Eliminate the income tax and the FICA tax while making the self-employment (SECA) tax the only income tax, and add an x percent VAT. Wages and salaries would be subject to the SECA tax, as would most other income except as noted below. The SECA rate would x up to $100,000 of net income and 2x on net income in excess of $100,000. The x/2x percent rate is flexible, and it would be adjusted to balance the budget in non-recession (or worse) years. A 13.4 percent rate (26.8 percent for SECA tax) would roughly have been sufficient to balance the budget in 2014. While corporate and individual income taxes are completely eliminated, the Social Security Wage Base cap is eliminated and passive income in the nature of interest and other income from investments (including from corporations), and half of long-term capital gains and 60 percent of retirement distributions would be taxable as SECA income. (Social Security calculations would not change. Separate legislation is proposed with respect thereto.) Regarding the SECA tax, for U.S. residents, a household federal poverty level deduction would exist (to be shared amongst household adults), as would an up to 25% of income charitable deduction, up to $20,000 per individual retirement deduction (via an employer plan and/or IRA), up to $1,500/month mortgage interest deduction, and high deductible health care premiums/HSA deductions and/or exclusions. (All would be indexed for inflation.) International business taxation is greatly simplified by eliminating the corporate foreign tax credits system and annually taxing the U.S. portion of profits of any company, partnership or LLC (regardless of legal type or domicile, etc.) to owners based on the U.S. percent of sales using flow-through rules-i.e. flow through of profits to owners without taxation of the company-with affiliated businesses treated as one company. (All C corporations would become S corporations.) To discourage offshoring of jobs, labor costs would be nondeductible to the extent the foreign labor percentage exceeds the foreign sales percentage. (For example, if foreign labor was 80 percent of labor costs and foreign sales were 20 percent of total sales, 60 percent of total labor costs could not be deducted.) Married people could file jointly. Foreigners would be subject to the same company taxation regime, plus their U.S. source income (earned and passive) would be taxed. Americans working wholly or partially abroad would continue to use a credits/exclusion system for their earned income. The numbers work because basic algebra is used to make them work. The proposal is progressive because it grants poverty, housing, charitable, retirement and health care SECA tax deductions. Everyone would pay the VAT, but the FICA/SECA tax would be paid only by the upper half of the middle class and above. Everyone would feel government spending, and everyone would pitch in to help solve the nation’s financial problems. A reasonable deficit could be run during an emergency situation or a significant recession or financial depression.
Allen Buckley for U.S. Senate
Let's buck the system!