The "Simple, Fair & Flat" Tax. -Part One

     These three characteristics for funding our country are essential: Simple, Fare and Flat!

     A Simple Tax system would be difficult to manipulate and cheat. Keeping it simple will stop politicians from using the tax laws to favor special interest groups. The entire Tax Code should be a few pages long.

      Fair Taxation is needed, everyone contributes, we've all "got skin in the game" and the best way to do that is through an End-user Sales Tax. Not the Value-added Tax (VAT). That's for later, I'll address that in Part Two.

     There may be a need to address Tariffs, Duty / Import Fees, but not now maybe in Part Two.

     Let me explain the Flat Tax aspect first:
    What I'm proposing is a Flat Rate Income Tax for all taxpayers from "Par and up", Par being an index that represents the average income for American workers. Par is determined by statistical analysis from previous completed years. So, the average income from 2009 would determine Par for 2011. A  Top Rate of 10% from that level and up. The biblical and historical concept of the Tithe just seems "right", Ten Percent, so I'm going with that throughout my proposed system. Also we all benefit from the commercial environment that the government creates, maintains and protects, where we can find employment and earn our living. I think that service has value and 10% is a reasonable commission.

     Here's an example:

     Joe grosses $52k per year, that's $1000 per week. His employer, Jack, gives him a paycheck for the full amount. Jack reports to the IRS what he paid Joe, nothing is deducted before paying his employee. 

     Joe can take up to 10% of his paycheck and put it in a fund that is set aside for retirement like an IRA. He can also pay the premium for an Unemployment Insurance plan or a Disability Insurance plan and deduct that himself from his taxable income. That IRA can be invested and grow tax-free, unlimited. The investment vehicle I suggest is an Indexed Annuity or Life Insurance product with a guaranteed minimum growth ("Cost Of Living" Index, at least). When he goes to use that money he'll be paying a National Sales Tax. (We'll deal with that later in Part Two.)

     Joe also gets to take up to 10% of his earnings and place them in a Health Savings Account, an HSA, again he doesn't have to pay the income tax on that amount and it can also be invested like the IRA and can grow as large as the investment he puts it in can grow. And again, when he goes to use those funds it will be subject to the new National Sales Tax. (again...later, Part Two). If he would like to use some of that to pay a premium for Catastrophic Health Insurance or a Long-term Care plan, he can.
     Now, Joe can also donate up to 10% of his gross to a "Certified Charity" and deduct that from his taxable income. The voluntarily donated funds from this will help get the government out of the "welfare entitlement business".

     So, of the One Thousand Dollars Joe brought home, in one week, he has $700 that is taxed at 7.25% and not at 10% because his Taxable Income is now below the "Par" level of average individual income . The rate he pays can be readily deduced by referring to a Tax Rate Table, as that illustrated below. At the end of the month he grabs his checkbook and writes out a check to the IRS for $219.92 with a slip of paper that is about the same size of the check that shows the gross monthly wages and the total monthly IRA, Charity and HSA contributions. No April 15 ritual, no 1040's and no Tax Preparer fees. 

     He's pumping about $4800 into his IRA and another $4800 into his HSA every year. He can contribute more, if he wants, with after-tax funds. Just like today's existing rules on IRA's and HSA's there are ways of accessing those funds prior to retirement, to cover medical expenses and for other purposes. He has also been assisted in voluntarily following the American tradition of being charitable by contributing to an organization that meets certain requirements for efficiency and transparency. Up to $4800 in Tax-deductible charitable giving by average Americans like Joe would be a rather normal event. Had Joe chosen not to contribute to his program he would be taxed at the full 10% of the $1000 he brought home and he would have nothing for his retirement and nothing for future medical care. He would become reliant on the charity of others for his lack of preparation.

     Now here is another example:

     Fred is bringing home $26k gross per year. That is considerably less than the national average of $50k/year, which I'm calling "Par". Below Par there is a graduated tax rate table that divides income brackets in tenths. Here is the illustration -

$50k & up   => 10% Max.

$45k - 49,999 => 9 - 9.875%

$40k - 44,999 => 8 - 8.875%

$35k - 39,999 => 7 - 7.875%

$30k - 34,999 => 6 - 6.875%

$25k - 29,999 => 5 - 5.875%

$20k - 24,999 => 4 - 4.875%

$15k - 19,999 =>3 - 3.875%

$10k - 14,999 => 2 - 2.875%

$5k - 9,999 => 1 - 1.875%

$0 - 4,999 => 0%

     We'd have to fill in between the full percentage rates with increments in fractional 8ths and each would represent an additional 0.125% tax.

     So, for Fred, he would be at the 5.25 % tax rate, if he didn't contribute to his own program But since he is. Let's see how that works for him...

     Of the $500 check he brings home each week, he puts up to $50 in his IRA and $50 in his HSA. He is taxed on the remaining $400 at 4.125%, which is $16.50. So at the end of the month he has paid his fair share of about $71.50 of income tax. He would have invested a total of $1200 in his IRA and HSA from his earnings for the year. He could have donated to charity too and pay a little less tax. He may also be the recipient of charity if something comes up and he needs a little temporary help. The voluntary private sector "authorized charities" would step up, not the corrupting government entitlement programs, redistributing wealth.


     Nobody gets Tax Refunds because nobody overpays their taxes, there is no Mortgage Interest Deduction because it's not the governments business to "socially engineer" by incentive-izing Americans into being homeowners. Some folks just shouldn't buy their home, there is nothing wrong with renting. The "American Dream of Home Ownership" is a myth and a mistake which has cost our country literally trillions of wasted treasure in the form of TARP, Stimulus Bills and the debt we are in. Neither Joe nor Fred have paid into Medicare, Social Security nor Government Unemployment. If they come into hard times they can access their IRA and HSA funds under certain rules and conditions. If taxpayers choose they can designate a portion of their IRA/HSA accounts to be used for charitable purposes. Over-funded accounts can be willed to others with under-funded accounts tax-free pre- or post-mortum. Government doesn't need as much revenue now that Social Security, Medicare, Medicaid and welfare are no longer their responsibility.

     Only those making less than $5000/year pay no income tax and without the Welfare State, that should be a temporary situation

     OK, now for Corporate/Business/Self-employment taxes...
     Subtract your expenses and pay 10% on your profits, Ta-Daa! What's the big deal? If business wasn't paying for health insurance, got rid of burdensome tax accounting expenses and if we cleaned up our tort law to reduce Workers Compensation and Liability Insurance, profits would increase and there would be huge increases in tax revenue. Employers can continue to pay for employee health plans or other benefits if they want or have agreed to it as part of collective bargaining, but there would be no government requirement and the value of that would be considered as employee compensation and someone would need to pay the income tax on it. If business and individuals were taxed at the same rate there would be no advantage to using Delayed Income strategies and all the other silly games executives play to get around paying taxes.

     In Part Two I will introduce a plan for a National Sales Tax.