Objective: Balance the Federal budget, pay off the national debt while lowering taxes and building the middle class.
This proposal is to restructure the Federal Income Tax Code (Corporate Tax to mirror the same), removing all deductions. In my calculations I remove the Department of Education. This could be a state function. I remove the IRS. The now limited function could be handled at the Department of the Treasury on a much lower scale. Thought?
Please provide feedback. How could it be better? What could be done to make it more likely to pass all while still meeting the objective. Is it practical?
Bottom Line Up Front
Proposed Tax Code*
0% - 0-$35k
15% 35-120k
20% 120-300k
25% 300k-Beyond
*For Each Dependent, taxable income is reduced by 5k.
Example: A single parent with 1x child would not be taxed on income up to 40k.
- Flat 15% Tax on Earned Income:
ā¢Threshold Exemption: Individuals and families earning below a $35,000 would not pay this tax.
ā¢ Revenue Potential: Assuming this threshold leaves a significant portion of earners still subject to the tax, a 15% rate on all earned income should yield substantial revenue. With taxable earned income in the U.S. around $22 trillion, a 15% flat tax would generate approximately $3.3 trillion.
- Increased Tax Rates for Higher Earners:
ā¢ 20% Tax for Incomes Above 4x the Threshold: For individuals and businesses earning more than four times the threshold, this rate applies to the amount exceeding that limit. This higher tax on upper-middle-income earners could add meaningful revenue while maintaining incentives for earnings up to that level.
ā¢ 25% Tax for Incomes Above 10x the Threshold: A further rate increase for ultra-high earners could generate additional revenue. This tiered progressive approach can yield significant funds from top earners, who generally have higher disposable income.
- FICA Tax and Social Assistance Programs:
ā¢ FICA Remains Unchanged: Social Security and Medicare taxes, collectively 15.3% of wages (with half paid by employers), would continue to fund these specific programs, which contribute around $1.6 trillion annually.
ā¢ Social Assistance Programs: Individuals below the income threshold would qualify for social programs. Social assistance could be made conditional on active efforts to increase income, fostering a bridge to financial independence.
Additional Revenue Sources to Cover Federal Costs and Debt Reduction
While the proposed tax rates cover a large portion of federal expenses, other diversified revenue sources could close remaining gaps:
- Tariffs and Excise Taxes:
ā¢ Targeted Tariffs: Increasing tariffs on luxury goods, high-carbon imports, or specific sectors could add revenue without broadly impacting consumer prices. A modest tariff increase could yield an additional $50 billion to $100 billion.
ā¢ Excise Taxes: Broadening excise taxes on carbon emissions, sugar, alcohol, and tobacco could bring in another $100 billion annually.
- Wealth and Financial Transaction Taxes:
ā¢ Wealth Tax: A 1ā2% tax on net wealth above $50 million could add $200 billion per year without impacting middle-income earners.
ā¢ Financial Transaction Tax: A small tax on high-frequency trades (e.g., 0.1%) would target the largest trading institutions, generating an estimated $75 billion to $100 billion.
- Revised Corporate and Capital Gains Taxes:
ā¢ Corporate Minimum Tax: A minimum corporate tax rate of 10% on profits, irrespective of deductions, could prevent large corporations from significantly reducing their taxable income, contributing $100 billion to $150 billion annually.
ā¢ Progressive Capital Gains Tax: Progressive capital gains rates could encourage long-term investments and raise $200 billion annually.
- Inflation-Indexed Federal Bonds for Debt Reduction:
ā¢ Offering bonds specifically tied to inflation and marketed for national debt reduction could attract both domestic and international investment, potentially raising $50 billion to $100 billion annually. This would allow gradual debt reduction without depending solely on increased tax revenue.
- Adjusting for Regional Cost Variations
ā¢ To account for regional variations, the government could index the threshold to local cost-of-living data, ensuring fairness across high- and low-cost areas without inflating the threshold significantly.
This structure allows individuals and families at or below these thresholds to avoid income tax entirely, while higher earners contribute more progressively.
Overall Feasibility
This plan could work by combining the simplified, fair flat tax structure with targeted increases in tariffs, excise taxes, wealth, and corporate tax adjustments. Hereās how it would cover federal needs:
ā¢ Flat Tax and FICA Revenue: $4.9 trillion
ā¢ Additional Tariff and Excise Taxes: ~$200 billion
ā¢ Wealth and Financial Transaction Taxes: ~$300 billion
ā¢ Revised Corporate and Capital Gains Taxes: ~$350 billion
Total potential revenue would be around $5.75 trillion annually, covering the required federal budget (post-IRS and Department of Education cuts) with a feasible plan to gradually pay down debt.
Social Impact and Incentives
This structure would reward work and responsibility by eliminating taxes for low earners and providing assistance tied to self-sufficiency goals. For high earners and corporations, the progressive structure ensures those with more resources contribute proportionately, while still allowing for growth and reinvestment opportunities.
Conclusion
I see this proposed tax model as viable with diversified revenue sources. With a strategic blend of progressive tax tiers, targeted tariffs, and new taxes on wealth and financial transactions, it would cover operating costs, avoid additional debt, and make gradual debt repayment (over 20-30 years) feasible. This approach also encourages economic growth and self-reliance, aligning social support with incentives for financial independence.
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