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Tax Reform: The Perfect Solution

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This year reminds us of just how politically divided our country is. Republicans control the Executive and Legislative branches of the government. However, the Presidents Health Care reforms appear to be going nowhere.

So where does this leave Income Tax reform, the next huge issue on the Trump Campaign List of Promises? Here is a hint: the odds of changes in tax law that result in things getting easier and better for you, zero!

As every honest taxpayer understands, the tax code is intentionally complex because Congress is paid by powerful campaign donors to make and keep it that way.

Legislators speak publically about the urgent need for taxpayer relief by simplifying the code, but they’re lying. This is the last thing they want.

Bargaining with their colleagues over which special interest to support creates negotiating capital that can used now or held in reserve for a later date.

The Tax Economy

But the fundamental reason why tax reform will never happen is that is would disrupt the economy. The IRS employs approximately 100,000. That is the same number as Apple Inc.

There are 300,000+ people that work in the $11 billion a year tax preparation business; one that is heavily populated by small business. In fact about 40% of the 250 million returns are prepared a mom and pop service. This is the ultimate small business. Attacking these folks is off limits.

The Real Problem With Tax Reform

Politicians have screwed up the tax system with all its complexity that the average citizen is left with only one question about tax reform. Am I going to pay more taxes or less tax? Why is it that I have to pay so much while the rich get off Scott free; the system is unfair.

So much of the political discourse is spent on individual tax provisions that claim to give the tax benefits to the upper 1% while harming the rest of the 9-5 world. This creates enormous tax class warfare. Who wants to get the short end of the stick: nobody.

Part of the blame for creating this adversarial situation rests at the doorstep of the Congressional Budget Office. Anytime a major piece of tax legislation is created, the CBO gets to opine on the proposed legislation.

When the CBO did their work on the first attempt to repeal and rewrite Obamacare, the result was so hypothetical that hardly anyone understood. The CBO does not have best record in forecasting.

The 50% Zero Tax Solution

The perfect solution eliminates the class warfare over taxes. Eliminate all Federal Income Taxes for all individuals and families earning less than $60,000 annually. There are nearly 70 million people in this group. Imagine the political capital Congress would earn with this solution. Their approval rating might reach 20%!

There is one trouble however. As popular as this solution may be, it runs counter to the spirit of the tax system: everyone should pay their fare share. This notion needs to be dispelled completely.

The US Treasury took in a record $3.2 trillion in 2015 and the amount is likely to be even higher when all the 2016 returns are filed. Of this, people earning under $60,000 (those 70 million people) chipped in a paltry $95 billion. This equals only 3% of the total. It amounts to a rounding error, inconsequential to the history of the country.

On October 4, 2016 Forbes Magazine reported that there were 540 billionaires in the United States, not counting those just earning a living in the US but domiciled elsewhere. Many of these folks are philanthropic helping save the starving poor in God only knows how many third world countries.

For sake of discussion, lets assume each of the 540 has at least $6 billion stuffed under the mattress. That amount equals all the revenues generated from the bottom 50% of US wage earners.

So instead of giving donating 3% of those assets to feeding others, just donate it to the 50% Zero Tax Solution. In the final analysis, the rich receive a tax credit for their generosity. Politicians are missing an opportunity here. Write your Congressman today.