes on items that are now largely not discretionary, like fossil-fuel-based energy.(4)
   

5. •Allow a single, unified, tax-free account for each adult with a modest age-dependent cap (5) up to to the lessor of 10% of income or $10,000 per spouse per year. It is set up automatically for wage earners at 5% of wages, up to $5000 per year, with options to increase the contribution (up to 10%, $10,000), decrease the contribution, or opt-out entirely. All wage-earners could afford this, since under the proposed tax plan all working-poor and middle-class total annual tax bills would be much lower. The account can be tapped tax-free for activities that society would like to promote, education and saving for retirement. Contributions are taxed at 3%. Gains within the account and distributions from the account are tax-free.
   

6. •Taxes apply to United States citizens and residents. All married couples must file joint returns unless legally separated.(6) The entire tax code is indexed for inflation. Any change to the new tax code must include within the legislation the names of the legislators proposing it. The tax code can only be changed with stand-alone legislation and can only be passed with a roll-call votes.

Under the proposal tax system, all federal, state and municipal revenues are derived from:

  Income Tax: 52%

  Net-worth Tax: 21%

  Excise Taxes: 6%

  Tariffs and Fees: 21% (mostly at the state and local level)

Under this Fair Share Tax and Spending proposals, the National Debt would gradually be paid off.

Under the Fair Share Tax proposal total calculated revenue for federal, state, and municipal governments would be $6146 billion for 2014. Going forward federal revenue would average 18.8% of GDP, 10% higher than the 17.1% (2001-10) under the Bush tax cuts, and equal to that of the Clinton years. If we join the Fair Share Tax reforms with the phased-in Spending Reforms proposed on the Debt and Spending page (judiciously cutting $2 for every $1 tax increase) and leave both the Fair Share Tax and Spending Reforms on autopilot, we would:

Have federal budget surpluses by 2025, 

Pay off the National Debt entirely by 2040 (if we wanted to).

If, as expected, the tax reform makes the economy flourish, the national debt could be paid off even faster. All government spending would gradually drop from 40% of GDP now to 26% by 2040. See the Debt and Spending page for details and a link to a spreadsheet and graphs for all government spending

IF EVERYONE PAID THEIR FAIR SHARE, THE TAXES OF EACH WORKING-POOR AND MIDDLE-CLASS HOUSEHOLD COULD BE REDUCED BY THOUSANDS, WE COULD SLASH THE NATIONAL DEBT, THE ECONOMY WOULD FLOURISH, AND EVERYONE - POOR, MIDDLE-CLASS, AND RICH - WOULD BENEFIT !

NOTES

(1) Federal Income tax: Minimum tax of $100;  All household income (all compensation) taxed at 20%, excluding only the following which are taxed at a 3% rate:

1. •Income below realistic poverty line =(3+2 if married+1 if single parent+# other dependents) x 5000; phased out with 5 or more dependents (5, 6, 7, 8+ dependents get respectively 4.8, 5.4, 5.8, 6.0 credit x $5000 in calculation of poverty line)
   

2. •Out-of-pocket medical expenses & medical insurance premiums exceeding: Sum of 6% of gross income plus any taxable net-worth
   

3. •Contribution to individual tax-free accounts (maximum is lesser of 10% of income or $10,000 per spouse)
   

4. 
   

(2) Net-worth tax formula: tax rate is 2% of taxable net worth. Taxable net-worth excludes only:

1. •$25,000 per household member
   

2. •Even if household owns no home, if single, the median price of a US home (now $180,000) or if married, 1.5 times that price (now $270,000)
   

3. •Modest tax-free education-retirement account(s) value
   

4. •Up to $50,000 in household and personal property and up to $5000 in small business value
   

5. 
   

(3) Domestic US profits = All profits x [(US sales/All sales)+(US employee compensation/All employee comp)] x .5

     Business losses are not subtracted from other income and may not be carried over to another year.

     Salaries of dependents and minor children of any owner with a greater than 25% ownership share may not be an

       expense in determination of profits.

1. Exclusions to domestic profit distribution: Businesses with at least one full-time employee unrelated to the owner may retain up to 5% of profits in a business account for future growth. Businesses may retain an additional profits up to 15%, based on the number of additional full-time-employees (%=((FTE-1)^0.7)x2). Publicly traded corporations may retain an additional 10%. Thus, nearly all publicly-traded corporations could retain 30% of profits in corporate accounts and would be required to distribute the remaining 70% to shareholders each year. Owners or shareholders may elect to reinvest all or a portion of their distributions (for publicly-traded corporations this could be done automatically), but owners and shareholders remain responsible for income taxes on the full distribution.
   

2. 
   

4. (4)Excise rebate = [600 + 400 if married or with dependent  - (.025 x taxable income) - taxable networth] OR 0, whichever is larger
   

5. 
   

5. (5)All of a persons current IRA’s 401k’s etc. would be funneled into the new combined Tax-free Retirement-Education Account. 
   

6. Cap on tax-free account value per individual (ages 17 to 70) = $8000 x (age-16) (e.g. $800,000 for a 66 year old couple).
   

7. Each December 30, any amount exceeding cap due to investment gain is automatically moved into linked taxable account.
   

8. Cap on tax-free account value per individual (over age 70) = $432,000 - (8500 x (age-70)) (e.g. $609,000 for a 85 year old couple). Tax-free withdrawal at any time for for education costs of self and immediate family members. Required tax-free minimum annual distribution of 2% of value at time of first withdrawal, which may begin after age 62 and must begin at age 70. Spouse inherits all, and it may go into that spouse's tax-free account; however, his/her age-dependent cap may not be exceeded.
   

6. (6)Dependents must have income and compensation under $15,000. Dependents with less than $2000 income and compensation owe no tax and need not file a tax return.
   

1. ^ Elimination of the payroll (Social Security-Medicare) tax is a savings for employees. However, employers pay a tax equal to the employee tax into Social Security and Medicare (7.65% of wages up to about $110,000, lower percentages for higher salaries). This would be huge windfall for businesses. Therefore, the elimination of this tax for businesses should be coupled with a mandated 38% increase in the minimum wage (from $7.25 to $10 per hour), a minimum 5% increase in salaries under $110,000, and smaller mandated increases in salaries between $110,000 and $300,000. An increase in the minimum wage would decrease the cost to the federal government of the Earned Income Tax Credit, Food Stamps, and Housing Assistance. These savings would more than pay for the excise tax rebate for low income families, used to reduce the regressive effect of excise taxes. Currently, the federal government (other taxpayers) supplement earned incomes largely to the extent that that businesses are allowed to pay a minimum wage that falls far short of a "living wage.” Government-funded or mandated disability payments should only pay a living wage for 1) "total disability" that precludes any work more than 5 hours a week (reevaluated no less than every 5 years), 2) a supplement for those capable of less than 40 hours of work a week, or 3) up to two years during recovery and retraining following the disability onset.

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