The Ten Percent Flat Tax

[Turd Ferguson]

The Ten Percent Flat Tax

The present tax system is unfair.

The most serious fault with our present income tax system is that it has so grossly unfair. Only half of our nations income sources are being taxed so that the other half pays no taxes whatever. Our gross domestic product (GDP) was over 7.2 trillion dollars in 1996 .(1). Our present income tax system collects only 735 billion dollars or about 10% of our nations income (1). But IRS statistics show that the middel income workers pay average tax return contribution rate is 18% and a marginal tax rate of 28% of taxable income(2). This means that our present tax base (taxable income) is slightly less than half of total income or GDP. Middle income wage earners are paying 18% instead of 10.2% so that others can pay nothing, zip, zero! If all income producing sources were taxed at a single unitary tax rate of 10% the federal government would collect more in taxes than it does now and every one would pay his fair share of taxes. The Ten Percent Flat Tax would be much easier to administer because all income producing business transactions could be taxed at their source without regard to who the recipient might or might not be. At the end of the year, no private citizen would ever again owe the IRS even one penny more on his wages, his dividends, or his interest. No citizen who worked for wages would ever again have to file a federal income tax return. Only those citizens with income property and businesses would file income tax returns. The IRS would no longer process over 100 million individual tax returns, but would only have to process 10 million business returns. Hundreds of thousands of IRS agents and tax accountants would then be free to live useful and productive lives. A summary of the ten percent flat tax.

All real income will be taxed once at a flat rate of 10%. There will be no deductions or exemptions of any kind. There will be no tax credits of any kind. The value of all benefits will be taxed. This includes welfare, health insurance premiums , pension plan contributions, company cars, etc. Taxes will be collected by businesses. Individuals will no longer file income tax returns.· Interest will be taxed at a rate of 5% in lieu of indexing for inflation. Dividends will be taxed at 10% but will be a deductible business expense. Short term capital gains will be taxed at 10% Long term capital gains will be taxed at 5% Estate taxes will be a flat 10%. A tariff of 10% will be imposed on all imports. The Minimum wage will be increased to compensate for taxation on minimum wage workers and their loss of welfare benefits. Health care insurance premiums will count toward meeting the minimum wage. Depreciation and interest expense will no longer be allowed.·

Part A. Taxes on personal income

1. Wages and earned income will be taxed at a flat rate of 10 % starting with the first dollar earned. The taxes will be withheld from the workers paycheck and the money remitted to the IRS just as is done today. A W-2 form will be supplied to the worker but since all taxes due will have been paid, the worker need not file an income tax report.

2.Health insurance premiums paid by the employer will be subject to the

10% tax. The employer will deduct 10% of the premium value paid on the workers behalf from the employees pay check. The taxes will be remitted by the employer to the IRS.

3 Pension plan premiums paid by the employer will be subject to the 10% tax. The employer will deduct 10% of the premium value paid on the workers behalf from the employees pay check. The taxes will be remitted by the employer to the IRS.

4.Company Cars, housing allowances, and other company perks will be subject to the 10% tax. The employer will deduct 10% of the value of such perks from the workers pay check. The taxes will be remitted by the employer to the IRS.

1. Interest received from banks, savings and loans, government bonds and other financial instruments will be subject to a 5% tax. The financial institution will deduct 5% from all interest distributions and remit the tax to the IRS. The tax rate of 5% instead of 10% is imposed because inflation reduces the value of savings by about ½ the going interest rate.

6 Dividends received on corporate stocks will be taxed at 10%. The corporation will withhold 10% from all dividend distributions and remit the tax to the IRS. Dividends will be a deductible business expense. We will no longer have double taxation of dividends.

1. Short Term Capital Gains will be taxed at a rate of 10%. The brokerage house or the escrow department will remit 10% of the short term capital gains on the sale or exchange of property to the IRS. Short term is any asset held less than seven years.

2. Long term capital gains will be taxed at a rate of 5%. The brokerage house or the escrow department will remit 5% of the long term capital gain on the sale or exchange of property to the IRS. We define "Long Term" as any asset held for seven years or longer. The tax rate on long term capital gains is 5% to compensate for the devaluation of the dollar due to ever present inflation. A more precise alternative would be to index all capital assets for inflation. But I believe that the 5% rate after seven years accomplishes this objective and is much less subject to debate.

1. No deduction or tax credit of any kind will be allowed for any interest paid for any reason or purpose.

2. No other deductions or exemption will be allowed for any reason.

1. Estate taxes will be a flat 10%. There will be no exemptions or deductions of any kind. This tax will start at the first penny of inheritance. Part B . Taxes on business

2. All net profits will be subject to a 10% tax.

1. Interest paid will no longer be a deductible expense. Companies built with sweat equity and money equity will no longer suffer discrimination relative to companies built on borrowed money.

2. Depreciation will no longer be a deductible expense.

1. Losses will no longer be carried forward. Profits will be determined year to year.

2. Losses will no longer be transferred from one company to another.

1. Dividends paid out will be a deductible expense. No more double taxation of dividends.

2. Executive salaries. Any salary in excess of 200,000 dollar per year ( the salary of the president of the United States) will be declared excessive. That portion of the salary in excess of 200,000 dollars will be subject to a 10% surcharge and paid by the corporation. Some may argue that an excessive salary tax is not fair or flat. But there is a real problem with CEO and other high paid executives taking obscene salaries and perks while the owners of the companies, the stock holders get next to nothing in dividends. Let these wizz kids get their extra bonus out of dividends like the owners and investors in the companies.

1. Company Cars. The value of any company car provided to an employee by a company will be subject to a 10% tax. This tax will be withheld from the employees pay check and the tax remitted to the IRS by the company. The same rule shall apply to any other company perk like company housing, paid vacation trips, or any other perk. Part C. Taxes on the Working Poor.

federal transfer payments and tax forgiveness of low wage workers amount to a negative income tax in the order of 150 billion dollare each year. This loss to the federal treasury is almost 20% of total income tax revenues. If this drain on our treasury is not stopped we will not be able to have a balanced budget with a 10% flat tax but would have to increase the rate to about 13%. We are not talking about unemployed here. We are talking about people working for substandard wages. If all our workers earned a living wage these government handouts would be unnecessary.

1.The ten percent income tax shall be levied on all earned income no matter how small. The income tax shall start with the first penny earned and will finish with the last penny earned. We acknowledge that the present minimum wage is not a living wage and that we cannot expect any worker making the present minimum wage to pay this tax. But we must insist that all citizens pay their fair share to support our government. For this reason we demand that the minimum wage be increased by $0.50 per hour each year over the next five years as this ten percent flat tax is instituted. For the first year that the flat tax is instituted the minimum wage increase will just keep up with the tax increase so the minimum wage worker will just break even. For that reason we will not start dismantling the earned income credits until the third year. All earned income tax credits will be completely phased out over the third, fourth and fifth year of the ten percent flat tax plan. All food stamps and housing assistance for the working poor will be phased out over the first five years of the flat tax plan.

Part D. Tariffs and Most Favored Nations

All work has dignity and therefore all workers deserve a living wage. We must recognize that we live in a global economy where transport over intercontinental distances is no longer expensive. We must also recognize that in many countries child labor, slave labor, and prison labor are commonplace. These same countries have very low or non existent minimum wage laws, fair labor standards, and no workman compensation system. If our companies have to compete in a price war with competitors in these countries we will loose even more good jobs. Our workers need protection from these unfair competitors. We do not mean to stifle honest competition but we do need to even the playing field.

1. All nations having most favored nation trading status with the United States will have a flat Tariff of 10% levied on all goods of any kind and description coming into our country.

1. No nation will be granted most favored nation status if its negative trade balance with the United States exceeds ten percent in the past calendar year.

2. Nations such as China an Japan who do not meet this criterion will have an additional 10 percent duty or a total tariff of 20% on all goods of any kind and description. Part E. Examples of the 10% flat tax on various classes of individuals as defined by the Kathy Kristol article in the Los Angeles times. I have added the 10% column for comparison.

Kathy Kristol publihed an income tax chart in the Los Angeles Times showing winners and loosers if the Forbes 17% tax plan were inacted into law. Her argument was that the forbes plan was unfair because the more wealty of our citizens would get the largest tax break. She failed to point out the obvious inequality in both the present tax scheme and the forbes plan. Both plans are unfair because people with identical incomes pay vastly different taxes. I used her data for the present system and for the forbes plan. I the applied my tax plan to these hypothtetical individuals. the results are shown below. In my plan all taxes are equal except for small differences for the retired people who happen to receive their income from dividends, interest, and capital gains instead of wages. I do not want to defend how typical each of these particular groups is or is not. The important thing is that people and famillies with equal income do not pay the same taxes..this in not fair in my judgment. Classification Gross Income Present Tax 17% Tax Plan 10% Tax Plan Single- Renter $30,500 $3,713 $3,320 $3,050 Single Home Owner $30,500 $3,158 $3,230 $3,050 Single- Retired $30,500 $3,713 $4,500 $3,050 Married no kids Renter $61,000 $7,235 $6,460 $6,100 Married no kids home owner $61,000 $5,404 $6,460 $6,100 Married no kids retired $61,000 $7,235 ZERO $6,100 Married,2 kids renter $61,000 $6484 $4,760 $6,100 Married, 2 kids home owner $61,000 $3,904 $4.760 $6,100 Married retired no mortgage $61,000 $7,235 ZERO $6,100 Married 2 kids renter $230,000 $54,561 $20,060 $22,250 Married 2 kids Home owner $230,000 $45,553 $20,060 $22,250 Married Retired no mortgage $230,000 $54,561 $49,801 $20,000 Part F. Taxes collected in the year 1993 in billions of dollars.(1) Income Category Tax Base Taxes Collected Ave. Tax Rate Personal income $5,429 $509.7 9.4% Social Security $2,940 $214.2 7.3% Excise Taxes $500 $48.1 9.6% Estate Taxes $50.4 $12.6 25% Total personal taxes $5,429 $784.6 14.5% Business Taxes Tax Base Taxes collected Ave. Tax Rate Income taxes $467.3 $117.5 25.1% Social Security $2,940 $214.2 7.3% Customs Duties $500 $18.8 3.8% Fed Reserve Deposits $500 $14.9 3% Total business taxes $4,407 $365.4 8% Total of all Taxes $6,358 $1,150 18.1%

Part G. Taxes that would have been collected in 1993 if we had the 10% flat tax.(3) Income category Tax Base Tax Collected Ave. Tax Rate Personal income $2,940 $294.2 10% Social Security $2,940 $214.2 7.3% Interest $695 $34.8 5% Dividends $158 $15.8 10% Self Employment $722 $72.2 10% Health and Pensions $585 $58.5 10% Gov. Transfer payments $890 $89 10% Total Individual Taxes $5,990 $778.7 13% Corporate profits $467 $46.7 10% Corporate Dividends $158 zero zero Business interest $695 69.5 10% Depreciation $671 67.1 10% Social Security $2,940 $214.2 7.3% Customs Duties $500 $50 10% Fed Reserve Deposits $500 $14.9 3% Total corporate taxes $5990 $462.4 7.5% Total of all tax receipts $6,358 $1,241.1 19.5%

[Ed Pawlowski]

Steve? Steve Forbes, is that you? Still trying?

Makes sense but I doubt it would be seriously considered by Congress.

[invalid unparseable]

Yes, but a 10% flat tax would be even more unfair given that the bottom HALF of tax payers currently pay no federal income tax.

Yes,

The GDP isn't the nation's income.

But given that the bottom half of taxpayers pay no federal income tax, those numbers are very misleading.

The GDP isn't the nation's income.

No they are not given that given that the bottom half of taxpayers pay no federal income tax

It clearly isnt the middle income earners that are paying for that.

It makes no sense to be taxing those whose entire income is benefit/welfare, because that isnt money they earn, its just shuffling money from one govt pile to anther.

And makes no sense to be taxing those whose entire income is a single minimum wage which is so low that it is very hard to exist on that level of income either.

That?s very arguable indeed and you only get that result by assuming that GDP is national income and it isnt. Much of the national GDP isnt actually income at all, most obviously with unpaid work.

That?s wrong too. You can make a good case that it?s a lot fairer for those with very high incomes to pay more than just 10% of their income in tax and to not grab 10% of the income of those whose entire income is the minimum wage or even lower with those who are forced by their circumstances to no even get the legal minimum wage.

Yes,

It doesn?t work like that with business income.

That?s not right either with income they receive from other than their wages, like casual work.

That?s not right either with those whose income is casual work.

Wrong with casual work.

< The IRS would no longer process over 100

Wrong again.

Or have no paid work.

Just not feasible with business income.

Just not feasible with business income.

Makes no sense at all.

Doesn?t work with casual work.

They would have to with casual work.

Nothing fair about that.

And that would require a tax return.

Makes no sense at all.

You are mangling sales taxes with income taxes.

Pity about those on just a bit more than the minimum wage.

That is completely mad.

<none of the rest of this worth bothering with>

[invalid unparseable]

No it does not.

[Ed Pawlowski]

With some modification it does. IIRC the original Forbes plan had some minimum before you paid anything. You can have it graduated to a certain income level but eliminate all the other deductions. Could be greatly simplified and be about 10 lines on a sheet of paper.

[invalid unparseable]

No flat rate income tax ever does. It makes no sense at all to be taxing those whose entire income is the US minimum wage or lower at the same rate as someone with a very high professional income.

And the rate would have to be a lot higher than

10% to collect the same total amount of money too.

Then it isnt a flat rate income tax and it still makes no sense to be taxing those on the lowest incomes that have to pay that rate at the same rate as those who are receiving a very high professional income or those like sports fools or film 'stars' etc on a very high income.

And there is a massive problem with the step between not enough income to pay any income tax and the much higher flat rate.

That makes no sense either with those who have a very high cost of producing their income like quite a bit of small business. The high cost of producing that income has to be a deduction so that it is only net income which is taxed.

And it is impossible to only tax what is real income with investments which have capital gain which is in fact just inflation.

And it is grossly unfair that someone who has no real income at all but owns a high value property should be taxed on the increased value of the property so they have to sell that to pay the tax with those whose entire income is SS,

But would be grossly unfair to those on lower incomes.

There is a reason that no jurisdiction world wide has a universal flat rate income tax

[Ed Pawlowski]

You seem to be making this far more complex. Owning a high value property is not income. You can't spend it, it is just a paper higher value. Tax would be on wages. not holdings.

Not if properly structured. No tax on the first $xxx. See how simple? Very simplified but like this: A person earning say, $20,000 would pay no tax, a person earning $200,000 would only pay on $180,000

Most are far simpler than the US tax code.

[Dan Espen]

A flat tax except that there is one bracket for poverty level income. So, similar to our current multi-bracket tax code except the really high income earners get a huge tax cut.

Sounds like a great plan for me. I'm retired but 10% would still be a large tax cut for me.

No, really sounds off the charts stupid. A typical example of a simple mind attacking a complex problem and claiming victory.

[trader_4]

And the below in the details, long term capital gains and interest income get what amounts to a 50% tax exemption. Go figure.

That's a huge tax INCREASE, as most estates today have no federal estate tax, only estates over $11+ mil.

So now it's not just an income tax.

Another sign this is half baked. Taxing poor people's healthcare insurance?

Now it's gone totally stupid. Depreciation and interest expenses are as real as the cost of good sold, labor or the electric bill.

Another half baked idea. Taxing people today on money they will not see for twenty or fifty years.

Some kind of fetish here and total misunderstanding of interest

Nice, so a son inherits the family home worth $300K and now he suddenly owes $30K in tax? How is he supposed to pay that? Or a farmer's children inherit a farm, they have to sell it to pay the tax. This is as stupid as it gets.

Like I said, someone here has an interest fetish.

And an ignorance of basic accounting.

Totally unfair and illogical. If a business has an extraordinary event that results in a loss, they should be allowed to carry it forward.

Another example of how ignorant and half-baked this is. The president's salary is twice that.

will

So again, it's not a flat tax, there are exemptions, surcharges.

and paid by the corporation. Some may

The personal use of a company vehicle is already taxed.

This tax will be withheld from

Typical. The thought of a balanced budget only comes up when it comes to reducing payments to the poor.

with a 10% flat tax but would have to

And they will retaliate with a tariff of 10% on our goods.

Exceeds ten percent of what?

Can you spell half-baked?

[Ed Pawlowski]

You don't have to give the high income earners a break. That is the advantage is you eliminate a lot of deductions that only the wealthy take advantage of. A complete restructuring of the crappy code as now written with lots of loopholes.

The downside is you'd put some accountants and layers out of business because they would not be needed.

[Dan Espen]

Well, I'm all for taxing capital gains the same as income but a certain political party has worked so hard against that. (Even though that would also increase my taxes.)

The estate tax is complicated, but the free ride the rich get now at the federal level is ridiculous. Again, one particular political party is responsible.

None of these rules were put in place to benefit the accountants and lawyers. More likely, they benefited someones chances of getting reelected.

Still, I hold to my basic premise. If someone tells you they have a simple solution to a complex problem, they most likely have no clue what they are talking about.

[gfretwell]

Forbes also made that tax around 19% after that threshold to get to being revenue neutral. I think the OP is talking about a VAT tho.

[Ed Pawlowski]

So do you think the answer to the complex problem is to make it more complex? That is how we got to this point.

The entire tax code has to be tossed. Start with what income is taxable. Get rid of loopholes and many deductions. Should there be a national sales tax? VAT tax? Don't even think about a wealth tax.

No matter how good a plan would be, you won't get Congress to approve it.

[Scott Lurndal]

Don't pay attention to the Turd. He knows not of what he writes.

Everybody in the USA pays taxes. Every day. Sales taxes, property taxes (as part of rent if renting), excise taxes, communication taxes, cable taxes, fuel taxes, and so forth.

[invalid unparseable]

We'll see,.,,

The capital gain on it is if there are no exemptions or deductions.

That wont work either because the capital gain on stocks which don?t pay a dividend wouldn?t be taxed and that is again grossly unfair. Same with real estate where some choose to produce their income from the capital gain, not the rent.

That?s not a flat tax, that?s a normal income tax with just one tax rate when the income is over a particular value. And there is a massive problem when the income increases so you are just over the income at which you have to pay income tax and have to do that on your entire income.

That?s not a flat tax, that?s a normal income tax with just one tax rate when the income is over a particular value.

Irrelevant to whether a flat rate income tax is viable. And you are wrong about the far simpler claim too.

[invalid unparseable]

That?s automatic when the flat rate is much lower than the net rate that they currently pay. And you savagely penalise those who don?t currently pay any federal income tax, HALF the tax payers.

That?s bullshit too. There arent any that only the wealthy take advantage of. The reason that HALF pay no federal income tax is because they are taking advantage of the deductions available to them and it isnt the wealthy doing that either.

And a much worse result for everyone except those on very high incomes.

And an utterly obscene result for those on the lowest income and those that inherit properly or businesses. They will mostly have to sell up what the inherited to pay the income tax.

And that will have to be a lot more than 10% to recover as much as is currently collected.

That isnt the only downside.

[gfretwell]

You must be a very well off retiree. Even at $100,000 a year, righteous bucks in retirement your tax would only be ~11% taking the standard deduction and that does not include the 15% deduction you get for SS. If your pension and SS is over $100k, stop bitching and pay your tax.

[gfretwell]

Since Cap Gains are only 15% now and for most mortals dividends are free, it is not much change. That is particularly true of the Forbes plan that set the rate around 19%.

Most of this 10% plan is just silly.

[gfretwell]

True. Every deduction and loophole has a lobby behind it throwing money at congress to keep it going. Love it or hate it the 1986 tax cut also closed a whole lot of loopholes. They ended up being somewhat revenue neutral and depending on where their money was, the rich might have actually paid more. Unfortunately most of the cuts since have not tried to do that. The loopholes remain and some got bigger.

[gfretwell]

True, we spend way too much time obsessing on the income tax while the hidden taxes keep chewing away at our money. One of the most egregious is that corporate tax you liberals love. That shows up in the prices everyone pays, including the very poor. It is just a VAT.