The key to financing National Health Care, solving Social Security’s long term funding problem, and going to college free of charge is to lower taxes. As incredible as this sounds, it’s true. This can be accomplished by eliminating tax deductions and a simple restructuring of the tax code.
Eliminating tax deductions is the key to tax reform. This is because tax deductions are the main cause of tax fraud and the inequities associated with our current tax system. It is the tax deduction that allows the tax code to favor some segments of society over others, decrease the amount of revenue the government needs to properly fund the programs our society deems important, and leads directly to waste, fraud and corruption.
No serious attempt at tax reform can take place without addressing this problem. Therefore, abolishing the tax deduction is the first and most important reform that must take place. When combined with a simple restructuring of the tax code, these simple reforms create a tax system that treats everyone equally. And, when everyone is treated equally three things happen: First, the current codes ability to favor some segments of society over others is eliminated. Second, tax fraud will decrease. And third, government revenue will increase.
For example, in order to increase tax revenue from corporations we must first change the tax structure that allows businesses to reduce, delay or eliminate the taxes owed. Currently, corporations subtract from their gross sales those deductions found in the tax code and labels the resulting number the net profit. This figure is then used as the basis for determining the taxes owed. The first $50,000.00 of net profit is taxed at 15% and above $50,000.00 of net profit the tax increases up to 35%. This creates a very strong incentive to add as many deductions to the tax code as possible in order to reduce the net profit so that the corresponding tax liability is lowered.
The solution is to replace the tax on net profits with a small tax on the gross sales. By definition, the tax on gross sales means that there are no deductions. This reform eliminates the ability of corporations to use the deductions found in the tax code to reduce, delay or eliminate the taxes owed, eliminates the corruption associated with the current tax code, and creates the level playing field that requires all corporations to pay their fair share of taxes. And, when all corporations pay their fair share of taxes, government revenue increases.
The small tax on gross sales also produces a very small corporate tax liability. In fact, the business tax corporations will now be required to pay is so small that employer payroll taxes can be expanded to include National Health Care and still produce an overall tax liability lower than what corporations are currently required to pay. This overall lower tax liability will be the basis for corporate acceptance of their expanded payroll obligation.
These same principles apply to individual taxes. When deductions are eliminated, the ability of individuals to reduce, delay or eliminate the taxes owed comes to an end. This means that the scenario that now occurs, where wealthy individuals end up paying less in taxes than poorer individuals, is no longer possible. This translates into increased revenue for the government.
The elimination of personal tax deductions also heralds the end of personal income taxes. The elimination of income taxes presents as a tax reduction and this tax reduction allows for the expansion of payroll taxes to include National Health Care and Public Education. These new payroll taxes will be readily accepted because individuals will still be paying less in overall taxes and yet will receive more in benefits. Most people will simply wonder why these reforms had not been implemented earlier.
The elimination of tax deductions and a simple restructuring of the tax code needs to be implemented as soon as possible. This is because government revenue raised under the current system is inadequate. For example, in fiscal 2007 the government collected $2.4 trillion dollar, however, it spent $2.8 trillion dollars. This created a deficit of $400 billion dollars and this $400 billion dollars was added to the national debt (which is rapidly approaching $10 trillion dollars). Contrast these amounts with the revenue generated by the reforms set forth in my proposal. Based on very conservative numbers, my tax reform plan will increase government revenue from $2.4 trillion dollars to a staggering $3.31 trillion dollars. This means that rather than running a budget deficit we will be running a budget surplus.