Tax and business reform will solve a lot of problems

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May 2010

Comprehensive changes in taxation and reform of business practices would provide adequate resources to tackle failing infrastructure, our education challenges, spiraling national debt, and other demands on our tax dollars. Here are some proposals:

Federal income tax

            Increase the personal exemption to $10,000 per adult, double for seniors, and an additional half that amount for certain disabilities and half that amount for each dependent. Eliminate the deductions on Schedule A and the alternative minimum tax. Add tax bracket of 5% with bracket of $20,000 at the lower end and add 45% and 50% brackets at the upper end with the top bracket starting with income over $5 million. Dividends and half of Social Security income would be taxed as ordinary income. The other half of Social Security would be exempt for all recipients. Eliminate different rates for single, head of house, and married, but a persons could enter into partnership arrangements for tax purposes with family members or friends.  Capital gains distributions require more consideration than I have space for here.

Michigan taxes

            Increase the personal exemptions to the same as federal. Increase the income tax rate to 4.5% and the sales tax to 7%. Pensions would no longer be exempt from income tax. Bring the property tax back to local control.

Social Security

            All earned income must be subject to the tax and all people must be included. Increase the normal retirement age to 70 with substantial reductions for early retirement. The trust fund would be shielded from spending for purposes other than providing Social Security benefits.

Business reform

            A gross example of judicial activism is the Supreme Court’s interpretation in 1886 of the Fourteenth Amendment to mean that a corporation has rights as if it were an individual; in other words, a “legal person”. The Supreme Court in January 2010 in the Citizens United case extended this right to include the right to give unlimited amounts to political campaigns anonymously. (1)

            If this interpretation is to continue then the corporation must be taxed the same as individuals. There is no need to have a separate rate for corporations. On the other hand, if we eliminate this understanding of a corporation as a legal person, then I would be in favor of a different tax rate for corporations with a tightening of what is deductible or tax exempt. Dividends paid by a corporation should be a business deduction.

            Profits are one of the motives for entrepreneurs and investors. However, the ability to give benefits to executives with few restrictions must end. These perks must be taxed to the individual as ordinary income or give them the salary and let them buy their own perks.

            The practice that allows corporations to avoid taxes by establishing headquarters in the Cayman Islands or other off shore locations while the majority of their business is in the US must be forbidden.  Billions of tax dollars are lost each year by this method of legal tax evasion.

Other reforms

            The granting of tax abatements to businesses as incentives to build or expand must end across the nation. The ban would put all businesses on an even playing field. Communities could use the taxes lost by abatements to provide excellent schools and superior infrastructure, strong incentives for business location.

            The government must stop using the right of eminent domain for the purpose of giving or selling land to a potential business. Poletown in Hamtramck stands as a stark reminder of the foolishness of such action.

            Health insurance must be taken out of the domain of an employee benefit. This current arrangement hampers individuals who are self-employed or temporarily out of a job. It also hampers business in providing the product or service competitively. Premiums could be exempt from income tax.

Other taxes

            It is time to initiate a value added tax, the primary tax that is used by most industrialized nations to finance government services. We should also raise the federal and state tax on gasoline with appropriate credits for poor people and long distance commuters.

Tax enforcement

            Congress must give the IRS the money needed to enforce the tax laws and the tools to carry out their functions especially to scrutinize the returns of the wealthy who have more ways to avoid taxes than lower income and middle income citizens, who were targeted in the late 1990’s.

Conclusion

These tax changes would provide tax fairness. The Business reforms would move us closer to free market capitalism. They would begin to solve the challenges cited in the first paragraph. If you agree with this column, send it to your government legislative leaders and talk about it among people you know. It could be the start of a conversation in a Coffee Party USA. (2)

 

(1) Think Progress, May 4, 2010.

(2) Coffee Party USA http://www.coffeepartyusa.com/content/about-us