How would you like to pay a grand total of $27.66 on your $20,000 of income for all Federal Taxes including Social Security and Medicare?
If you make $100,000/year would you mind paying $1,383 as your total Federal tax liability and never pay H&R block another dime?
How about you're some "small business" say who makes $10B a year. Would you trade all of your payroll obligations and any income taxes you might incur for a total Federal Tax liability of about $14 Million paid out over a year? What my business doesn't do any payroll taxes anymore? Yep.. no payroll taxes, no income tax..
Yes, it is possible. It is not a fairy tale and it can be implemented in less than 3 years.
That's right. No capital gains tax. No payroll taxes either for individuals or businesses. No dividing up your return into types of income. No tire excise tax. No gas tax. No returns to file.
Yes, Social Security goes on as before. So, does Medicare. The ultimate in simplicity.
Ever ask yourself what happened to the wealth generated by last years GDP? What about from 10 years ago or 20 or 50? Well, money doesn't really die - in fact it tends to grow every year even in recessions. Money is transformed into various representations of value, though. The currency itself does expand. This is the dirty little secret no one wants you to think about. How often does money change hands?
These numbers are from 2009, yes, during the great recession and banking crisis. Just the value of all retail (you and me and most businesses) non-cash exchanges for 2009 was $70.8 Trillion! That was a few Trillion lower than 2008 given the slow down but far from chump change..
The total Federal expenditures for 2009 were $3.5177 Trillion. Had we simply taxed every retail non-cash transaction at a fixed rate then the total Federal tax including Social Security and Medicare for someone making $20,000/yr would have been $993.70. On a $100,000 income then the tax would have been $4,968.50.
BUT and this is huge.. The notional contracts traded and cleared on the CME for 2009 was $813T and for the entire DTCC the value cleared was $1,660 Trillion! Add these 2 items to the above $70.8T and the value of all these exchanges rises to $2,543.8 Trillion for the year. Divide this number by the Federal expenditures and the tax per $1000 of exchanged valued is $1.383. The person who makes $20K pays $27.66. You earn $100,000 then you pay $1,383. Notice we have still not included all foreign exchanges, private bank derivatives, etc..
First some history of how we got to our current position.
The GDP and GNP are worthwhile measures but both only measure 1st time produced goods and services. Neither care what happened last year or if you took your newly purchased iPhone and then sold it to a friend because you needed the cash and that friend then sold it to a cousin. So, for 2009 the GDP of the US was valued at $14.119 Trillion and the GNP was $14.265 Trillion. For this same year the U.S. government spent $3.5177 Trillion. The U.S spent about $2.47 Trillion in this year for "health care". These are essentially limited static measures of a much more complex economy.
Both the GDP and income/payroll taxes hearken back to the gold standard days when it was reasonable to get a yearly accounting of where the gold was and have people pony up a share to the government.
The fact the tax burden for government revenue has shifted from corporations and import excise taxes to the individual workers income and payroll taxes is not in dispute. Marginal income tax rates have also been lowered extensively since the 1950's, effectively flattening the tax rate for those of great income. In addition, differentiation of the type of income via capital gains and taxing it less has further shifted the burdened to individuals earned income and payroll taxes. The income tax and payroll taxes generally burdens the present worker with very little reference to the past or the ongoing effects of stored wealth and credit generation.
Is it any wonder there is an emotional response to cutting tax rates or shifting them to the wealthy? Unfortunately, via lobbying the shift in tax burden from corporations and the wealthy to those who can little afford to give more has become a systemic issue. Drill loopholes, claim it will produce more revenue by closing loopholes and then cut the tax rates. Rinse and repeat. Use the growth in government spending as a whipping boy for more cuts in spending that people actually need and want.
The continued charade of deficit reduction and the never ending argument over income/payroll taxes is an example of incomplete arguments, coupled with these old 19th century solutions, further complicated by Friedmanesque poppycock.
What ought to be an integral solution to both the Federal budget and citizens needs suffers with the constant proposal of dividing the derivative. We argue over the limit, both mathematically and socially. What is on the table at the moment is expanding the limit on a few via the income tax while simultaneously imposing a limit on what are truly needed Federal revenue expenditures both present and future given a complex economy and human needs. We must recognize the U.S. Government creates value. It is value. It creates money for us. It's monetary needs are not determined by the year, per se, but over generations. It is before us and will be after us. Hurricane Sandy today, maybe Syria tomorrow.
What is needed to break this cycle of insanity is a total modernization of the current system to reflect a technological society while providing those goods and services that only the Federal government is in a position to provide.
The true gross overall economic measure is MV or money times velocity for a given time frame it is not the GDP or the GNP. Any modern system of taxation must acknowledge, gee - We have machines mostly manage all this stuff. What if we tax the damn machine? What if we just took a small fee on every transaction going through? Easy to program. Why it's almost like an ATM fee :) The U.S. government does after all provide guarantees for much of the system. Who benefits most from the economic system? Certainly not the homeless. Not the poor. Generally not even the middle class. But, every single person and business adds to this complex economy. EVERYONE. You gave the homeless person a $1 who took it and bought coffee. That is an economic transaction. The store bought some coffee, water, help, etc. with its portion. It got rolled up through the system. Waste, Fraud and abuse? That too is economic activity and was rolled up into the system.
So, lets say we want to pay as we go and also want to pay for universal health care. We need to net out what the government spent in 2009 on Medicare and Medicaid to get to what remained - about $1.64 Trillion for the total health care costs (yeah, it includes insurance companies). Add this number to the U.S. expenditures in 2009 for a total of $5.1577 Trillion, divide this number by the transactions of $2,543.8 Trillion then multiply by 1000 for $2.03 per $1000 transacted. Wow, big jump there. On $100,000 of income you now owe $2,027.56 instead of $1,383.
That is the power of taxing all transactions equally. It is time to start. This tax could also be done on a dynamic basis adjusting itself to slow down or accelerate depending on the economy. If the Feds taxed all of their outgoing transactions (this nets out for them) then Congress and the people, along with budget analysts would have a realtime look of what was going where and to whom.
I thought of this idea in 1993 but learned a couple days ago that Dr. Edgar L. Feige, Professor of Economics Emeritus at the University of Wisconsin-Madison had thought of it earlier. He has conducted extensive research in this and there are 2 websites dedicated to his ideas with a tax calculator.
My figures used for illustration differ from the numbers in the websites nor do the websites include Universal health care but the ideas are very well developed with a proposal for implementation within 3 years.
The site immediately below also links to Dr. Feige's original papers.
A simple explanation with tax calculator is below.
This can be done quickly and easily. It vastly unburdens the working poor, the middle class, and true small businesses from what is a truly onerous system of taxation. What is more it is fair and will unburden big businesses and most of the wealthy, as well. Most businesses can go back to investing in R&D, hiring people and producing the goods and services we need for the future without extraneous worries. Multi-Nationals can bring the capital back from abroad and invest in new plant and equipment. It gives government more flexibility to deal with actual human issues and emergencies without the constant (stupid) argument of who pays. State and local government budgets can be included with time. To me it is a solution whose time has come.