Welcome to From Insults to Respect. Here in Corning, New York, spring has just begun to display some of its glorious beauty. Meanwhile, I, and most of my neighbors, have just finished squaring up our tax obligations for 2017. As we did so, many of us gave some thought to the recently passed US tax overhaul.

In the latest Gallup poll, 48% of respondents indicated they disapprove of the overhaul, while 39% indicated they like it. To figure out why so many Americans don’t like it, Yahoo Finance conducted a poll on April 18.

The Poll’s Results

More people indicated they dislike the new tax plan than like it for three basic reasons: They think the new law favors the wealthy over the middle and working class. They’re suspicious that tax cuts for businesses are permanent but tax cuts for individuals are temporary. And they think it’s irresponsible to finance the tax cuts with debt that future workers will have to shoulder.

There is an estimated 1 trillion dollars per year of new debt the US government will have due to the tax cuts.  “The small amount most get,” said one concerned citizen, “will be eaten up by the massive debt we’re adding but not benefitting from.”

My Earlier Thoughts On This Issue

In a previous post, which I titled, “Disrespecting the Middle Class with Taxation Policy” I noted:

“The new tax policy would deliver more than 50 percent of its benefits to the top 1 percent, according to an analysis by the nonpartisan Tax Policy Center (TPC). Meanwhile, America’s poorest families would get a tax benefit less than 1 percent growth in after-tax income. 

As an alternative to the new tax overhaul I provided some support for a plan proposed by Representative Ro Khanna.

Although I believe that plan, with a few additions that I suggested in my earlier post, would be distinctly better than the new tax overhaul plan, I actually am not satisfied with it. And so, after some thought, I am now putting forth for your consideration what I believe would be better.

A Tax Plan Respectful To All

Taxes On Organizations

Businesses and corporations would not pay taxes on their income. They would pay fees for any cost to the government when the operation of the organization exceeds typical usage. For example, the fracking industry utilizes such heavy equipment that transporting it breaks down the highways in the areas that they operate more quickly than average utilizers. The added cost to maintain the highways would be paid for by a fee.

Businesses and corporations purchase goods and services to run their enterprise. They would have to pay, in addition to any local and state sales tax, a new federal sales tax for such purchases (see below).

Taxes For Individual Citizens 

No one earning annually $100,000 or less would pay income tax. The loss of revenue to the government would be made up by a new federal sales tax on most goods and services, along with an increase in two types of taxes for the wealthy that I will soon describe.

Because some research indicates that a federal sales tax would hit the poor the hardest, to eliminate the unfairness of this, the following items would be tax exempt:

• Fresh fruits and vegetables
• Whole grains
• Used clothes
• Public transportation

The entire citizenry would benefit from not having a sales tax on those items. However, because the poor spend a much larger percentage of their income than wealthier citizens on just these items, the poor would get, proportionately, an increased benefit from these items being tax exempt.

For those who strongly believe that even the poor should pay at least some taxes, this plan respects that sentiment. It does so because the poor do purchase at least some of the items not tax exempt, such as soap, toothpaste, milk, etc.,Thus, they will make a financial contribution to the government’s revenues.

The US government has long supported a tax plan that encourages its citizens to purchase their own home by offering a reduction in taxes for those who have a mortgage. To continue this encouragement of home ownership, the tax proposal I am advocating for would make the first $100,000 of a home purchase tax free.

For citizens who have an income over $100,000 a year, there would be an income tax, which would be progressively higher depending on how much above that amount they make. For those who have an annual income of from $100,001 to $200,000 they would pay a 10% income tax just on their income that is over $100,000. For those in the $200,001 to $400,000 income bracket, 20% of their income would go to taxes. For each additional $200,000 of income a person makes, he or she would pay an additional 10% in income tax, until the maximum tax bracket is reached, which would be set at 50% for those who have an income that surpasses a million dollars a year.

Inheritance would be treated in a similar manner as income. For a daughter who inherits up to $100,000 from her parents, she would not have to pay any tax on it. If she inherits from $100,001 to 200,000 she would have to pay 10% tax just on the amount that is over $100,000. The amount of inheritance taxes for larger amounts would be progressively higher until the maximum bracket is reached at 50% for those inheriting over a million dollars.

The Benefits of the Plan

Note that this plan is a mere seven paragraphs. Pretty much everyone can easily understand it so there is no need for a bunch of tax experts doing some fancy expensive interpretation like they have to do with what’s in the current sixty thousand pages of IRS rules and regulations.

What are the benefits of this plan’s elimination of taxes on earnings of businesses and corporations? To begin with, as soon as a government begins to seek taxes from the earnings of organizations such as businesses and corporations, the organizations’ self interests lead to actions taken by incredibly well financed lobbyists. This consumes an enormous amount of our government representatives’ time. The plan I support would free up our representatives so they can work directly on doing what’s right for we, the people.

In manipulating the system, corporate lobbyists manage to embed incredibly complex formulas into the tax code to hide the various benefits to their organizations. Manipulations, such as establishing offshore companies, manage to successfully hide from the tax collectors. Savvy tax lawyers find one loophole after another. All of these efforts are financially costly to corporations and other businesses, wasting their resources, while having a negative effect on our economy as a whole.

Corporate profit taxes are also a sham, because much of what these organizations technically pay for taxes, lobbyists, and tax lawyers really end up being paid for by their consumers. This occurs in two ways.

First, taxes on the profits of organizations create the illusion that the citizens’ taxes are lower than they actually are, but corporations and other business organizations raise the price of their goods and services to cover much of the cost of their taxes. By doing so, they don’t have to fear that their competitors will end up having lower prices because the competitors also have to pay a similar amount of taxes. Said another way, all of them, together, raise their prices to cover the cost of dealing with taxes. Thus, when citizens pay for goods and services, they are actually paying much of the organizations’ income tax costs without realizing that their own tax burden is significantly higher than what the Internal Revenue Service takes out of their pay.

Second, when organizations do have a decrease in profits because of their income taxes, citizens who have retirement accounts, which typically are invested in various corporate stocks, end up with less savings. That reduction in savings is a cost to those citizens. So, this is another way citizens are indirectly paying some of the taxes that appears to be levied on the corporations they are invested in.

It is true that the wealthy get the biggest advantage when corporation taxes are cut. This is because although many Americans do own some stocks, the great bulk of stock value is held by a small, wealthy minority — 10 percent of the population owns 84 percent of the market. So there is some truth that cutting corporate taxes is basically a tax cut for the rich. But that cut in taxes helps both the rich and those middle class folks who also own stock. Wouldn’t it be better to come up with a plan that directly tax the rich at a level that seems reasonable without hurting the middle class? That is what my plan does. Yes, the rich would benefit most from eliminating tax on corporations, but the income tax on the rich, which my plan proposes, would directly effect the rich without hurting the middle class.

Let me add that many people are under the misconception that corporations pay a huge percentage of the needed federal revenues. With that impression, these people think that if we end taxes on corporate profits, individual citizens’ taxes would have to skyrocket. However, as the chart on the right indicates, prior to the new tax overhaul, corporate taxes covered about ten percent of all federal revenues. Now that that overall has been passed, it’s percent of all federal revenues is significantly less. Because my tax plan would have corporations paying a new federal sales tax on the goods and services that they purchase, plus the rich paying an increase in their income tax, there would be no loss in federal revenues from the elimination of taxing corporate profits.

Another benefit of my proposed tax plan is that the majority of citizens would find that figuring out their income tax burden would be enormously simplified. Once a year they would merely add up their income, notify the IRS what that amount is, and as long as it is not more than $100,000, they would be done. No more hiring a tax preparer, or spending hours pouring over tax receipts to figure out what can be written off and what can’t.

In the Yahoo Finance poll, many people indicated they objected to the new tax overhaul because it favors the wealthy over the middle and working class. The proposal I am advocating for would eliminate that concern because middle and working class people would not have to pay any income tax while the wealthy would. Additionally, the wealthy tend to buy more taxable items and utilize more taxable services, so they would be paying more taxes in this way as well.

Now, for those who feel that it is unfair to have the rich pay more in taxes than other segments of the population, I hasten to remind them of the nature of capital in the US and other capitalistic countries. Capital is property such as money, land, housing, and tools that people own that they do not require for their basic needs such as food, shelter, healthcare, and transportation to and from work. In our society, this type of capital can be uniquely used to gain more capital without the necessity to do any labor. Rather than labor, capital grows more capital via rental properties and interests from other types of investments. The way our society is structured, it is only the rich that have a significant amount of capital.

The phenomenon of capital eliminates the requirement for rich people to labor in order to pay for their basic needs. In fact, without labor their capital most often keeps increasing. So, even when the rich pay higher taxes then the middle class, they tend to live far more lavishly, only work if and when they want, and their capital continues to increase at no pains taken by them even if they were to pay 50% of their income in taxes. In fact, many rich folks who would fall into this 50% tax bracket would end up increasing their wealth yearly from just their capital far more than middle class folks earn from their labor their entire lifetime.

This aspect of capital, which benefits the rich far more than other segments of the population, provides one of the rationale that it is fair for the rich to pay more taxes than other segments of the population. There is a second reason. The vast amount of Americans earn less than $100,000 a year. When we put more money in their hands, they spend more. Therefore, the corporations and other businesses that the wealthy put their capital into thrive. The rich, along with the rest of our US citizens would do very well from this tax proposal.

Why did I choose 50% as the maximum tax bracket? Well, first I was influenced to some degree by Warren Buffett’s rule. The Buffett Rule is named after American investor Warren Buffett, who repeatedly stated that neither he, nor other wealthy rich people should pay less in federal taxes, as a portion of income, than the middle class, and voiced support for increased income taxes on the wealthy. How much of an increase? Currently the maximum tax on the wealthy is about 14%. Buffet believes that at a minimum the effective tax rate should be at least 30 percent.

After considering what Buffett has said on this topic, I then read Capital in the Twenty-First Century by economist Thomas Piketty. The book argues that the world today is moving towards an economy dominated by inherited wealth: the power of this economic class is increasing, creating a move away from democracy, and toward oligarchy. Said another way, we are moving toward a government of the rich, by the rich, for the rich. Some have argued that we have already become an oligarchy.

Piketty”s careful analysis argues that a progressive tax on both income and inheritance reaching a maximum of 80% would be required to adequately reduce inequality. At the same time, he recognizes the political difficulties of achieving this. I chose 50% as a number that perhaps is more reasonably achievable in the not too distant future.

I deduce this from what I observed in the last US presidential race. The anger from the younger generation when the issue of the imbalance of power that results from so much wealth being concentrated in the hands of so few was pretty obvious. So too was their enthusiastic support whenever proposals that would turn these inequities around were being trumpeted by the few candidates that dared to buck the establishment.

What does the establishment have to say about this? Representative Paul Ryan, Speaker of the House, criticized any increased taxes on the wealthy. He labeled it class warfare and also stated that it would negatively impact job creation and investment.

Paul Krugman, a New York Times columnist and Nobel Prize–winning economist, disagrees with Ryan’s assessment. Thus, he stated that “the economic record certainly doesn’t support the notion that [the current] superlow taxes on the superrich are the key to prosperity.” He backs this up with evidence like the fact that the U.S. economy added 11.5 million jobs during President Bill Clinton’s first term, when the capital gains tax rate was over 29 percent.

So, I’m thinking that this trend of the younger generation feeling so strongly about the current financial inequities may very well continue. If so, in time, as more and more of our youth reach voting age, we may see a new wave of voters backing policies consistent with Krugman’s well reasoned arguments.

Moving on, what about the concern expressed in the Yahoo poll about the new tax overhaul increasing the national debt? In my proposal, the sales tax would be set at a level that would be just high enough so all of the current government programs would be adequately funded while slowly reducing the national debt. How high a sales tax would that be?

It has been estimated that if no one paid income tax and the national government relied completely on a sales tax to fund all of its current programs, a 23% sales tax would provide ample revenues. Since the plan I am advocating for not only calls for a sales tax, but additionally, for a progressive income and inheritance tax, I am estimating that the sales tax would be considerably below the 23%–perhaps 8%.

If this 8% figure seems like a large sum to you, I encourage you to keep in mind that for most people this tax would be offset by Americans taking home more pay because they won’t have any income tax taken out of their paycheck. Moreover, corporations and other businesses would be able to sell their products and services at a significantly lower cost because of the elimination of their tax expenses. Under the new US tax overhaul, the corporate tax rate is 21%. With what I am proposing, it would be 0%. As long as there is real competition in the marketplace, corporations will be forced to pass on at least some of their 21% savings in taxes to their customers, thereby leading to citizens ending up paying a total amount that is less per sale even with an 8% sales tax.

So, in summary, when this reduction in the tagged price of the item is figured in along with the increase in most citizen’s take home pay, customers would end up paying significantly less than an 8% increase per purchase, and for middle class folks, they will save a substantial amount of money. Finally, for a family going through hard times, its members could rely on several tax exempt items to significantly reduce their total tax contribution while still having access to nourishment, clothing, and public transportation.

Concluding Remarks

Well, that’s my proposal for a better taxation policy than the new tax overhaul. I know some people, because of my views will try to paint me as a communist or a complete socialist. If the truth be told, I’m not either one.

The US economic system is currently a mixture of capitalism and socialism. Its capitalism is reflected by its numerous privately owned businesses and corporations. Its socialism is reflected by its public schools, libraries, and such programs as Social Security, Medicare, and Medicaid. I am not proposing anything that is a revolutionary departure of this mix, but rather, just a more respectful balance within this system.

The proposal respectfully provides something for the rich in that they have long advocated for the elimination of taxes on profits of businesses and corporations. My proposal does this. Additionally, my proposal respectfully provides something for middle class folks by structuring the economy in a manner so they receive a larger share of the nation’s wealth. The proposal respectfully provides for folks currently living in poverty as it continues funding for the US safety net programs, while also giving several tax exemptions on items that they pay a large proportion of their income on.

Many wealthy folks have been speaking up against the current imbalance of wealth in our nation. And many middle class folks have, because of the resentment they feel, been talking about the rich in the most disrespectful manner, while passing around on the internet images of them being big fat greedy folks.

The rich, middle class, and poor are all fellow Americans. To further the respect we all have for one another, I’m throwing out this tax proposal in the hopes it stimulates thoughtful consideration. As always, I encourage comments, whether they be positive or negative.

In closing, I wish for you all that our fresh new spring fills your days with beautiful delights.