Submitted for your approval/disapproval... a tax plan

Great Debates
1

I’ve been kicking it around for a few years now, haven’t really said it out loud.

Here it is…

Income tax-

The first $10,000 per year any individual makes is theirs, tax free. The government doesn’t need to be putting it’s hands in the pockets of people who are just scraping by, barely providing themselves with the necessities of life.

The second $10k, you pay $1 per thousand of income.
The third $10k, you pay $2 per thousand.

And so on up the line.

No adjustments for dependents.

No deductions for charitable contributions. I have long regarded this as a means by which the less well off (who cannot afford to give enough to make their contributions itemizable and deductible) subsidize causes favored by the rich, through the rich being able to get tax breaks.

Social Security-

As the situation stands, SS taxes are paid only on the first fifty thousand dollars of a person’s income, which means that the higher income folks are given a break.

I propose that for people making $20k per year or less, the SS tax be cut to a quarter of its current rate. People who are making $20-$50K per year would pay half the current rate, while the $50k and up crowd pay at the rate currently levied on all Americans, and pay it on all of their income.

Distributions of SS funds would be determined by need, figured on post retirement income from pensions, IRA’s, investments, etc. I’m not going to give figures for this, but basically, the less a person’s post retirement income from private sources is, the bigger the SS check would be. No more poor elderly who scraped by on low wage jobs with employers who didn’t provide pensions during their working lives and who didn’t earn enough to be able to make investments sufficient to support them during their declining years getting a paltry $500 per month while their wealthier counterparts with IRA’s, pensions and mutual funds get a nice $800 check to supplement their incomes.

Also, the age of retirement would be raised from 65 to 72, except for cases of disability.

What say, fellow dopers? Do we give the low income working folks a break?

2

Under this plan, including my stock options, I would pay $224 taxes? That is an AWFUL lot less than what I pay now. There is no way this would provide enough money. A person who makes a million dollars a year would only be paying $99,000 - less than 10%???

3

I don’t think this will cut it, in terms of income generation. Plus it doesn’t allow anyone to make more than about $10M without paying more in tax than their total income. Using Excel, here’s a sampling of tax for various incomes:


$10,000 	$0
$20,000 	$20
$30,000 	$60
$40,000 	$120
$50,000 	$200
$60,000 	$300
$70,000 	$420
$80,000 	$560
$90,000 	$720
$100,000 	$900
$110,000 	$1,100
$120,000 	$1,320
$130,000 	$1,560
$140,000 	$1,820
$150,000 	$2,100
$160,000 	$2,400
$170,000 	$2,720
$180,000 	$3,060
$190,000 	$3,420
$200,000 	$3,800
$300,000 	$8,700
$400,000 	$15,600
$500,000 	$24,500
$600,000 	$35,400
$700,000 	$48,300
$800,000 	$63,200
$900,000 	$80,100
$1,000,000 	$99,000
$1,100,000 	$119,900
$1,200,000 	$142,800
$1,300,000 	$167,700
$1,400,000 	$194,600
$1,500,000 	$223,500
$1,600,000 	$254,400
$1,700,000 	$287,300
$1,800,000 	$322,200
$1,900,000 	$359,100
$2,000,000 	$398,000
$2,500,000 	$622,500
$3,000,000 	$897,000
$3,500,000 	$1,221,500
$4,000,000 	$1,596,000
$4,500,000 	$2,020,500
$5,000,000 	$2,495,000
$5,500,000 	$3,019,500
$6,000,000 	$3,594,000
$6,500,000 	$4,218,500
$7,000,000 	$4,893,000
$8,000,000 	$6,392,000
$8,500,000 	$7,216,500
$9,000,000 	$8,091,000
$9,500,000 	$9,015,500
$10,000,000 	$9,990,000

Under this tax plan, all income after $5M reduces a person’s take home pay, with a max take-home of $2.505M. Assuming rich people are intelligent, this will be an overall maximum, as no one is going to agree to get paid $10M for a take home of $10,000.

4

Social security is paid on the first 76,000 of income, not the first 50. This is rising at at least 4k per year.

Also, I dunno about you, but retirement age is 68, not 65.

I agree that there are severe problems with social security, but I’m not sure this is the way to fix them. Why would you want to discourage americans (the worst savers in the world) from saving for retirement?

5

Batz-

This is strictly personal income we’re talking here. Trust me, corporate income taxes would make up for the shortfall. The idea is that hardworking Americans who have rent and mortgages to pay should be able to keep the money they work for, and taxes should be paid on the excess.

Also, enough money for what?

By substantially reducing the tax burden on working folks, people would be better able to meet such expenses as the kid’s college education without help from the government. The need for many government programs and subsidies would be greatly reduced under this plan, as folks in the lower tax brackets would have hundreds, if not thousands of extra dollars each year to put aside, or invest, for such necessary expenses. Also, the extremely wealthy, would have many, if not most of their tax shelters eliminated, so they would be paying taxes on all of their income, over and above the amount necessary to provide for the necessities of life such as food, clothing, shelter, education, medical expenses, etc.

I’d also be willing to bet that the general cost of living would go down, and employment, and probably the average wage would go up, as the decreased tax burden on smaller business owners would make it easier for them to expand their businesses, and execs at big corporations would have less of an incentive to give themselves multi-million dollar bonuses for “cost cutting” decisions that result in thousands of workers being laid off.The extra money in corporate profit could then be spent for research and development, and in finding ways to streamline processes in order to reduce production costs. And lower taxes would mean more disposable income, which means that an increased volume of goods and services being consumed would make it possible to reduce prices, or at least keep them level, and still make a profit for the companies providing the goods and services. More demand for goods and services would mean more demand for workers, and if that demand for workers was high enough, the companies themselves might be inclined to fund training programs for workers who have minimal job skills, thus rendering a whole block of people who might otherwise wind up on public assistance employable, and reducing the welfare rolls.

Oh, hell, I’ve just hijacked my own thread.

6

But, as it was pointed out above, after a certain point making more money in your plan will cause you to take home less. Yeah, I’d like to only pay a couple of hundred in taxes a year, but it’s just not practical.

7

bashere- thanks for the info, I’ve been operating using information that’s a few years old. But last time I checked, you could collect full SS bennies at age 65. And even at the $76k mark, that still gives the wealthiest workers a break.

And I don’t see how my plan discourages saving for retirement, when it frees up more money for the average worker to do just that.

waterj2- you’re figures are correct up to a point.
Your logic is flawed. I’m going over your table trying to find the reverse, but I’m pretty tired right now. But once you’ve gotten to the income level where the whole grand per grand is being taken, you wouldn’t be paying $1001 for every $1000 in income, etc. I thought that point would be self explanatory.

8

Thea - sorry, I’m sort of tired, too. I agree that the 76k mark still gives the wealthiest workers a break; a plan that I happen to disagree with. I meant to point out that 1) it is higher than you thought, and 2) The break out point is going up really quickly.

Making SS needs based creates a disincentive to save - every dollar I put into my 401k plan is one that reduces my SS benefits when I retire. This wouldn’t be that big a deal, but SS is a big chunk of change; 7.1%, plus my employer’s contribution. I’d like to think I might get that back.

I’m pretty sure that a now-30-year-old, like me, gets full benefits at 68. I’ll check my statement when I get home.

9

bashere-

OK, how about making it based in part on pre-retirement lifetime income, thus creating the incentive to save, but still giving the greatest benefit to the poorest retiring workers?

10

Not a bad idea, but it is kind of harsh. I mean, fail to save, and the government cuts you off? Plus, this might put you back into the whole deductions thing. A person with 6 kids is going to save less than a childless person. As soon as you accouint for that, you’ve got deductions again. And if you don’t, you run the risk of being criticized as unfair.

I say remove the salary cap, and reduce the tax such that the amount collected stays the same.

11

The confiscatory tax on the rich is the only real source of income in this plan.

In 1998, individual income tax brought in $807,710,946,000 in revenue, while corporate income tax brought in $187,845,917,000 in revenue. By my rather generous calculations, based on data from the IRS, your plan can bring in $211,678,455,189, of which $152,520,300,000 is from those making over $1M dollars, who, for the sake of simplicity, I assumed made $3M each, which is pretty generous. This is a shortfall of $596,032,498,011. This would require a 317% increase in the corporate income tax to make up for.

Of course, that’s assuming that we want to keep overall government funding at the same level it is now. Either way, I don’t think it’s a practical or desirable plan.

12

My logic is fine. I just turned your explanation into a simple formula. If that’s not how you intended it, you should have made that clear. Anyways, here’s the figures I calculated for the total revenue your plan brings in as compared to the current (well, 1998) plan:


   Top of                       |-------- Revenue --------|
Income Bracket	# of People	Yours	        Current

No income	 952,577     	$0	        $52,991
 $1,000 	1,835,808     	$0	        $3,790
 $3,000 	5,729,018     	$0	        $130,628
 $5,000 	5,598,469     	$0	        $206,686
 $7,000 	5,253,415     	$0	        $474,661
 $9,000 	5,116,919     	$0	        $743,538
$11,000 	5,320,033     	$0	        $1,448,586
$13,000 	5,100,475     	$61,205,700	$2,030,095
$15,000 	5,221,949     	$73,107,286	$2,739,126
$17,000 	4,822,868     	$77,165,888	$3,427,943
$19,000 	4,666,983     	$84,005,694	$4,159,839
$22,000 	6,520,168     	$173,762,477	$7,303,630
$25,000 	5,867,119     	$275,754,593	$8,997,125
$30,000 	8,196,170     	$450,789,350	$17,002,494
$40,000 	13,134,562     	$1,379,129,010	$40,313,896
$50,000 	9,977,252     	$1,795,905,360	$44,905,232
$75,000 	15,888,566     	$5,958,212,250	$109,017,018
$100,000 	7,227,505     	$5,248,975,506	$85,324,021
$200,000 	6,239,713     	$12,635,418,825	$143,214,833
$500,000 	1,581,308     	$16,603,734,000	$110,282,188
$1,000,000 	303,513     	$14,340,989,250	$58,463,589
over $1M	169,467     	$152.5203E9	$143,634,724
13

waterj2: good info. Where’d you get the figures for people at each bracket anyway? Is that adjusted gross, or just gross?

Some other facts to form a basis for this discussion:

SS tax is 6.2%, not 7.1%. With Medicare, at 1.45%, the total take for someone under the cutoff is 7.65%.

There is a such thing as an earned income tax credit, which gives people who make less than about 25k more back than they pay in tax, providing they meet the eligibility formula, which takes into account number of dependents I believe. That being the case, the above plan would result in a loss of income to low income families.

14

Not a big fan of the EIC, actually.

The whole idea behind the tax plan is to reduce the need for government handouts, whether in the form of welfare or EIC’s in general, by freeing up money for people to spend on things like education, which would increase a person’s earning potential in the long run, and, hopefully, for employers to increase wages to workers (hell, if they’re not going to keep much of what they make over a mil, they might as well pass it along to the workers).

But, based on some of the practical considerations y’all have brought up, I’m considering some revisions to my little plan.

But I still have a desire to keep the government’s mitts out of the pockets of the lowest income workers, along with a desire to eat the rich.

15

What do you have against the rich? At what income level do you consider a person rich?

I am having a little bit of trouble with your idea for Social Security.

Currently there is an income limit on social security contributions because there is a limit on how much a person can receive in benefits. Still, people with income consistently higher then the limit almost always pay into social security more then they eventually receive.

Under your plan a person with higher income would pay and pay and pay into social security and never receive a dime in benefit.

Is this correct and if so how do you justify it?

16

Zumba-

OK, I did the math. Assume I make $76K a year for 45 years of working life (the Social Security Administration’s webside assume starting work at age 22, and I’m assuming retirement at age 67). I will have paid in $202,500. If I retire at age 67 and live to be 80 (and I fully intend to make it to 100), I will have drawn just over $61,000 more in benefits than I will have paid in. This is not a return on money I have invested. This is money that comes straight out of the pockets of working people with mortgages to pay and children to feed and clothe, while I play golf in some sun belt no children allowed retirement community. How do you justify that? And with the average lifespan increasing, it is not an unreasonable assumtion that within a couple of decades, the average American’s lifespan will be 80 years.

Social Security should not be a government-funded retirement plan. It should be a safety net for those workers who, during their working lives, were too poor to be able to put aside enough money to support themselves in their old age. Or whose employers squandered the pension fund, raped and pillaged the 401K plans, or the mutual fund went belly-up. (BTW, you don’t want to know what I want to do to the executives of corporations that screw with their employees’ retirement money…)

It seems to me that you’re suggesting that the fact that someone was well paid and well off during their youth is entitled to a nice fat check to help subsidize the twenty-year golf vacation known as retirement.

Remember, the people who are receiving SS right now are not collecting money that they paid in. That money is coming from the paychecks of working people- that’s you and me.

What I have against the rich is that, by and large, they make their money off of other people’s hard work and sweat. I’ll give you that first million as earned, but after that, most rich people have employees that do the grunt work for them, often for wages that a single person would have difficulty supporting him/herself on, let alone a family. I would put anyone in the quarter million a year and upwards in the category of “rich”

OK, revised tax plan-

First $20k per year, zero tax
Next $10k, 1%
Third $10k, 2%

and so on up the line, until you hit the $770k per year mark, at which point it would level off at 75%

I would also eliminate the tax shelters for investments, but if stocks, bonds etc. were sold, the capital gains would not be taxed if they were immediately rolled over into other investments. Then as the money was drawn out, for example, after retirement, the capital gains would be taxable as income, but the initial amount invested would not be re-taxed.

Stock options would not be taxable as income, but dividends and capital gains from them would unless they were rolled over into other investments…

I figure if you can’t take it home or buy stuff with it, it ain’t income.

17

One thing you didn’t consider You need to double the amount you have paid in. Your employer matches your social security contributions. (Which arguable lowers your salary.) If you are self employed you pay the match yourself. Using your numbers you ended up paying in $141,500 more then you ever received.

I know that social security is not a retirement plan. If it were you would get interest on that money which (depending on the rate) would give you a couple of million retire comfortably on.

I am not saying that. I am saying it isn’t right expect a few people to put an unlimited about of funds into a system that they will receive no benefit from. I find it hard to justify only the “rich” paying social security tax and only the “poor” receiving the benefit. Am I correct in assuming that is what you advocate?

18

um, reread the OP for the answer to that question.

only change $800 to $1800.

19

Socialist tripe, if you ask me.
Don’t understand why you can’t just cut taxes and get the government out of retirement. Once taxes are cut, then I imagine people will be intelligent enough to realize that it’s time to start planning for retirement, or else there’s not gonna be a lot of golf in Florida come their elderly years. Regardless, the only retirement planning I’m concerned with is my own…I hope others are intelligent enough to realize this, but I can’t force them to.

Incidentally, I think it’s a REALLY fair tax system when people who make 10 million dollars a year bring home 10,000 dollars. Never mind that they earned it legally, it’s ours to steal, isn’t it?

20

Um, RugbyMan, who on this board is advocating a tax system in which someone who makes ten mil takes home ten thousand? You should actually read the thread before you post.

Although the more I think about it, the more it looks like a good idea. The guys who make the big bucks making the same amount of money as the people who perform the actual labor that makes them those big bucks…