Under the new GOP Congress, the future looks bright for fundamental tax reform. Hence, Republicans and thinking Democrats should embrace my modest proposal. The 0-10-100 Tax Plan.
Zero is the number of deductions which would be allowed — Zero. The home-mortgage deduction? Gone. Business-dinner write offs? Kaput. Charitable deductions? Sayonara.
As soon as we permit one exemption, then we must include a second. And then a third. Americans quickly would become freshly mired in the unfathomable bog that governs taxes today. The best way to handle the 73,954-page U.S. Tax Code is to go Nagasaki on it. Every loophole left behind.
Ten is the flat tax rate on gross income. What did you make in 2014? Send 10 percent to Washington, D.C. Period. See you next year.
The 10 percent rate applies to income, regardless of source. So, wages, speaking fees, capital gains, dividends, royalties, stock sales, gifts, and gambling winnings would face a 10 percent tax in the year the income is received. Estate income would endure a 10 percent Death Tax — from dollar one. While any Death Tax will annoy my fellow supply siders, we live in a world of tradeoffs. Oxen must be gored from Left to Right to make this work.
One hundred is the percentage of Americans subject to tax. In 2013, 43 percent of Americans paid no income tax. This is absurd and unfair. So, 100 percent of adults must pay federal income tax. Period. If you make $10 billion, send in $1 billion. If you make $1,000, send in $100.
Now, such a poor person, in turn, might receive, say, $20,000 in welfare. However, every American adult must file a tax return and pay a 10 percent tax on any and all income. Every adult must have skin in the game called the United States of America. We cannot have 57 percent of Americans finance the CIA, FBI, FDA, SEC, and TVA — while the balance remains uninvested in our beloved federal leviathan.
Once every American adult pays federal taxes, more will watch closely what Washington does, especially how it frequently incinerates our money.
The corporate tax would work similarly. Zero deductions. There would be no write offs for payrolls, new plant and equipment, raw materials, amortization, rent, or anything else. That’s the bad news. The good news is that gross income would be subject to a tax rate of just 10 percent of whatever is generated in each calendar year. Like individuals, 100 percent of companies would pay. No more will Facebook generate $1.1 billion in profits and pay zero dollars in corporate tax — as occurred in 2012.
While it will be tough to tax start-ups before profits kick in, a 10 percent corporate tax will be low (versus 35 percent today) and predictable. It very likely will turbocharge economic growth, so that new companies quickly can blossom and, thus, afford a 10 percent corporate tax. Start-ups should be able to raise and reserve such a reasonable amount, at least during their launch years.
Individuals and companies also will save much of the $168 billion spent annually to prepare taxes, the National Taxpayer Advocate estimates, plus the pounding migraines triggered by towers of IRS documents.
This proposal gives the Left what it wants — Loopholes will vanish; the rich will be unable to hide among them. We all will be in this together, facing the same tax rate. Everyone will pay his fair share.
The Right will enjoy radical tax simplification and an amazingly low, unobtrusive rate. Also, Uncle Sam will stop social engineering via the blunt-instrument trauma called the U.S. Tax Code. While economist Dr. Arthur B. Laffer offered some cautionary words about this idea’s treatment of unrealized capital gains and the need for “static revenue neutrality at full employment,” he otherwise warmly greeted the 0-10-100 Tax. The supply-side pioneer told me, “Your plan is as near perfect as any I’ve ever seen.”
Deroy Murdock is a media fellow with the Hoover Institution on War, Revolution, and Peace at Stanford University. Read more reports from Deroy Murdock — Click Here Now.
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