“The Purple Tax Plan”

This is not “purple” in the sense of “Purpleslog”, but it would be a vast improvement over what the US has now. What I also like about this plan, is that it covers the transition from what we have not to the plan.

Anyways…here it is:

Principles of Tax Reform

  1. Our federal tax system is broken and needs fundamental reform.
  2. Our new tax system should be simple, transparent, and efficient.
  3. Our new tax system should improve incentives to work and save.
  4. Our new tax system should operate with very low compliance cost.
  5. Our new tax system should ensure that all Americans pay their fair share of taxes.
  6. Our new tax system should ensure that our poorest citizens face very limited taxation.
  7. Our new tax system should be progressive, with the rich paying a larger share of their resources.

The Purple Tax Plan

  1. Replaces the personal and corporate income taxes with a 17.5 percent retail sales tax on consumption.
  2. Taxes consumption of all final goods and services, including services derived from boats, planes, and owner-occupied homes.
  3. Permits those in economic distress to defer paying taxes on the consumption of housing services.
  4. Includes in the tax base all consumption expenditures by households, governments, non-profits, and businesses.
  5. Requires those living or traveling abroad to pay taxes on annual consumption expenditures made abroad above $5,000.
  6. Provides the option to pay all or part of one’s consumption tax up front in the form of a 15.0 percent tax on wages and wealth. (Paying 15.0 percent up front is equivalent to paying 17.5 percent at the store.)
  7. Provides an electronic sales tax credit for use when shopping, which exempts one dollar of consumption purchases from the 17.5 percent retail sales tax for every dollar on which taxes are paid up front.
  8. Unused sales tax credits earn interest so that there is no tax advantage to spending early.
  9. Provides a monthly retail sales tax rebate/demogrant to all households based on family composition.
  10. Rebate/demogrant set high enough to ensure that those at or below poverty line pay no tax on net.
  11. Exempts the first $40,000 of earnings from the employee portion of the FICA payroll tax.
  12. Eliminates the ceiling on FICA taxation.
  13. Subjects to FICA tax all income from ownership rights derived from businesses in which one works.
  14. Taxes at a 15.0 percent rate the cumulative value, above $1 million, of all gifts and inheritances received, directly or via trusts, with the government making appropriate tax deferral arrangements for receipt of illiquid gifts and inheritances.
  15. In transiting to the new system, taxes at a 15.0 percent rate pensions and 401(k), regular IRA, and other tax-deferred retirement account assets on which future taxes are due.
  16. In transiting to the new system, taxes businesses and individuals on unrealized capital gains, calculated as of the date of the reform, on existing asset holdings.
  17. Maintains the real purchasing power of Social Security benefits; increases in prices due to the retail sales tax will raise the CPI and lead to proportionately higher benefits due to the system’s CPI indexing.

Here is a different take.

I Hate the US IncomeTax System

I finished my taxes at 2am this morning.

I hate the system.

Its not just that different rules seem to apply to elites getting high government office, the system itself wasteful in operation, and has been twisted to support the legal graft done by elites and lawmakers.

The US needs a better system.

I wrote once:

There are two big reasons for Tax Reform:

1. Reduce Compliance costs (leads to less disruption in economic decisions, increased economic growth rate)
2. Reduce Power of Special Interests (which disrupt the economy and political process)

I still roughly think like this:

I don’t like paying taxes on wasteful things and bloated bureaucracies, but I don’t mind paying them for efficient government activities. That being said, the tax system is too complex, costs too much and has too many bad incentives and loopholes. I favor switching to a flat tax system for individuals based on either income or consumption. I favor switching to a flat tax of cash flow system for C-style Corporations (if we are still going to tax C Corps, that is). This can be revenue neutral, but will have the positive effects of costing less in compliance and regulation, and will reduce the distortion of economic activity.

Read more here.

Yes,that is my voice. Ladies, trust me…I sound like Frank Sinatra in the shower.