Reforms II. Funding the Government.

US Federal government funding is completely out of balance. Nearly all its revenues come from taxes on incomes of one kind or another: personal income taxes, corporate income taxes, and taxes on employment earnings. Europe does not do this; its funding mechanisms include big value added taxes to spread the cost of government much more broadly. Value added taxes even make consumers of imports pay for the cost of government, while in the US, consumers of imports get a free ride.

Historically, the US government was funded by tariffs and excise taxes on specific good and services. Perhaps coincidentally, the US had enormous economic growth then. All that changed when taxes on incomes were made constitutional.

The funding imbalance causes huge losses to the US economy and people. Taxes on jobs reduces the number of jobs; letting import consumption get a free ride hurts US based production and ... costs more good jobs.

The US needs to re-balance its funding sources. How?

1. Eliminate ALL taxes on jobs: no Social Security taxes, no Medicare taxes, no other taxes on employment earnings.

2. Put on a big, European style value added tax - or excise tax - on everything, including imports: something in the range of 10-15% could work. The rich would pay a lot as they spend their money; even old art would be taxed.

3. Reform the personal income tax to (A) eliminate ALL deductions and ALL adjustments to income, (B) put in a BIG personal exemption, perhaps $20,000 for each adult and $5,000 per child, and (C) lower the rate to something like 15%. Tax ALL personal income equally, including municipal bonds.

4. Corporate tax reforms: (I) eliminate the deduction for interest expense (must be phased in over time) except for (a) banks and finance companies (as interest for them is an ordinary cost of business) and (b) working capital loans; (II) tax US corporations on worldwide income - no more free ride on income in foreign lands; (III) eliminate deductions for ANY compensation above a fixed number such as the salary of the US President; (IV) permit expensing of all machinery and equipment as paid; (V) lower the corporate rate to something like 15%; (VI) include a big small business exemption of something like $1 million; (VII) move all other deductions for business expenses to a cash basis (this will simplify everything).

5. Estate Taxes: (I) eliminate this entirely, but (II) require all capital gains be realized on death and the taxes paid. Eliminate gift taxes.

6. Foundations: require all foundations to expend ALL monies within 21 years of creation - no perpetual tax free institutions. This eliminates the creation of modern day monasteries owning everything, and fairly quickly recycles all the wealth of the Ruling Class.

This system of funding the government is simple, containing only a few rates and variables such as the exemption levels. It has LOW rates and is fair to the common man and woman. It removes tax subsidies for the Ruling Classes and big corporations. It removes taxes on jobs and even has a simple incentive to hire more people below the executive suite.

TOMORROW: The safety net for the common man and woman.

Word of the Day

"Piacular" - adjective [$10] formal.
Piacular means expiatory; 2. needing expiation.
Sentence: Tossing salt over one's left shoulder after spilling salt is a simple, piacular sacrifice: a bit more salt is lost, but the demons are appeased. [Salt was a very valuable commodity in ancient times.]