A google search shows that most responsible governments and economists recommend maintaining a 3% or less deficit - largely to reduce the risk of a situation similar to what large parts of Europe are presently enduring - a situation in which a nation effectively loses it's sovereign status by having others dictate public policy to them.
The national deficits of nations like Spain, Portugal and Greece have effectively created a larger national security threat to these nations than any realistic threat that exists today.
In 2011, Federal Revenue was approximately $2.3 Trillion and as we noted last week, spending was about $3.6 Trillion - thus creating a $1.3 Trillion deficit against a GDP of about $15 Trillion. This represents over 8% of GDP - nearly triple of what the target should be.
Last week we budgeted for about $2.95 Trillion in Federal spending; in order to keep the deficit at 3% of GDP, this means we need to take in about $2.5 Trillion in Tax Revenue. Let's get started.
The goals of our tax policy are fairly straight forward:
-Reduce tax burdens on those who directly create jobs (small businesses, corporations, investors).
-Create a progressive tax system.
-Simplify the tax code.
-Generate sufficient revenue to protect national security - and no more.
Personal Taxes
Currently this is the largest source of Federal Revenue.
We will have two types of taxes and all will be tied to the median personal wage (currently just over $26,000) - see Social Security Data.
One is the wage tax and it will have a structure has follows:
Up to 50% of the median wage has a 12% tax rate.
Up to 150% of the median wage will have a 20% incremental tax rate.
Up to 500% of the median wage will have a 25% incremental tax rate.
Up to 1000% of the median wage will have a 35% incremental tax rate.
> 1000% of the median wage will have a 42% incremental tax rate.
This will apply to all workers - no deductions or credits will be offered (applies to all taxes).
The next is the non-wage tax. It applies to all non-wage income (dividends, capital gains, rents, small business income, etc).
It has two rates and can apply to married couples:
Rate 1: Up to 500% of the median wage will have a 12% tax rate.
Rate 2: Above that will have a 20% incremental tax rate.
Non-wage income starts at zero. Example: A worker makes $70,000 and his spouse makes $30,000. They have dividends/capital gains of $1,500.
The worker would be taxed at the 25% incremental tax rate while his spouse would be taxed at the 20% incremental rate. They would pay 12% of their dividends and capital gains in taxes - and would do so if they each earned $1 million; unless their non-working income exceeded 500% of the median wage.
If the worker earned $70,000 at his own business instead of working at Corporation X, he would pay 12%.
The goal of this is to encourage investment and entreprenurship - this raises personal income taxes considerably.
Payroll Taxes
This is fairly simple; it reduces the payroll tax to 2.5% for both worker and employer; a substantial reduction compared to now, even with the payroll tax holiday that reduces the social security wage to 4.2%.
This is the largest reduction we will give to any revenue source - and it's goal is to reduce obstacles to hiring.
Estate Taxes
This will revert to Clinton era Estate Taxes (would increase taxes to approximately $100 billion per year from about 20).
Excise Taxes
As mentioned in part 2, we will legalize marijuana and prostitution - regulate both - and tax them at rates comparable to liquor and alcohol. We will raise excise taxes by about 20% across the board.
Customs, Duties, Etc.
This will remain where it is.
Corporate Taxes
This will be a flat 12%; this will allow corporations to focus on profit maximization, as opposed to tax evasion.
Divorce Tax
This will be 17.5% of the median wage. If adultery, physical abuse or monetary deception can be proven, the offender will pay the entire tax; otherwise the burden shall be split equally, unless there is a provision in a prenuptial agreement specifying otherwise. Divorce is a destructive force upon society; this will create a disincentive for non-committed couples to marry.
Combined, the following taxes should raise about $2.5 Trillion based on current macroeconomic trends.
Part 5 (and the final chapter) will list all revenue sources.
Conclusion
On net, taxes would rise - but would become more simplistic, easy to understand. Everyone would pay something - but individuals could not point to large profit generating companies paying less taxes then they do.
Individuals who fund or create jobs would be rewarded via the tax structure.
And America's future would be secured (I hope).
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