Eliminate the income tax altogether while increasing the FICA tax rate from 7.65 percent to x percent and adding an x percent VAT. The self-employment tax (SECA) rate would be 2x percent. 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 the 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 self-employment income. (Social Security calculations would not change.) For U.S. residents, a household federal poverty level deduction would exist, 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. International business taxation is greatly simplified; the incentive for “inversions” is eliminated, 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.) 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!