My Proposed Fix for the US Tax System

I think we can all agree that our current tax system in the United States is broken and in desperate need of repair. In light of this, a friend and I had a discussion over some brews about ways to fix it while ensuring that everyone pays their fair share but still brings in essential revenue. While the scenario of a “flat tax” was raised, we determined it to be unfair to those of low income while being too lenient on those of high income. So we devised a system which incorporates aspects of both our current system and a flat tax system.

First of all, we proposed to eliminate ALL deductions and ALL exemption. That immediately closes all loopholes with exception to falsely reporting your income. Second, we eliminated FICA, which consequently shuts down Medicare and Social Security. Now before you get your panties in a bunch we would also require all employers to offer the option of Health Savings Accounts and Retirement Savings Accounts to their employees (which are NOT governed by the stock market so you can’t lose your savings if the market crashes like so many did recently). This would put the responsibility of saving for your future solely on you and not the government. Then each individual or household would be placed into a bracket depending on their total income as follows:

$0 - $25,000 = 0% Income Tax (min = $0 / max = $0)

$25,001 - $50,000 = 2.5% Income Tax (min = $625 / max = $1,250)

$50,001 - $75,000 = 5% Income Tax (min = $2,500 / max = $3,750)

$75,001 - $100,000 = 7.5% Income Tax (min = $5,625 / max = $7,500)

$100,001 – $150,000 = 10% Income Tax (min = $10,000 / max = $15,000)

$150,001 - $250,000 = 15% Income Tax (min = $22,500 / max = $37,500)

$250,001 - $500,000 = 20% Income Tax (min = $50,000 / max = $100,000)

$500,001 - $1,000,000 = 25% Income Tax (min = $125,000 / max = $250,000)

$1,000,000 – Greater = 30% Income Tax (min = $300,000 / max = unlimited)

It’s not perfect as a lot of minor details are left out, but it’s simple and it’s fair. Also, this is for personal income, not corporate, but a system similar to this can be applied just as easily. Neither my friend nor I am tax professional so our comprehensive understanding of our current system is limited to our annual interaction with the IRS, therefore I’m putting this out there for everyone to discuss in hopes of gaining some useful insight as well as outline the Pro’s and Con’s of this. I’m curious to the general consensus.

Please, I ask that you keep this conversation civil. If you disagree, there is no need for ridicule. Exercise maturity.

Good post, I think its a step towards the right direction...

BUT... I say get rid of the whole tax thing... Are we really being represented here? I tend to think not, and it just supports the immoral and illegal wars... State tax isnt a bad idea, but federal... meh... The fed govt has gotten way too big... and will only continue to grow if we keep feeding the monster...

Most bad government has grown out of too much government. - Thomas Jefferson

reply to post by amaster


Not to be an ass but I've got a better solution....get rid of income tax altogether!! While you are at it, get rid of property tax too. Both taxes are specifically designed to erode liberty...period!

Without tax, the US would fall. That simple. So would every other state out there. So unless you feel like dealing with your own sewage, having no fresh water supply, or electricity, I suggest you pay your taxes and contribute to society.

That said...

Your suggestion has some serious flaws in it, OP. You've failed to account for the fact that the vast majority of the US population would fall into, under your scheme, a 5% tax rate. That's roughly 20% LESS than the current taxation rate...

which would essentially equate to complete and utter economic collapse for the entire state.
Sorry 'bout that.

Originally posted by budaruskie
reply to post by amaster

 

Not to be an ass but I've got a better solution....get rid of income tax altogether!! While you are at it, get rid of property tax too. Both taxes are specifically designed to erode liberty...period!

Right on!! I also think we should get rid of all the "sin"/specialty taxes (smokes, gas, etc.).

One problem is in the way the tax brackets are calculated individually instead of sequentially. For example, someone on $50 000 pays $1250 while someone on $50 001 pays $2500. That single extra dollar that a person earns in a year ends up costing them an extra $1250. This is problematic and creates a lot of frustration. A better way to structure it is for each income bracket to have its own tax rate, which you have, but the higher income rates extend on the lower income rates. So:

$0 - $25,000 = 0% Income Tax (min = $0 / max = $0)

$25,001 - $50,000 = 2.5% Income Tax (min = $0 / max = $625)

$50,001 - $75,000 = 5% Income Tax (min = $625 / max = $1875)

$75,001 - $100,000 = 7.5% Income Tax (min = $1875 / max = $3750)

$100,001 – $150,000 = 10% Income Tax (min = $3750 / max = $8750)

$150,001 - $250,000 = 15% Income Tax (min = $8750 / max = $23 750)

$250,001 - $500,000 = 20% Income Tax (min = $23 750 / max = $73 750)

$500,001 - $1,000,000 = 25% Income Tax (min = $73 750 / max = $198 750)

$1,000,000 – Greater = 30% Income Tax (min = $198 750 / max = unlimited)

This creates a much smoother and fairer curve in the way tax is applied. For an example on how to calculate it, lets say you made 80 000

On the first 25 000 you pay no tax.
On the next 25 000 to 50 000 you pay $625 (25K @ 2.5%)
On the next 50 000 to 75 000 you pay $1250 (25K @ 5%)
On the last 75 000 to 80 000 you pay $375 (5K @ 7.5%)

Total tax = $2250

As for the actual brackets and the rate that is applied it does take a lot of modelling and negotiation, but it is a good start.