Saturday, June 4, 2016

Tax Reform For Jobs 2016

Radical tax reform is needed to save our US economy and the middle class. First, we need to go to a 20% value added tax (VAT) for goods and services consumed within the US. Next, we need to eliminate all income taxes on all US businesses. Only when cash and property is distributed from a business to an individual then such distributions (including any type of distribution, dividends, wages, royalties, and interest) will be taxed to such individual at regular income tax rates. Dividends and capital gains would no longer be afforded lower tax rates for individuals. The individual tax rate brackets and tax rates should remain unchanged.

To maintain the standard of living in the US and compete in a global economy with cheap labor markets we need to eliminate business income tax and provide a subsidy to businesses that pay decent compensation to its US employees. Compensation would include wages and benefits like health insurance, 401K, and life insurance provided to US employees. US businesses will be paying taxes to the US Treasury for the employer’s share of employment taxes (FICA and Medicare). The subsidy paid to a US business will be based on compensation paid to an employee which includes wages and benefits. A business paying a compensation package staring at $40,000 will receive a 15% subsidy for such employee. Compensation package over $65,000 will be limited to a subsidy at 15% of $65,000 ($9,750).

This subsidy will help US businesses provide health care coverage for its employees. This is a better plan for US health insurance coverage which involves businesses being purchasers of health insurance products which creates market competition of insurance and medical coverage. Many foreign countries have universal health coverage funded by taxation, but the US should fund a substantial amount of its US health coverage privately through subsidies to US businesses.

The subsidy to US businesses will in part be funded by the 20% US VAT. US exports are not subject to US VAT but are usually subject foreign VAT. Remember the US VAT will also include foreign imports (goods and services) consumed within the US.  Instituting a VAT system in the US will put us on equal footing with other countries who tax US imports into foreign nations with a foreign VAT. With no US income taxes on businesses (along with the US subsidy) our foreign exports will be able to compete at an advantage in foreign markets of foreign countries that have a business income tax.

Let us look at China imports with cheap labor costs. China imposes a business tax rate of 25% on its own businesses. If the US has a 20% US VAT on all goods and services consumed in the US and along with the  Chinese income tax on its own businesses these two  taxes together will greatly increase the price of Chinese goods to US consumers. Even though US goods and services will be subject to the same 20% US VAT, US businesses will not be subject to any income tax and will receive a government subsidy for decent compensation paid to its US workers.  The 15% subsidy to US businesses will greatly reduce the price effect of the 20% VAT on US goods and services consumed within the US.

The subsidy of US compensation will not be made to any governmental agency or to any charitable organization. Governmental agencies are subsidized by taxes and charitable organizations are subsidized by charitable contributions which are tax deductible for Federal Income Tax purposes for individual taxpayers.

All US businesses will file a world-wide information tax return showing an income statement, balance sheet, and statement of cash flow along with a listing of all US employee compensation by each employee in order for such business to receive the government subsidy. The US Government should examine the business information tax return along  with analyzing books and records to ensure that all distributions are properly accounted for or look for money or property being diverted to any individual from US taxation.

Also, the US Government will analyze each business balance sheet to make sure that there are no excessive accumulations of cash and investment retained above reasonable needs for the operations of such business. The US Government already has Code Section 531 that imposes an Accumulated Earnings Tax on subchapter C corporations that  have excessive earnings retained as evidenced by excessive accumulations of cash and investment above reasonable needs for the operations of such business. US businesses need to invest in business operations that create jobs and not just hoard cash or cash equivalents. This same law should apply to all US businesses once all US businesses taxable income is no longer subject to US taxation.

Individual income tax returns should be simplified. Since businesses profits will no longer be taxed, we will not have any flow-thru entities (such as partnerships, S-Corps, and LLCs) being reported on individual tax returns. This too will eliminate tax shelters with fictitious losses showing up on individual tax returns since no business profits or losses will be reported. Only distributions from a business will be reported as income on a individuals tax return. Rental activities may or may not be reported as a separate business entity, but if not reported as a stand alone business entity any rental loss will no longer be allowed as a loss on an individual tax return. With the new tax law change regarding business entities being reported as stand alone entities, no losses should appear on any individual income tax return except that of a capital loss.

Any distribution not properly reported by a business or an individual such unreported distribution will be subject to income tax to the individual who received the distribution benefit and a 10% penalty tax to the business not properly reporting the distribution.  Also, for activity of a business and/or individual not filing tax returns or information tax returns such individual will be taxed on unreported income when the cash hoard or property is discovered by the US Government.

Tuesday, July 2, 2013

Tax Reform for Jobs 2014

Radical tax reform is needed to save our US economy and the middle class. First, we need to go to a 20% value added tax (VAT) for goods and services consumed within the US. Next, we need to eliminate all income taxes on all US businesses. Only when cash and property is distributed from a business to an individual then such distributions (including all distributions, dividends, wages, royalties, and interest) will be taxed to such individual at regular income tax rates. Dividends and capital gains would no longer be afforded lower tax rates for individuals. The individual tax rate brackets and tax rates should remain unchanged.

To maintain the standard of living in the US and compete in a global economy with cheap labor markets we need to eliminate business income tax and provide a subsidy to businesses that pay decent compensation to its US employees. US businesses will be paying taxes to the US Treasury for the employer’s share of employment taxes (FICA and Medicare). The subsidy paid to a US business will be based on compensation paid to an employee which includes wages and benefits (like health insurance). So a business paying a compensation package of $35,000 to $44,999 will receive a 10% subsidy, payment of $45,000 to $54,999 will receive a 15% subsidy, and payment of $55,000 to $65,000 will receive a 20% subsidy. Compensation over $65,000 will be limited to a subsidy at 20% of $65,000.

The subsidy to US businesses will be funded by the US VAT. US exports will not be subjected to US VAT but are usually subject to foreign VAT. Remember the US VAT will also include foreign imports (goods and services) consumed within the US.  Instituting a VAT system in the US will put us on equal footing with other countries who VAT tax US imports. Let us look at China imports that have cheap labor costs. China imposes a business tax rate of 25% on its own businesses and along with the 20% US VAT imposed on foreign imports these two added taxes will greatly increase the price of Chinese goods to US consumers. Even though US goods will be subject to the 20% US VAT, US businesses will have goods and services not subject to any income tax and will receive a government subsidy for decent compensation paid to its US workers which will reduce the effect of the US VAT of US goods and services consumed in the US.

All US businesses will file a world-wide information tax return showing an income statement, balance sheet, and statement of cash flow along with a listing of all US employee compensation by each employee in order for such business to receive the government subsidy. The US Government should examine the business information tax return along  with analyzing books and records to ensure that all distributions are properly accounted for or look for money being diverted from US taxation distributed to any individual. This tax reform will keep US multinational corporations from leaving the US and may draw other foreign corporations into the US.