Saturday, May 13, 2017

My Tax Plan

As I get more and more into politics and economics I strive to one day be a policy wonk. I've been listening to podcasts like Vox's The Weeds, where they dissect and analyze public policies like the ACA, Trump's AHCA, tax policy, and trade policy, and I've become fascinated by the intricacies of policy.

Now I'm far from a policy wonk myself, and I'm still in the process of learning. What I'd like to do here is spend a few posts exploring policy proposals I've been floating around in my (still learning) head.

There is no doubt that we need tax reform in the US. The tax laws are weighted far too heavy on labor, and in particular middle class labor, who often pay a higher percentage of their income on taxes than do he rich. I've previously floated the idea of a graduated sales tax in lieu of an income tax around, but here I want to propose the tax plan that I'd implement if I was president.

Federal tax rates for individuals:

Income amount Tax rate

0 – 2,500  0.00%

2,500 – 10,000 10.00%

10,000 – 40,000 15.00%

40,000 – 90,000 25.00%

90,000 – 150,000 28.00%

150,000 – 250,000 33.00%

250,000 – 500,000 35.00%

500,000 – 1,000,000 40.00%

1,000,000 – 10,000,000 43.00%

10,000,000 – above 45.00%

For the first $2,500 dollars of earned income there would be no taxes. This is intended to give the poor and middle class some tax relief. This plan raises the highest rates to 45% and generally lowers the rates for those at the bottom of the brackets. The current tax rates top out at 39.6% for income above $418,400. But to me there should be additional tax rates for the super wealthy, as there's a huge difference between a relatively wealthy person making 500k a year, and a super wealthy person making 20 million or more a year. The person making 20 million or more a year shouldn't be paying the same rate top rate as the person barely cracking 500k.

I'd also raise the alternative minimum tax to be no lower than 25%. For capital gains, our current rates of 15% and 20% are too low. A friend of mine recently proposed an idea I like for the capital gains tax rates. For every year you hold onto stock a certain percentage of your capital gains income will be exempt from any tax, and the rest would be taxed at the regular rates. So for example, If I buy stock and sell it immediately, all of it is subject to the regular income rates. If I hold onto it for 5 years, than 25% of it is tax free, the rest gets taxed at the regular rates. If I hold onto it for 10 years, 50% is tax free, the rest applies at the regular rate. 50% would be the maximum amount that's tax exempt. This would encourage long term investment and discourage short term trading. The rates would be:

Years holding stock Percentage exempt from taxes

0 – 1 week 0.00%

1 week – 1 year 7.50%

1 – 2 years 10.00%

2 – 3 years 15.00%

3 – 4 years 20.00%

5 – 6 years 25.00%

6 – 7 years 30.00%

7 – 8 years 35.00%

8 – 9 years 40.00%

9 – 10 years 45.00%

10 or more years 50.00%

I'd also raise the cap on the payroll tax from its current cap at $118,500, to $10,000,000. This would allow Social Security and Medicare to be funded for many more decades. The fact that millionaires and billionaires only pay the payroll tax on a tiny proportion of their income, whereas all poor and middle class Americans pay it on their entire income makes little sense.

I'd also be open to giving new small businesses tax breaks. So for example, in their first 3 years of business they pay the lower corporate tax rate of 15% on all profits instead of the graduated rates which can be as high as 39% of income between 100-335k. This can help new startups keep as much of their profit in those early years where they're still establishing their footing. If they hire more than a certain number of people, like say 25 or more, then additional tax breaks would apply. I'd also get rid of much of the loopholes that corporations use to pay far less than their share of taxes according to the standard rates.

We need to shift the burden of taxes away from the middle class and more onto the rich, and away from labor and more onto corporations — whose share of tax revenue has been dropping over the past 60 years. Right now our tax codes shift the burden onto those who can least afford it, and it allows the wealthiest among us to pay less as a percentage of their income. That makes no sense.

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