Subject: New Tax Model Comment: Tax Model Component I - Eliminate all Federal taxes, i.e., gasoline tax, income tax, luxury tax, social security, Medicare, etc., on workers/consumers and products. Replace all Federal Taxes with two simple taxes: 1) A Tax on business gross income (GDP) and, 2) 2), Replace Social Security with a flat employer tax similar to Social Security levels currently paid by employers. Component II - Business Tax on GDP Implement a general business tax (VAT). It would be a combination of both a “flat tax” and a national sales tax. The new tax would be paid on all revenue from all companies that provide products and services to consumers as defined by GDP. In that there will be no tax on profits, no capital gains tax, no depreciation, no need for tax avoidance staff, etc., all defined companies would pay the tax Impacts Government · Tax Revenue Linked to GDP. Linking a business revenue tax to the GDP would provide much more predictability and stability in revenue projections and collection. A national sales tax paid by consumers at the point of sale usually is based on the purchase of products. Services, such as legal, medical, etc, while included in the GDP are not usually taxed. Using the GDP definition, a tax on business revenues makes more since than a national sales tax. · Trillions of new dollars into the economy. The “multiplier effect” of each tax dollar not paid would add billions to company revenues and trillions to the GDP. · Reduce the size of IRS. The cost of processing millions of individual tax returns would be eliminated. Collections would only be from GDP companies thus significantly reducing resources required to collect and process yearly tax returns. · Establish a more cooperative relationship between government and commerce. If the government has to rely on companies and companies have to pay for the government stronger and more cooperative and efficient agreements, implied or explicit, will emerge. While it is true that the GDP companies will pay for government, the increased revenues received by the companies would much more than offset the business tax they would pay. Further, as the GDP grows and government needs decline, the percentage rate will continue to drop until it reaches a minimum plateau. · Get on the bandwagon. The business revenue tax in already occurring as “surcharges”, etc., at state and local levels. It is a natural evolution of a capitalist economy. Even state and local governments recognize the evolution and are using their knowledge and experience to increase their revenues. · Perception. The consumer will not see the tax on GDP. However, if a national sales tax is put in place, consumers will not only see the state and municipal taxes (5-10%) but an additional 15-17%. When they pay and additional 25%will be added. Most consumers would not be happy with that and believe the “governments” are ripping them off. Companies · Maximizes profits for companies and dividends for investors · Minimizes government intervention into affairs of responsible companies (over time). · Trillions of new dollars into company coffers. The “multiplier effect” of each tax dollar not paid would add billions to company revenues. · Establish a more cooperative relationship between government and commerce. If companies pay the government tab, they will force the government to become more efficient so the tax rate can be lowered. When the government becomes more efficient and the GDP grows, the percentage rate will drop until it reaches a minimum plateau. Companies and government are two parts of the check and balance loop. · Reduced company expenses at multiple levels, especially the number of accounting and tax employees because they are not needed. · Manufacturers and distributors who do not sell to a consumers (not included in the GDP definition) can reduce their expenses and become more competitive with off-shore manufacturers. · Perception. In the event a national sales tax is put in place, consumers will believe that companies that “charge” them a high tax rate “are in cahoots with the government. Most consumers would not be happy with companies or government. Consumer/Employee · Consumers have full ownership and responsibility for their consumption and economic actions. · Full capacity for consumers to spend, save or invest. · Single versus Many Taxes. No consumer/employee is taxed at the federal level (no luxury tax on telephone services, or other luxury items, no gasoline tax, etc.) Other Advantages · Is the last and final stage for full realization of a true capitalist economy; only one step remains in the final stage · Can be used to pay off national debt, balance the budget and resolve social security solvency issues during transition phase. Component III - Who sets the tax rate? (The flat tax and the 3rd part of the check and balance) Since GDP companies would support all of government, companies would not want the government to set the rate for the “fox would be watching the henhouse.” Similarly, the government would not want the companies to set the rate because, again, the “fox would watching the henhouse”. The proper solution is that the tax rate should be set by a “super majority” vote on the off-year elections between the presidential elections. In the event a “super majority” votes fails, the tax rate will remain the same as the previous period. Component IV - Social Security - Social Security Tax would change from current model to a model where companies pay a flat rate for each employee and collects nothing from the employee. The amount paid could be determined through an algorithm similar to the following. (The company-matching portion for an employee making $75,000 per year is around $4,800 per year or $400 per month.) The new plan would then require each company to pay $400 a month for each employee or some variance of this amount. This method could be used instead of increase the social security rate on high-income workers. Social Security taxes collected from employers should be segregated and placed in escrow so that the current situation does not happen again. · All employees would benefit because no social security would be deducted from the workers income. · Low-income workers would benefit because more funds would be placed into their government retirement account. · All would benefit because what is normally deducted could be invested, spent or go into a retirement account. Other Issues · Would eliminate mortgage interest deduction. This may cause a drop in real estate values. · Period to reset the rate. The tax rate would be voted on during the election between the presidential elections. · How to monitor companies that lie about their sales revenue and therefore, the tax owed. o Public company annual reports match stated revenue o Non public companies could be compared to peer companies levels |