Tax Day in the US is “late” this year because the 15th of April was a Sunday.
I was able to prepare and file my taxes early-ish (January) thanks to a proactive employer who got our W2s out quickly.
Every month I look at my pay stub, and am appalled at how much the various governmental agencies claim is “theirs” of MY worked-for pay:
- 11.3% – Federal
- 4.7% – State
- 3.8% – Social Security
- 2.3% – Lexington-Fayette
- 1.3% – Medicare
- .5% – Fayette County
- 23.9% total taxes claimed
And it’s only that “low” because I participate in (completely legal) programs to reduce my taxable income (401(k), FSA, etc which reduce my taxable income by about 12%).
We have not yet added-in the state and local sales taxes that are claimed, nor the federal, state, and local fuel taxes (over and above sales taxes in most states). Currently I am not a home owner, but when that eventually changes, I’ll be paying property taxes – a fee to the city/county for the privilege of living there!
Of my take-home pay, if I spend $2000 per month on “stuff” (groceries, eating out, gas, shopping, whatever), about 7% of that is going to the tax coffers of the county and state (and maybe city, depending on where you live). 7% of $2000 is $131 (or if you want to add 7% on top of the $2000, it’s an additional $140).
I am a proponent of pay-as-you-go – in all areas of life: if I want to make use of something that belongs to someone else, or that is maintained by the “people” (eg roads), I do not at all mind paying for that opportunity.
However, I despise double-dipping and multiple-paying on the same service/product. A prime example is the concept of a toll road: if the road is owned/operated by the “government” (which is really the people, but with a delegated responsibility to maintain the facilities), it makes sense to me that it should cost something to have to take care of that road. However, if the government wants to charge a toll for a road, then it must eliminate the fuel tax that every driver pays: by charging a toll and a fuel tax, drivers have double-paid for the privilege of using the road.
Double-dipping affects all consumers in every other purchase they make as well because corporations are charged taxes on their income, and since businesses are in business to make money, they have to cover that cost from somewhere, which means it comes from their customers.
Several years ago I wrote a paper on implementing a flat tax in the United States. In the intervening years, I have become convinced that the premise on which I wrote that paper is not the best (ie, taxing income), but that it was a solid start in the Right Direction™.
What needs to be done instead is far simpler, and would in the process also eliminate the need for most of the IRS, and give substantially more power directly to the people over the direction their government takes.
Abandon the concept of an income tax entirely.
Eliminate taxation on gifts (including estates). Eliminate the “special” Medicare and Social Security taxes.
Implement a flat sales (or “consumption”) tax on all non-food purchases in the country.
One of the beauties of the sales tax is that everyone pays it – whether you are “rich” or “poor”, it is equally, and fairly applied to all – and it’s shown every day on transactions around the country: you buy a $20000 car, you pay $1400 in sales tax. You buy a $40000 car, you pay $2800 in sales tax. That’s a simple, easy-to-understand model, and one that everyone can follow straightforwardly.
According to Wikipedia, in 2007 total tax receipts (income, employment, corporate, excise, gift, estate) to the Federal government was just under $2.7 trillion. That’s trillion – with a “t”. According to this site, total personal income in the US in 2010 was $12.3 trillion (in 2007 it was $11.9 trillion)*.
IF every American who earned an income paid a flat tax on that income (with no deductions, no special categories, no “loopholes”, etc) of 23%, that would *completely* cover the tax receipts of the Federal government. That would be a simple solution – if it wasn’t for what one of my favorite entertainers said:
The income tax has made more liars out of the American people than golf has. –Will Rogers
Let’s end that lying now.
In 2011, the US spent $10.9 trillion. Subtract out non-durable goods for the moment (a quick way to distinguish food out of the mix, though I’m sure people didn’t spend $2.5 trillion on food^). That brings us down to $8.4 trillion.If every person who bought something new in the US paid a sales tax of 37%, that would more than cover the tax receipts of the Federal government. With the far more probable $0.5 trillion spent on food at home, that gives $10.4 trillion spent. A sales tax rate of %26 would cover the Federal tax receipts.
Businesses already collect sales tax. Collecting a different rate is simple.
If the “average” citizen saw that on top of his $10 meal at Applebee’s he needed to pay $2.60 in taxes, it might help him budget better. It’s certainly more transparent – and easier to track.
Yes, it would put all kinds of tax attorneys, accountants, and the like out of work – but it would also mean that folks wouldn’t have to spend hundreds of millions and billions of dollars per year to worry about their taxes: pay when you buy. It’s really that simple.
Eliminate the overt, unnecessary complexity of our tax code, and make it the simplest to understand and comply-with in the world.
Oh, and make the US an enviable target for corporations wanting to headquarter/operate here: no taxes on business income would be a clarion call to start/operate here.
*See bea.gov/newsreleases/national/pi/2012/pdf/pi0212.pdf for more recent numbers
^according to creditloan.com/infographics/how-the-average-consumer-spends-their-paycheck, the average 2.5 person household spends $3750 per year on food at home (untaxable in my plan); there are 325 million people in the US; that’s 130 million households and $487.5 billion (just under $0.5 trillion)