posted on Aug, 13 2012 @ 11:12 PM
First I have been the top tax executive at a U.S. multinational for many years and do this for a living. Some of you will probably hate me for that.
But, at least I have given this a lot of thought over the years. Lots of interesting comments here.
Second, no one in this thread has discussed the spend side of the equation. At some point, the government either needs to collect sufficient taxes to
pay for its spending or print sufficient money to do so. Absent that, once the debt to GDP ratio hits approximately 120%, country economies have
typically collapsed into mass inflation, Roman Empire, Germany WWI, Brazil 1980s, Argentina 1990s are examples, etc. Guess what, mass inflation
negatively hurts the poor worse than the rich. So getting there is not a good idea for anyone.
As it stands now in this country, individuals who earn $50,000 or less pay virtually no taxes except FICA taxes. Between $50,000 - $100,000, some
taxes, but, the rates are still pretty low. The bulk of the tax burden at high rates is shouldered by individuals making between $100,000 to
$500,000. Those numbers may sound like you are rich, but, if you lose 40% or more to taxes each year, the amount left to save is not so much. Those
making more than that can often shelter their income from higher rates of taxation via the methods indicated by other posters, i.e. lower taxes on
The real issue is how to strike a fair balance between taxing earned (wage) income, v. investment (interest, dividends) that colllects sufficient
revenue for a properly sized government. The so called fair tax doesn't do that as it only taxes consumption and the poor spend virtually all their
income on consumption, while the rich spend a very low percentage. That shifts the tax burden on the rich to nearly 0%.
A fairer system would be something like this. Provide an exemption for each family member equal to $10,000. Eliminate itemized deductions. Allow
tax deductible IRAs/401(k)s up to $20,000 annually per spouse with distributions from these plans also being tax free upon distribution. That will
encourage savings. Tax all remaining income at a rate of 20% irrespective of character, i.e. wages, interest, dividends etc. I would eliminate tax
preferences such as muni interest, CSV life insure, annuity tax free income build-up etc. Those are huge shelters for the rich.
Here is a loophole that many richuse. Take your after-tax saving you don't need until retirement, contribute it to an annuity. At age 62, you can
distribute the annuity like an IRA when the funds are needed rather than annuitizing it and pay taxes at likely a lower rate since your income is
likely to be lower. There is no limit on the amount that can be contributed. If you are super rich like Bill Gates, you set-up your own foundation,
deduct the contributions to it, travel around the world doing things you would do anyway, make sure the foundation is employing your family members
and effectively paying tax on only 50% of your income since 50% is the contribution limit. That is how the super rich are moving their rates down
from 15% to 7.5%.
With respect to corporations, I would eliminate tax on corporations as long as they distributed 50% of their income annually to shareholders.
Exceptions would be made for investment in capital equipment in the U.S. Offshore income would be treated as distributed to the U.S. annually each
year would therefore have to be distributed each year. Failure to meet the tests at the corporate level would result in a 50% tax on income not
distributed or not reinvested into the U.S.
There, that should send me to the unemployment line, stimulate investment in the U.S., allow individuals to save for retirement, allow the very poor
to essentially pay no taxes and everyone else to pay at a reasonably low rate. It would also force corporations to pay their cash hords out or
reinvest in the U.S. while virtually forcing them to bring offshore earnings back into the U.S. I don't think you can make it too much simpler than