Well, I guess that the "T"-word is a necessary evil in a society like ours.
Regarding Glenn Hubbard - yes, he needs and deserves a voice, and oh, hum, it is the same old stuff. I am certainly in favor of tax reform. Heaven knows that our tax laws are a mess. But Hubbard's suggestion starting with "no tax on capital gains or dividends" reveals his agenda, which is to soak the poor and middle classes, and make the rich, richer. The rich are the ones who would have the most to gain in removing the tax on capital gains and dividends.
My alternative, in a nutshell, would spread the burden in a manner more fair. My plan would work in three ways, a "three prong plan" to spread the tax burden more fairly and justly.
First, consider the local government use of a real estate tax. This is a tax applied on ownership of real property. Thus we see that a tax on ownership is just as valid as a tax on income. So, the first prong of my plan is to also tax wealth - let's apply a federal tax to real estate, stocks and bonds. How would this work? This would be a simple tax on ownership of stocks and bonds and real estate, say only one percent per year.
This is significant. With the value of the NYSE and NASDAQ of about $24 trillion, plus privately held business worth over one million dollars, plus real estate holdings over $500,000, a rate of just one percent would be at least a third of the Federal Budget. And with the rising value of stocks, it seems to be a fair application. The stock market has risen, on average, about 12 percent per year. For the last 100 years. A one percent tax on value of stocks and bonds would not reduce the GNP. I would exclude a first home up to a value of $500,000 and also exclude IRA/401(k) retirement plans from this tax, as well as small business.
Second, I agree with Hubbard regarding a Sales Tax. It would be a consumption tax, which a tax payer could avoid just by not buying stuff. A Federal Sales Tax would be applied to all goods, imported goods as well as locally manufactured goods. Our taxing of income hurts local manufactures and foreign imports have an advantage, being manufactured without high income taxes applied to the workers. If we taxed sales, then the imports would be paying an equal share. This would be a 5 percent sales tax. A new national federal sales tax could also be used to fund a single payer medical insurance fund, which I also support, also helping level the manufacturing "playing field".
Third, let's reduce the income tax rate to about 5 percent and eliminate all deductions. This would make the whole tax process so much easier for the taxpayer, and eliminate the major part of the whole tax bureaucracy, and I think it would allow all those current tax cheats to come back into compliance. With my other two suggestions, this reduction of income tax rates to five percent is affordable, because the Sales and Ownership taxes would cover the reduction in Income tax.
The total tax income to the Federal Government would remain the same as it is today, and thus cover the same budget. But the sources of government income would be divided in thirds: one third from equity and real estate ownership tax, one third from sales tax, and one third from income tax.
I am against using the income tax laws as a "social engineering" tool. Currently, our tax system is not just to raise money for the workings of the government, our tax system is used as a social engineering carrot and stick. I feel that the social engineering aspect needs to be separated from the important aspect of financial support for our government. Mixing the two has not benefited either function. If you want to give money to college students, home buyers, farmers, or people who buy green cars, then do it, and do not mix this function with taxes. I really hate that our government uses the tax system for social engineering.
Regarding my first suggestion of taxing wealth. Our current system lets the rich (like, say, Bill Gates) own billions of dollars of stock and never pay a penny until taken as "income". Let's get real. And apologies to Bill, but he is such an easy and obvious example.
The plan has another built in fairness. First, let's review the current tax laws. Consider two people, a person who makes $100,000 per year and has a net worth (stocks, house, etc.) of about $100,000 and a person who has a net worth of 10 million and takes an income of $200,000. Under the current tax laws, both would be paying a total tax bill of about 40% (including medicare, local taxes, etc.). So, the first person is paying 40% of his income, but that is 40% of his net worth. The second person is also paying 40% of income, which in dollars ($80,000) is twice what the first person is paying, but it is only eight tenths of one percent of his net worth. In terms of net worth, the second person is paying nearly nothing, less than one percent. Not very fair.
Under my plan, the total tax on the first person would be reduced to about 10% of his income and net worth. His house and his retirement plan would not be taxed. His income would be taxed at 5%, and adding local taxes, a total of 10% or so. However, the second person would be paying about 50% to 75% more, due to his net worth holdings. The tax on the second person still will be a very small amount in comparison to his net worth.
My study shows that the combination of these three ideas would fully finance the Federal Budget, and do it in a more fair and equitable fashion.
The legislator who successfully implemented these types of improvements to our government would earn an honored reputation and place in history. You are probably thinking that this is a radical nut writing to you. Maybe so. Certainly my ideas may seem to be radical, but these ideas are not so new or far out. I hope that you will consider these ideas when the Taxes issue comes up next in Congress. Seriously. You might just make History.