{"id":453,"date":"2013-05-14T01:24:12","date_gmt":"2013-05-14T01:24:12","guid":{"rendered":"http:\/\/old.sommers-taxapedia.com\/archives\/?p=453"},"modified":"2013-05-14T19:31:31","modified_gmt":"2013-05-14T19:31:31","slug":"an-extremely-simple-tax-proposal","status":"publish","type":"post","link":"https:\/\/sommers-taxapedia.com\/archives\/an-extremely-simple-tax-proposal\/","title":{"rendered":"An Extremely Simple Tax Proposal"},"content":{"rendered":"<p><strong>Introduction<\/strong><\/p>\n<p>The frantic April 15<sup>th<\/sup> tax-filing ritual is over, restaurants and businesses are advertising bargains to cash-strapped taxpayers and once again, we wonder, isn\u2019t there a better way?<\/p>\n<p>Everyone claims to want a simpler, fairer and loophole-free tax system, so here\u2019s a solution so simple that, for most taxpayers, return preparation and filing could be completed in less than one minute \u2013 that\u2019s it!<\/p>\n<p><strong>Broaden the Tax Base, Lower the Tax Rate<\/strong><\/p>\n<p>As Emperor of America, charged with the task of making the income tax system simple, straightforward, with no loopholes, here\u2019s my approach.\u00a0 It terminates tax-driven businesses, including the tax preparation industry (goodbye CPAs, Turbo-tax and scheming tax lawyers) \u2013 and all that waste of time and money.<\/p>\n<p><strong>Individuals<\/strong><\/p>\n<p>Taxpayers receive a large front-loaded exemption along with drastically lower tax rates, in exchange for eliminating all deductions:<\/p>\n<ul>\n<li><strong>From<\/strong> $0 to 50,000 = no tax<\/li>\n<li><strong>From<\/strong> $50,000 to $100,000 =10%<\/li>\n<p>\t<em>Thus, the first $100,000 of income is taxed at no more than 5% ($5,000 maximum)<\/em><\/p>\n<li><strong>\u00a0From<\/strong> $100,000 to $250,000= 20%<\/li>\n<li><strong>\u00a0From<\/strong> $250,000 to $500,000 = 25%<\/li>\n<li><strong>\u00a0Over<\/strong> $500,000 = 30%<\/li>\n<\/ul>\n<p>That\u2019s it, a major reduction in the current tax rates, which range as high as 39.6% for taxable incomes exceeding $400,000 for joint filers.<\/p>\n<p><strong>No Write-Offs<\/strong><\/p>\n<p>Oh by the way, there are no deductions, exemptions or credits whatsoever. Seriously, no deductions for mortgage interest, charitable donations, state, local, sales or property taxes, alimony, retirement contributions or medical expenses.\u00a0 The first $50,000 you earn is tax free (you pay only 5% on the first $100,000) and replaces all deductions.\u00a0 Also, all income is taxed at the new rates, thereby eliminating capital gains (a major cause of complexity and abusive tax planning) and other preferential tax rates; in addition the alternative minimum tax is tossed out (another huge source of mind-boggling complexity and unfairness).<\/p>\n<p><strong>Filing<\/strong><\/p>\n<p>Since IRS directly receives information concerning wages and compensation, interest, dividends, royalties and other reportable payments, it can compute your taxes instantly.\u00a0 Consequently, for the vast majority of taxpayers, returns can be prepared and submitted on-line in less than a minute.\u00a0 With all deductions eliminated, the tax calculation is simple.<\/p>\n<p>For those with business and investment income and expenses, the process is slightly more complicated.<\/p>\n<p><strong>Business and Investment Deductions<\/strong><\/p>\n<p>Business and investment income is taxed differently because legitimate deductions are incurred in the production of that income.\u00a0 However, I would eliminate all deductions except for directly-related and essential expenses actually incurred (costs of purchasing raw materials, labor, rent, direct overhead) and not subject to accounting manipulations.<\/p>\n<p><strong>No Interest Deductions<\/strong><\/p>\n<p>There would be no interest deductions, since they distort our tax system by favoring borrowed funds (debt) over direct investments (equity).\u00a0 Eliminating the interest deduction should collapse deals whose economic survival depends on writing-off interest expenses, such as leveraged buyouts and leveraged real estate deals, tax shelters and securities speculations.<\/p>\n<p><strong>Limited Depreciation Deductions<\/strong><\/p>\n<p>There would be no deductions for depreciation on real estate, no oil or gas depletion allowance, no amortization for intellectual property or goodwill; only business assets that actually wear out within seven years will have a depreciation allowance.\u00a0 Eliminated are deductions for entertainment, meals and perks for execs, such as automobiles and club memberships, although a straight mileage allowance for vehicles actually used in\u00a0 business would be permitted.<\/p>\n<p>\u201cTax-free\u201d exchanges of real estate would no longer exist (the transaction would be immediately taxable) and reorganizations (mergers, acquisitions and alike) would be subject to a flat tax of 2% on the gross value of the transaction.<\/p>\n<p><em>The upshot:<\/em>\u00a0 businesses and investments would have to stand on their economic merit, rather than on tax loopholes and accounting shenanigans.<\/p>\n<p><strong>World-Wide Income<\/strong><\/p>\n<p>Individuals and entities would be taxed on their world-wide income, whether or not the income, whether or not the funds were repatriated to the U.S.\u00a0 The current gimmicks used by Apple, Google, Marriott and others to escape U.S. taxation by transferring intellectual property to foreign subsidiaries would be stopped.<\/p>\n<p><strong>Entity Tax Rates<\/strong><\/p>\n<p>Entities will pay 5% tax on the first $100,000 of gross income, then 15% to $5.0 million, then \u00a025% over that amount. <strong>Note:<\/strong> the current corporate tax rate is generally 35% on income over $100,000.\u00a0 Current flow-through entities (partnerships, LLCs and S-corporations) would be taxed as entities.\u00a0 As with individuals, the reduced rate up to $5.0 million compensates entities for the loss of deductions.<\/p>\n<p><strong>Minimum tax<\/strong><\/p>\n<p>Individuals with gross receipts of more than $100,000 will pay a minimum tax of 2%. Entities with gross receipts of more than $25 million a will pay a minimum of 4%. \u00a0\u00a0This will eliminate accounting tricks and gimmicks.\u00a0 These minimums will apply each year, carryover losses will not reduce the minimum tax \u2013 every individual and entity will pay at least the minimum tax \u2013 no exceptions.<\/p>\n<p><em>Example:<\/em> An individual earns $1.0 million in real estate income, but claims $1.2 million in deductions. Even so, the individual pays 2% on the million or $20,000 at a minimum.<\/p>\n<p><em>Example<\/em>: Assume GE has $150 billion of gross income but currently pays no income taxes.\u00a0 Under the minimum tax, it pays $6.0 billion.\u00a0 Thus, GE, even with its army of 375 tax lawyers, will not escape the minimum tax.<\/p>\n<p><strong>Audit Risk<\/strong><\/p>\n<p>If an entity is caught under-reporting taxes by more than 10%, the minimum tax doubles to 8% for the next three years.\u00a0 This should deter companies that hire boatloads of accountants and attorneys to finagle their taxes.<\/p>\n<p><strong>Conclusion<\/strong><\/p>\n<p>This drastically simplifies our current tax code by eliminating loopholes and special interest deductions that have created such a mess.\u00a0 It is simple, fair, and causes every individual and entity to pay taxes.<\/p>\n<p>The reduction of billions of hours of wasted time and dollars spent on dealing with the current law will boost our economy, but the most important result is that businesses and investments will once again base their decisions on economic merit, rather than on gaming the tax system.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Introduction The frantic April 15th tax-filing ritual is over, restaurants and businesses are advertising bargains to cash-strapped taxpayers and once again, we wonder, isn\u2019t there a better way? Everyone claims to want a simpler, fairer and loophole-free tax system, so here\u2019s a solution so simple that, for most taxpayers, return preparation and filing could be <a href=\"https:\/\/sommers-taxapedia.com\/archives\/an-extremely-simple-tax-proposal\/\" class=\"more-link\">&#8230;Continue reading<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,1],"tags":[],"class_list":["post-453","post","type-post","status-publish","format-standard","hentry","category-foreign-taxpayers","category-general-tax-information"],"_links":{"self":[{"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/posts\/453","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/comments?post=453"}],"version-history":[{"count":17,"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/posts\/453\/revisions"}],"predecessor-version":[{"id":457,"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/posts\/453\/revisions\/457"}],"wp:attachment":[{"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/media?parent=453"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/categories?post=453"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sommers-taxapedia.com\/archives\/wp-json\/wp\/v2\/tags?post=453"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}