“It’s the economy, stupid,” was a phrase widely used during Bill Clinton's 1992 presidential campaign.
He cut capital-gains taxes in 1995 and presided over six years of strong economic growth.
George W. Bush provided tax cuts which raised revenues and stimulated the economy for another six years. That is until high oil, an inverted yield curve and irresponsible financial behavior by many in the private sector — and especially in the Republican-led Congress of 2000-2006 and continued by the Democratic-led Congress of 2006 — led to a financial meltdown in late 2008.
Senate Bill S.3018 Could Close Strange Tax Loophole
President Barack Obama has tried fiscal stimulus and a healthcare bill and yet the unemployment rate and underemployment rate are at levels not seen in more than 25 years.
This is the first of a three-part series where I will tackle this problem. I am trying to help the person who is neglected most in this country: the working poor.
My first suggestion is to keep the Bush tax cuts extended for everyone who makes less than $1 million a year.
Many will ask how this helps the poor.
The Bush tax cuts proportionally help the working poor the most by lowering their tax rate to10 percent from 15 percent on their first $6,000 of taxable income.
Simply put, a person who had taxable income (after deductions) of $9,000 saw their tax drop to $900 from $1,350, which is a 33 percent cut.
Many folks who make between $250,000 and $1 million have invested their life savings in businesses that hire the lower-income earners. If you raise the taxes on the $250,000-to-$1 million class, such businesses may decide to cut their payrolls, which will hurt the working poor.
However, by taxing those with taxable income of more than $1 million dollars, you are raising needed tax revenues and shouldn’t hurt hiring or consumption.
Lumping in working couples who make $250,000 annually with those whose taxable income is more than $1 million is both unfair and inaccurate. As a longtime accountant, there is an enormous difference in net worth and they shouldn’t be treated equally.
My second suggestion is to take the folks who make more than $1 million and have them pay Social Security taxes on all their earnings up to $1 million at the 7.65 percent rate.
Today, each worker stops having the entire 7.65 percent taken out after $106,800 (as of 2009) and that figure goes up slightly every year. Above $106,800, they only pay Medicare tax of 2.9 percent. Employers don’t have to match the 7.65 percent Social Security tax after $106,800 either.
Now, I’m not a tax raiser. However, we need to shore up Social Security. All of my proposed Social Security tax revenue will really go into a lockbox and will be invested in U.S. Treasury bonds. And Social Security will actually have a real account.
My third suggestion: Each person older than 65 will also be able to buy up to $200,000 (or $400,000 for married couples) of Treasury bills at a 4 percent interest rate for the length of their lifetime.
Many seniors who worked hard and saved all their lives are being penalized by getting money-market accounts with returns of less than 1 percent on their money.
This will allow a senior citizen who saved $200,000 to earn interest income of $8,000 annually instead of the less-than $2,000 they presently get.
The government can use all this money to retire the national debt and quit printing money. These investments can’t be transferred and have a 15 percent penalty if liquidated before your death – except if need to pay medical bills. They are part of your estate when you die and are paid to your heirs as directed.
So, with my proposals, we have helped the working poor, gave the small-businessperson clarity and have shored up Social Security by actually putting money in it to be used only for Social Security.
We have helped the senior citizens who saved their money all their lives and were “penalized” by getting anemic rates.
Stay tuned next week for Part Two.
How to Collect $1,196 a Week. Tax FREE!
About the Author: Bill Spetrino
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