You’ll often hear the argument that the solution to our problems can be solved if only we had “smaller government”; that’s a popular talking point among those who don’t know what the hell they’re talking about. Is there government waste? Yes. Is there corruption? You elect them every single year. Do you know the federal budget? PROBABLY NOT.
And that’s what is so frustrating about all of this…the people who I continue to hear complain about “bigger government” have no idea what they’re talking about; they’ve never even looked at the budget.
“Smaller Government” is a platitude – nothing more. It’s a slogan on a bumper sticker.”
You can not balance the budget by cutting taxes. It’s not possible. No independent non-partisan person with any credibility can say cutting taxes increases revenues with a straight face. And there is nothing “conservative” about running huge deficits on tax cuts for millionaires. So – we put together our own big picture summary of how we would handle the budget.
We assume a few basic things with this budget:
#1 – All incomes are treated the same
#2 – The payroll tax is lumped in with the income tax
#3 – There are no deductions
#4 – If you’re self-employed….business expenses are treated for the business and all personal income is taxed at the individual rate. So a self-employed person would only be taxed on profits.
#5 – Maintain existing estate and gift tax structure
#6 – Institute a Financial Trading Tax of 1% (1 penny for every $1 traded on Wall Street)
#7 – Corporate tax rates are a flat 10%
If we simplified the tax code and eliminated all of the corrupt handouts via what’s called “tax expenditures” – (you can read all about that HERE)…we would break it down to very basic math. The average person can not see the shell game that they know exists within 88,000 pages of tax code but even a lazy eye can see unfairness in the tax code when they see basic math.
Before I present the proposal – here is what you would pay under the proposal based off of income levels. Now – it’s important to note that this effective tax rate INCLUDES the payroll tax and would fully fund Medicare, Social Security and Medicaid. So when you see the chart below – that’s your turn-key write the government a check amount. Very simple. Also – if you make $100,000 in capital gains or $100,000 in salary; it really doesn’t matter – you would pay the same % on your income. If you’re making the money – you pay whatever the rate would be based off your final income. The reason there is so much protection against taxing capital gains at a higher rate is because 57% of all capital gains go to the 1% highest earners.
If you make $200,000 a year – you would have to pay 18.1% of your income to taxes including FICA and any other federal tax one pays for to the IRS. Currently – a person paying $200,000 is probably paying more than that right now (source). And currently – a person making $10,000 a year isn’t paying 15% in taxes…but they are paying payroll taxes. So there is a bit of an increase on low incomes and a huge increase on high income and a minor decrease for “the middle class”. If you’re Mitt Romney and make $62,000,000 in two years – instead of paying an effective tax of 13.7% – you would be required to pay 38.6%. But – don’t fret for Governor Romney…he would still put $38 million in the bank. I don’t think anyone’s going to be sending him any blocks of government cheese any time soon.
|Effective Tax Rates By Income|
|Annual Income||Taxes Paid||Effective Tax Rate|
|$0 – $75,000||$ 11,250||15.0%|
|$ 200,000||$ 36,250||18.1%|
|$ 500,000||$ 96,250||19.3%|
|$ 1,000,000||$ 196,250||19.6%|
|$ 10,000,000||$ 3,106,250||31.1%|
When you start a budget you have to look at what you want to pay for. We could reduce federal taxes to 1% of income if we wanted to…we just wouldn’t have Medicare, Social Security, Public Schools, Roads or much of anything else. We could do that. But – Americans understand these things cost money and generally – they’re very popular. In short – Americans want everything they have come to expect in terms of services like all of the above and more…but the debate is about how are we going to pay for them. The good news is – if you’re in the bottom 98% percent of incomes…you’re probably already paying enough.
Now – the United States Federal Government budgeted for $3.796 trillion in 2012 (compared to $3.36 trillion ACTUALLY spent in 2011). This included Medicare, Social Security and every single federal government function. That’s 100% all in after the deficit…$3.8 trillion in 2012.
So – the question is – what would it take to raise $3.8 trillion and/or do we wish to cut spending in some way. There are many places that I would cut government spending, but looking at our current spending – first we want to evaluate just how hard is it to pay for this current level of spending. If we use the tax structure below – based off of 2011 estimated filers….the federal government would pull in $4.096 trillion a year. That’s total incomes – capital gains, incomes, everything all in at the personal level (not including corporate).
|Income Levels||Estimated 2011 Filers||Tax Rate By Income Level||Estimated Federal Revenues By Income Level|
|No adjusted gross income||3,510,884||0||$0|
|$1 under $5,000||11,755,094||15%||$107,363,738,577|
|$5,000 under $10,000||12,139,638||15%||$107,256,636,141|
|$10,000 under $15,000||11,819,077||15%||$106,941,095,406|
|$15,000 under $20,000||11,076,002||15%||$105,478,710,043|
|$20,000 under $25,000||9,964,909||15%||$102,561,446,450|
|$25,000 under $30,000||8,743,581||15%||$160,839,271,359|
|$30,000 under $40,000||15,136,451||15%||$181,100,569,804|
|$40,000 under $50,000||11,087,123||15%||$288,325,344,224|
|$50,000 under $75,000||20,540,213||15%||$326,156,842,194|
|$75,000 under $100,000||13,371,613||20%||$693,103,004,286|
|$100,000 under $200,000||17,729,716||20%||$794,521,143,574|
|$200,000 under $500,000||4,380,701||20%||$349,229,025,619|
|$500,000 under $1,000,000||641,156||20%||$121,912,338,253|
|$1,000,000 under $1,500,000||157,511||25%||$71,331,546,078|
|$1,500,000 under $2,000,000||63,622||27%||$132,097,508,417|
|$2,000,000 under $5,000,000||90,645||30%||$134,981,722,589|
|$5,000,000 under $10,000,000||22,032||35%||$148,350,164,160|
|$10,000,000 or more||13,884||40%||$164,787,134,690|
For example – using the chart above…if a person makes $1,000,000 a year – it would breakdown as such:
15% tax on incomes for the first $75,000 in income
20% tax on incomes from $75,001 to $1,000,000 in income.
If you do the math – a person making $1 million a year would have to pay 19.6% TOTAL on their tax rate. That means that many millionaires including President Obama would actually see a TAX CUT. Seriously – that’s just how the math works. And math that simple…ANYONE can do – and that is why the tax code is screwed up. They don’t want you to know what they’re really paying. It’s all smoke and mirrors.
But in addition to the $4.096 trillion in taxes that we would pull in from income and payroll taxes – we would continue to pull in about $30 Billion in gift and estate taxes which is the existing structure. (source)
We would maintain existing excise taxes which account for approximately $50 Billion a year.
We would institute a 1% financial trade tax on all stocks purchased (not sold). There were 9 trillion in annual equities trade volume in 2010 (source) and we estimate that would raise $35 Billion. In addition to increasing revenues for the government – this would have the added benefit of minimizing ETF’s which essentially give large investment banks an advantage by trading stocks back and forth at lightning speeds essentially doing in real life what the geniuses in Office Space proposed…only when Goldman Sachs does it – it’s legal.
All in – this tax proposal raises $4.2 trillion without any corporate taxes. If we were to establish a minimum tax on corporations of 10% – then you would pull in significantly more and you could tax individual less…or you could leave it at 0% corporate taxes. Regardless – the IRS would have to set up basic rules to eliminate gaming of the tax code to ensure that people weren’t buying personal items using corporate funds to minimize their personal tax burden. As with any tax system – there would always be a need for enforcement in one way or another. And on the corporate side – we would definitely tax foreign earnings because corporations game the system.
This tax plan would raise $4.2 trillion a year without any corporate taxes; our government spends $3.8 trillion a year currently. That leaves a $400 billion surplus to start paying down the deficit. You could cut some government spending and reduce taxes further. But the bottom line in all of this is that once you do the math – you realize…the only thing actually stopping America from balancing the budget is a political will to do so. This would be considered a revolutionary tax structure but the vast majority of politicians would balk against this. They would give their reasons but the only real reason not to support balancing the budget in this way is because it would require taxing the wealthy. And despite all of the bluster – the wealthy are not “job creators”; businesses are. But – it is very difficult to argue the math on this.
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