The present federal income tax code creates a massive amount of wealth inequality by allowing the extremely wealthy to escape taxation by passing its wealth, tax-free to future generations, who again, with proper planning, can pass it to their heirs, tax-free. These tax provisions allow the wealthiest 10% of Americans to control $93.8 trillion of the nation’s wealth, more than double the $40.3 trillion in the hands of the remaining 90% of Americans.” By returning to a more transparent and fair tax code, the government can raise the money it needs to operate, create more jobs for its people, and lower the marginal tax rates for all Americans.

This transformation can be accomplished by simplicity.

First, to create jobs, eliminate income taxes on corporations. Currently, the tax code allows corporations to manipulate the tax system to obtain government subsidies and disadvantage competitors. The U.S. can stop these tax games by junking corporate taxes.

Corporations are merely organizations to generate wealth by providing society with needed products and services. They pass the generated wealth to its owners, managers, employees, suppliers, consultants, or others who provide goods and services. As pass-through organizations, the taxes should be imposed on those who are paid for the labor, goods, and services provided or contracted for and those receiving the dividends and capital gains from the corporations.

By eliminating the federal corporate income tax, the United States immediately becomes the most tax-competitive nation in the world. If the claims of the corporations are correct—that the taxes are a real burden on their world competitiveness—eliminating corporate taxes should attract businesses from all over the world, so the U.S. can make products for the world and create massive numbers of new jobs in America. With all the new jobs, there will be new wealth, and, yes, more tax revenue for the government. The revenue will come from those paid by the corporations.

Second, make all gross income taxable with few deductions, and the fewer the better.

While this might seem like an impossible idea, it merely follows Amendment XVI of the US Constitution, which reads: “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived…”

Moreover, “gross income” as defined in the current Internal Revenue Code at title 26, section 61 means:

“. . .all income from whatever source derived including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items (2) Gross income derived from business (3) Gains derived from dealings in property (4) Interest (5) Rents (6) Royalties (7) Dividends (8) Alimony and separate maintenance payments (9) Annuities (10) Income from life insurance and endowment contracts (11) Pensions (12) Income from discharge of indebtedness (13) Distributive share of partnership gross income (14) Income in respect of a decedent (15) Income from an interest in an estate or trust

By taxing all gross income, every American would be subject to the same simple and transparent income tax code, at every established marginal tax rate. All special tax benefits would be eliminated. By taxing all sources of income, the tax rate could be substantially lower than the current code, since the base of taxed sources would be substantially larger. A 2006 report by the Tax Policy Center on the benefits of a broad-based tax without most deductions, found the lowest marginal tax rate dropping from 10% to 6.6% and the highest marginal rate dropping from 35.5%to 23%. Moreover, with all sources of income taxed, taxpayers will be unable to manipulate the tax code, something they have done since the first amendments to the federal income tax code were enacted by Congress in 1918.

A few examples of the revenues to be raised annually by eliminating tax deductions, thus allowing for lower tax rates:

• Home mortgage deduction, $60 billion dollars.
• Employer-paid health insurance, $300 billion.
• Carried-interest, $1.4 to $18 billion.
• Stepped-up basis allowance in the Estate Tax, $113 billion.
• Close CEO pay loopholes, $ 5 billion annually.
• Treat all fringe benefits as exactly what they are—compensation (income) to attract and retain employees.
• Eliminate the hundreds of obscure special interest provisions in the current tax code, thereby making billions of dollars in income subject to taxation.

Once the complexity is removed from the tax code, the tax structure can easily be converted to a simple, fair, and transparent system for taxing individuals and for funding the government. Moreover, if the federal government seeks to raise taxes, it will be directly visible to every taxpayer.

This seemingly absurd proposal is more than doable, It is, in fact, similar to the first income tax code in 1913. The entire 1913 Internal Revenue Service Form 1040 was four pages long, including instructions.

On the 1913 Form 1040, the taxpayer listed its income, which included income from salaries, wages, personal services, sales or dealings in property, rents, interest from notes and mortgages, partnership profits, coupon payments, trusts, and from any source derived. A certain amount of income was exempt from taxation, i.e.; $ 3,000 – $ 4,000 in 1913. The only deductions that could be subtracted from gross income were those necessary business expenses, interest on personal indebtedness, causality losses, debts deemed worthless in that year, and depreciation.

The 1913 tax, like today, was progressive—it had six rates. At $20,000 there was an additional 1% tax on the income. Marginal rates increased up to 6% on incomes over $500,000. It was a simple return to complete, straightforward in its application, and fair in that it eliminated “tax tricks” that are found throughout today’s tax code.

The 1913 tax code, with a few modifications, could literally be dropped into place today and taxpayers could complete it. Perhaps the first tax bracket would start at income exceeding $30,000, to provide an incentive to work. There would be several tax brackets that are similar to 1913, which had 6, and today there are 7.  The brackets would be determined based on the pre-pandemic revenues so as not to inflate the revenue needs of the government. A few other modifications would be needed, such as eliminating the deduction for the payment of personal interest, which would today be called the mortgage interest deduction.

To prevent tax fraud within this simple process, the penalties, like the penalties in the original 1913 tax law, would need to be stiff. Penalties in 1913 ranged from $20 to $1,000, which is the equivalent of $560 per violation to $27,938. Such high penalties place all individuals on notice that there are serious penalties for tax fraud. This is essential, as those who do not pay their fair share of taxes merely transfer the cost to honest citizens in the form of additional taxes.

Another benefit of this simple approach would be its ability to capture a greater amount of tax owed by closing the Tax Gap.  The IRS defines the tax gap as the difference between true taxes owed for a given tax year and the amount that is paid. The gap is caused by the under-reporting of income, non-filing, and tax evasion. While the exact amount is unknown, the IRS estimates it to range from $574 billion to $700 billion, annually. A complex tax code invites under-reporting, whereas failing to pay taxes in a simple system, could easily place one in a position of defending a fraud or tax evasion charge.

Just based on the new sources of income listed above, and closing a portion of the tax gap, generates around a trillion dollars annually while the marginal rates are lowered for all taxpayers. These revenues would be used for reducing the tax rates imposed on income to their lowest in modern times.

Our current tax code is anything but fair, neutral, and transparent. Every attempt at tax reform has been nothing more than tinkering around the margins of the tax laws to provide more benefits to those who already reap the benefits of society. With more than ten million words of unreadable laws and regulations related to every activity of life, it is time for a simpler, fairer, more equitable system. It has been done before. It can be done again.

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Warren sent a tweet repeating the lie that Elon Musk doesn’t pay taxes, when this tax year he will pay more than any one individual in history has, estimated around $10 billion. While Elon Musk does not pay the Federal Income Tax because he doesn’t actually have a cash income, he pays Capital Gains taxes on his Tesla stock options, the means by which he is compensated. Yet, progressive leftists continue to insist he doesn’t pay income tax, even though the truth is that he’s paying substantially.

Musk fired back at Warren, reminding her of her fraudulent claims of being Native American in order to get preferential admissions treatment to college. She even wrote a book called Pow Wow Chow, which by progressives’ own rules, I suppose we could consider cultural appropriation. When in reality, Elizabeth Warren is 1/1024 Native American. Former President Donald Trump, who referred to Warren as Pocahontas, effectively goaded her into taking a DNA test, where she found her Native American ancestry was substantially less than she claimed.

Elon Musk then went on to call Elizabeth Warren Senator Karen and stated she yells for no reason.

Elon tweeted at her again reminding her that his tax bill is going to be significant this year and took a shot at her for her role in the budget deficit.

Elizabeth Warren responded by drumming up ads on social media to solicit campaign contributions for her distant 2024 re-election campaign, acting as if she were running against Elon Musk himself. The website in the link is an Act Blue link for her campaign.

Unsurprisingly, the ads targeted California residents much more than they targeted Massachusetts residents, and the leading target demographic of her ads is women over the age of 65.

Upon learning of the ads, Elon Musk asked if Elizabeth Warren was really someone that we wanted as a Senator, and stated that the people of Massachusetts deserve better.

Yet, Musk appears to be spearheading ideals that progressives favor, like atmosphere decarbonization. It seems odd that they aren’t willing to recognize him for privately and willingly carrying out the work that they’re demanding be done by government force.

But of course, the memes have been fantastic.

The post Cowboys vs Indians: The Feud Between Musk and Warren appeared first on The Libertarian Republic.

 What economic policy most helps the American people? There are many ideas on how to best answer that question, but two ideologies tend to stand out: capitalism and socialism. Numerous variations of both  principles exist, as well as many misconceptions.

As defined by Merriam-Webster, capitalism is “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production and the distribution of goods that determined mainly by competition in a free market”. Socialism is defined as “any various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods”. 

 There are many ideas on what policy would best help the American people and how to implement each. One common policy discussed is ‘democratic socialism’. Ideas of how ‘democratic’ socialism would work or how it differs from traditional socialism seem to vary, but the most  common association points to Nordic countries as an example. Nordic countries have an open market system with high taxation to pay for welfare programs, such as free education and healthcare—which is  conflicting as these programs are paid for through taxes and are not accurately described as “free”. Furthermore, this system is ultimately poorly described as ‘democratic socialism’ and better described as ‘welfare capitalism‘. 

 Welfare capitalism is defined as “capitalism characterized by concern for the welfare of various social groupings expressed usually through social security programs, collective  bargaining agreements, state industrial codes, and other guarantees against insecurity.” The United States of America is commonly viewed as a capitalist society, but with taxation and regulation it is not a true free market and is best described as a welfare capitalist society. The main difference between the Nordic version of democratic socialism and American capitalism is the amount of taxes imposed on the  people. 

How to Improve Economic Stability?

 The goal of changing economic policy to help the American people would be difficult to achieve by taking more money from the people. A common method for attempting to improve economic stability has been through increasing minimum wage. Since minimum wage increases give more money to the lowest earning workers, they are often viewed as beneficial—but they have some unintended consequences.

Minimum wage increases can be especially difficult for small businesses to cope with; this is unfortunate, but it is not the primary danger. A forced increase in worker compensation can cause a reaction called ‘wage push inflation’. Not every business would be forced to increase prices to goods and  services from higher wages, but some would. This can cause a cascading effect from suppliers,  distributors and a multitude of other costs to operation within business to all but ensure a rise in the cost of goods and services across all industries. This effect not only mitigates the benefit seen from low earners, but affects all working people, further damaging the the buying power of all Americans. Unfortunately, wage mitigation is not the only concern as another action businesses may take is cutting hours or positions. The goal set for wage increases by force has the potential to fall short of the mark for many or worsen an already unfavorable situation. 

 Another commonly proposed way to help the economy is through tax breaks for individuals and/or businesses. Tax breaks for individuals help people by allowing them to keep more of the money they earn for themselves, but must be done sparingly to avoid adverse effects on national welfare and security. Tax breaks for business are sometimes believed to have a trickle down effect to the employees. Some businesses utilize the tax burden relief to increase employee wages, but this is not a guarantee or the most common outcome. The benefit from reducing taxes on business generally comes in the form of investment. When a business keeps more of its profit, it has more money to invest in the company to further expand the business. This leads to more job creation and growth within the economy, but also needs to be done carefully for the same reasons.

A Different Approach to Benefit Everyone

What economic policy most benefits the American people? Economic policy tends to be a balancing act between taxation for social welfare and national security, and reduced taxation for market growth. As the world grows smaller through technology, there is an increasing effect from global markets and balancing a national economy becomes increasingly difficult. We no longer live in a world where renaming or repackaging old, ineffective or failed policies will benefit the people. In this time of rapid change,  new policies are needed for a new world to sustain economic stability for Americans. 

 I would like to propose a policy to save the free market, increase the buying power of lower wage workers, and avoid increasing taxation as well as inflation. Wage incentives is a program in which businesses can pay employees higher wages without additional cost by earning a tax reduction based on  company compensation versus the federal minimum wage. One way to look at wage incentives is to take the idea of trickle down economics and put in place a method to make it a practice that benefits employees as well as employers.

If a business has 10 employees with each earning $15/hour working full time, the business could take the difference between the current federal minimum wage of $7.25/hour and the $15/hour the workers are paid, to receive a $6.25/hour difference. The difference would be multiplied by the affected workers to see a value of $62.50/hour. This figure would be further multiplied by hours worked at 40 per week and 52 weeks for a difference of $130,000 paid over federal minimum wage. Under a wage incentive program, businesses would be allowed to claim the difference as a corporate tax deduction. Wage incentives would allow businesses to pay higher wages to those who need it the most without additional cost to annual earnings.  

 Unfortunately, some regulations would have to be put in place to allow this policy to operate fairly and without abuse. As larger businesses pay more taxes based off a taxable earning percentage, this would allow them more power to implement and abuse these policies. To avoid an unfair advantage to large  corporations, the deductible percentage would need to be tied to volume of employment. Larger companies would only be able to reduce their taxable percentage from 21% to 18%, for example. Small  business may be able to deduct virtually all corporate taxation to achieve the same benefit.

Another  limitation necessary to maintain stability within the market and limit abuse would come in limitations on the level of qualifying earnings, where any earning over a set amount would no longer be eligible for deduction. This restriction would allow a business to write off the earnings of all employees between the set minimum wage and $15/hour. 

 In 2015, corporate taxes made up roughly 10% of the federal budget and, balanced properly, should not affect the intake of federal taxation over 2%. This would be further reduced by the higher intake in personal income taxes and less reliance on welfare programs. To determine the best rates and regulations would take careful consideration, but with proper implementation could help restore economic stability to many Americans.

The goal of wage incentives is to reduce the wage gap in America and broaden the buying power of the American people without negatively affecting the market. Wage incentives implemented properly would benefit the working class, leave businesses unharmed, and have a minimum impact on taxes received by the federal government.

Image: The All-Nite Images on Flickr

The post Wage Incentives: A Proposal to Help Save the Free Market appeared first on The Libertarian Republic.

Probably, the most familiar things would be hospitals and schools.

Personally, I think that there is something that would very surprise a person from those times even more: the fact that Governments take away individuals’ earnings compulsively.

In fact, contrary to what many people think, income tax is a rather recent “invention,” created—in most cases—as an emergency tax to deal with extraordinary expenses, which later survived as a way to finance the growing fiscal deficits of Governments increasingly mismanaged, corrupt, and in debt.

We will review two significant examples.

United Kingdom

After centuries imposing specific, eccentric taxes (e.g. chimney tax, window tax, malt tax, among others), Income Tax was first introduced by William Pitt in the United Kingdom in 1798, and it started to be charged in 1799. The aim was not to finance original expenses of the State but the Napoleonic Wars.

At the time, no other country levied a tax over the earnings produced by its citizens. The United States, for example, would only start charging it, intermittently, some 60 years later, and definitively in 1913.

The non-taxable minimum in the United Kingdom of the late 1700s would be equivalent to £6,000, and the maximum rate was ten percent. Only local income was susceptible to taxing, which was quite logical.

At the time, the malt tax covered approximately ten percent of the Government’s budget.

This first version of the Income Tax was in force only for three years, as it was annulled (logically) upon the signing of the Treaty of Amiens.

Henry Addington, who had succeeded Pitt in 1801 and had eliminated the tax when the peace with France was signed, reestablished it in 1803 when new difficulties appeared with that country. It was kept in force until the Battle of Waterloo. When the tax was annulled again, every document that referred to it was burnt, due to the sense of shame associated with having established and charged this tax.

From 1817 to 1842 there was no Income Tax in the United Kingdom or any other country.

Although he criticized the tax during the 1841 campaign, Prime Minister Robert Peel reestablished it in 1841, not to finance a war but to cover the Government’s deficit.

This time, the non-taxable minimum was over twice the previous one and the rate was around three percent.

The First World War was the perfect excuse to increase the rates. So, they were increased to 17.5 percent in 1915, 25 percent in 1916 and 30 percent in 1918.

For context, the only other country with an income tax at the time was the United States, which, as said above, had reestablished it in 1913, with a rate of 1 percent for incomes above $20,000.

The system was modernized as years went by, but the rising trend did not slow down, with a notorious record of 99.25 percent (yes, that is correct) during the Second World War.

Contrary to what one might believe, in the following two decades there was a minor reduction, but the tax remained over 95 percent.

During the 1970s and 1980s there were further decreases, but not very significant.

Only upon the election of Margaret Thatcher and the growth and increased sophistication of the offshore jurisdictions did the rates start to decrease substantially.

In 1988, for example, after three consecutive reductions, the basic rate was 25 percent.

Nowadays, that rate (the basic rate) is even lower: 20 percent and the maximum rate is 40 percent.

Let’s have a look at what happened on the other side of the Atlantic Ocean.

United States

Although the United States became independent from the United Kingdom in 1776, after a conflict arising precisely from a taxing issue, it was not until 1861 that the country imposed the first income tax. And, just like in the United Kingdom, this was not done to finance the ordinary expenses of the State but the Civil War.

In other words, for over a century and 15 presidential terms, the State was financed without needing to take away from taxpayers a part of their income. Moreover, when it was finally done, those funds were not used to finance original expenses, but a civil war.

This article was originally published on FEE.org. Read the original article.

The post Life Before the Income Tax appeared first on The Libertarian Republic.

Alongside his signed and dated veto, Sununu, a Republican, wrote: “No Income Tax. Not Now! Not Ever!”

New Hampshire is one of only seven states across the U.S. that does not impose a state income tax on its residents.

By vetoing the bill, Sununu protected New Hampshire workers from a 0.5% tax that would have cost the average worker $267 per year.

That tax would have gone toward a government-mandated paid family leave program providing workers with up to 12 weeks of paid family or medical leave covering 60% of their wages.

In reality, covering the leave that workers say they need would require about five times the proposed 0.5% rate ($1,333/worker). To date, paid family leave taxes in other states have stayed below 1% of pay, but that’s largely because the programs lack awareness and accessibility. In New Jersey, only 1% of workers who were eligible for the program actually used it.

There’s widespread support for paid family leave across the U.S., but that support plummets when it comes to the costs and trade-offs that would come with a federal paid family leave program.

That’s important because when the government sets the rules—instead of letting employers and workers design policies based on their own terms—a paid family leave program is far more likely to have unintended consequences and excessive costs.

Mandated family and medical leave can result in hiring discrimination against young women. Economic studies show that California’s and New Jersey’s state-based paid family leave programs increased unemployment rates for young women.

Moreover, when mandated, paid family leave reduces women’s likelihood for promotions and their relative earnings.

When the government sets the eligibility criteria and instills the notion that paid family leave is free, far more people are likely to take leave. That has real consequences for employers and the products and services they provide.

In Denmark, a generous one-year paid family leave program for nurses led to a rapid and persistent 12% decline in nursing employment, a 17% increase in in-patient readmissions, an 89% increase in newborn readmissions, a delay in technology adoption, and a 13% increase in nursing home mortality over the three-year period following enactment.

Those unintended consequences are why Sununu and other policymakers are looking for ways to expand access to paid family leave by giving workers and employers more options instead of higher taxes and more restrictions.

Sununu and Vermont Gov. Phil Scott, a fellow Republican in a neighboring state, have a proposal that would let workers and employers choose whether or not they want to opt into a state-established but privately administered paid family leave program. The estimated cost would be $200 to $285 per worker per year.

Another way to accomplish the equivalent without the state getting involved at all—and thus saving taxpayers potential startup and administrative expenses—would be to allow private employers to band together to form so-called association insurance plans covering short-term disability or paid family leave plans.

This structure exists, with limitations, for association health insurance plans.

Another option, at the federal level, is to pass the Working Families Flexibility Act that would let lower-income hourly workers choose whether they want to receive time-and-a-half of paid leave or pay when they work overtime hours.

Although public sector workers are allowed to make that choice, private-sector workers currently cannot.

Congress could also let workers tap their retirement savings accounts without penalty to use for paid family leave.

A combination of options that makes it easier for employers to offer paid family leave and easier for workers to take it is the right approach, because a one-size-fits-all government program simply cannot meet workers’ and employers’ needs in the way that programs designed on their own terms can.

COMMENTARY BY

Republished with permission from The Daily Signal. The original article may be read here.

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