Income tax should be simple. I believe that taxes should be reduced to a simple calculation. I reviewed the Internal Revenue Service’s tax revenue generation and found that applying a simple rate between five to fifteen percent, the United States can generate the same revenues without all of the multiple calculations currently necessary,
I would just tax the gross income earned by individuals and corporations. Starting with individuals, I would provide the following tax structure.
For the first twenty-five thousand dollars, I personally would not pay any tax, income, social security or Medicare. The company that person works for would pay the employer portion only.
For the next twenty-five thousand dollars, or up to fifty thousand dollars, the person would pay the employee portion of Social Security and Medicare.
From fifty thousand to one million dollars, a person would pay five percent of their income as income tax. For example, someone making one-hundred thousand dollars would pay twenty-five hundred dollars plus their portion of Social Security and Medicare. Someone making one million dollars would pay forty-seven thousand five hundred dollars.
From one million dollars to ten million dollars, a person would pay seven to ten percent of their income as income tax
Over ten million dollars would be taxed at between ten and fifteen percent.
There would be no distinguishing between earned and unearned income. No more capital gains tax, no more estate taxes. All income would be taxed the same. Distributions from estates, trusts etc., would be taxed at these rates.
The only deductions from taxable income would be a limited deduction for retirement accounts, whether individually or through a company, and the actual cost paid for something to be sold.
For retirement accounts, this would be capped at a maximum percentage and maximum dollar amount. Further, there would be no limit on the type of account, so that if a company offered a 401(k) retirement account, an individual may contribute to that and/or an individual retirement account, to the maximum amounts.
Like a corporation described below, a person who buys and sells items would be able to deduct the cost of the item from the sale price for tax purposes. This would include the cost of a stock, so if you bought google at $100 and sold it at $125, you would show the $25 as taxable income. That way, if you do sell at a loss, you can offset other income by the loss.
Corporations would be treated the same way, although with the break points set higher and the rates overall a little lower. Further, corporations would get to deduct two items, the first being the retirement account payments as stated above, and the actual direct cost of manufacturing a product or purchasing inventory. The direct costs would consist strictly of the direct materials costs and the direct labor costs of producing a product. Inventory would be the amount paid for the product to be sold.
Utilizing the Internal Revenue Service’s own statistics on how much is collected based upon adjusted gross income or net corporate taxable income, a gross income tax would not affect the gross revenues raised by the income tax.
This way, everyone is treated equally, you know how much you would have to pay in taxes. It would have to be tweaked in order to encompass those few areas that affect gross income, but it should be limited to very identifiable and limited deductions.