Posted this in the Buffett thread, and the more I think about it, the more it seems to me that it deserves its own thread. This would require a Constitutional amendment, and I don't foresee this proposal receiving any kind of serious support on Congress-- this would gore a lot of personal oxen and for the most part take envy politics off the table as far as pandering to the electorate.
I don't have the exact language prepared out, but here's the gist of the Constitutional amendment:
- All Federal State and Income taxes must use this system, but the Federal government and the individual States are free to set their tax rates separately.
- The Federal government gets its bite first; State income taxes are based on income after Federal taxes are withdrawn.
- EDIT:The tax brackets are Constitutionally defined based on multiples of the previous year's poverty line: >1x, >2x, >4x, and then each subsequent doubling.
- EDIT:The tax rates are based on a base tax rate set by Congress. There is no tax on income up to the poverty line. The first tax bracket starts at the poverty line and is taxed at the base tax rate; each the tax rate on each subsequent tax bracket is increased by one-half the base tax rate. (So, with the recommended base tax rate of 10%, it's 10%/15%/20%/25% and so on.)
- EDIT: The maximum income tax bracket is the first tax bracket at or above 90% at the current base tax rate; income in the maximum tax bracket is taxed at 90%.
- There are no rebates, deductions, or exemptions allowed on the income tax. (Dependents already affect poverty line and thus tax brackets.) Households may claim any person as a dependent who lives in the household and does not file taxes separately.
- The capital gains tax is replaced by a transaction tax paid buy the seller on all sales of securities equal to the base tax rate. First sales and single-family dwellings are exempt.
- There is a tariff on all goods entering the country, and a surcharge on all wages and salaries paid to non-citizens, equal to the base tax rate or the rate of that country's import tariffs on American goods, whichever is higher. Countries may be exempted from this tariff by the authority of the President and a supermajority vote of both Houses of Congress.
- The following forms of taxation are abolished and declared unconstitutional: consumption taxes, corporate taxes, payroll taxes, inheritance taxes, property taxes, and capital gains taxes.
- The following forms of taxation are explicitly permitted by Congressional and/or State authority: usage fees, transaction taxes, and excise taxes.
- The government must maintain a balanced budget except during times of war and national emergencies as determined by Presidential order and supermajority vote of both Houses of Congress.
- The Social Security program receives 10% of all income tax revenue; the Social Security fund is separate from general revenue and cannot be borrowed, appropriated, or spent for any purpose except the operation and administration of the Social Security program.
- The amendment authorizes the creation of the American Economic Stimulus and Reinvestment program, which is funded separately from the general revenue.
This plan accomplishes a lot of things:
- EDIT: Everyone above the poverty line bears a portion of the tax burden. Nobody gets more money back from the IRS than they paid to the government.
- Politicians can't promise to raise taxes only "on the rich" to spend more money on the poor; when they raise taxes, everyone pays more taxes, and when they cut taxes, everyone pays less. Likewise, they can't use tax incentives to shift the actual tax burden downward onto the middle class.
- It encourages families to have more children, and the wealthier they are, the more it encourages them. Splitting inheritances up between more heirs also makes up for the lack of an estate tax.
- It encourages honest equity investments over speculation and closes the "capital gains" loophole that allows the wealthy to avoid paying income taxes.
- It relieves corporations of their domestic tax burden, allowing them to hire more Americans and encouraging them to keep their operations in America, while discouraging them from outsourcing jobs.
- It creates a special Federal government fund for economic investment.
Now, for the investment fund. A lot of people say "Keynesian" like it's a bad word, like one of the giants in the fields of economics would have seriously suggested that an economic powerhouse amass a mind-boggling national debt and run a deficit budget year after year. The key idea in Keynesian economics is that the natural boom-bust cycle of capitalist economics can-- and should-- be moderated by government spending by having the government run surplus budgets in boom years and running deficits in bust years to encourage the economy to pick back up.
The problem is, the country's being run by a bunch of short-sighted jackasses.
So instead of relying on the government to exercise proper restraint with "bailouts", the AESR fund is created. All of the revenue generated by the transaction taxes, tariffs, and alien surcharges is used to fund the AESR which re-invests in the American economy and maintains a discretionary budget for stimulus programs.
- The AESR is managed by its own agency within the Treasury Department.
- AESR funds cannot be spent without the authorization of the President and a supermajority of both Houses of Congress and each "bailout" must be authorized separately.
- At the end of every fiscal year, the AESR invests 25% of its remaining budget in American companies with an emphasis on long-term income (determined by the agency itself), and 25% of its remaining budget equally in a list of companies authorized by Congress (for stimulus purposes) when the budget is passed. These funds may not be sold or transferred under any circumstances, but the allocation of new investments can be changed.
- Dividends from AESR investment funds are paid into the AESR fund budget.
- Congress may, on its own authority, allocate additional funds from the general revenue into the AESR fund when the government is not under an economic emergency.
EDIT: Per Goshin's suggestion, I have modified my proposal to include a maximum tax bracket of 90%.
At the proposed 10% base tax rate, the 90% tax bracket is reached at $713,687,040 dollars for the fiscal year 2011. At 11%, it would be $356,843,520.