Income Tax No More
Government funding-a new perspective
Seven hundred billion dollars is a lot of money.
Even for the US government, it is not exactly pocket change. And the long term effects of our current economic woes is projected to last for years, based on our current economic structure. Unless we find a good solution fast.
While the real reason for the current situation is hotly debated by economists, underneath it all is the problem of excessive spending, whether by institutions that extended risky loans, or individuals.
The average American citizen is estimated to have approximately $9000.00 in credit card debt. In many cases, that debt was not for luxuries, or for elective expenditures. Often it represents purchases for necessities that were essential before the next paycheck arrived. If your child needs dental care that is not insured, you are going to get it, no matter what. Even if less essential, credit card use has become a way of life in this country, and part of that stems from the fact that housing costs, fuel costs, and costs for basic necessities have skyrocketed, while income has not. But far beyond that, is the fact that personal income taxes take such a significant bite out of disposable income that there is rarely enough to meet basic needs.
If there were a way to raise the capital needed to cover government expenditures, and relieve the heavy tax burden of the average citizen, wouldn’t it make sense to implement it?
Instead of relying on personal income tax to partially fund government expenses, there is a simple, effective and easily implemented alternative: the debit tax.
A debit tax would replace personal income tax by placing a small surcharge on any withdrawal made from savings accounts, checking accounts, insurance companies, business and investment organizations, and financial institutions of all kinds. This surcharge would be sent each day by electronic funds transfer directly into the US Treasury, by the collecting institution.
In fact, this procedure would generate more funds for the US government than current tax payments do.
In 2006, the US Treasury reported collection of 265.2 billion dollars in personal income tax. Corporate income taxes in that same year were reported to have produced 106.3 billion dollars. Given a current national debt, as of June 6, 2008, of 9.4 trillion dollars, it would take quite some time to reduce that amount, in light of the current heavy burden imposed by the banking bailout, and the need to utilize funds for continued necessary expenditures. Raising income taxes beyond their current rates would only worsen the problem of individual monetary struggles, and realistically, they could not be raised enough to make a significant difference in the government’s current debt picture.
A debit tax would apply to all financial withdrawals. Assume all withdrawals were charged at the rate of .0033 per dollar, or .33 per hundred dollars. At present, the Federal Reserve estimates that 1.9 trillion dollars moves in the banking system for deposits and withdrawals each day. Even if only one half of that amount represented withdrawals (deposits would not be charged), that is 900 billion dollars withdrawn every business day in this country. At .0033 per dollar, the debit tax would produce 2.9 billion dollars per day, totaling 772 billion dollars per year, almost triple what is produced by personal income tax.
On a personal basis, individual tax levels would drop substantially. Right now, a single person with no dependants who takes all available deductions and who earns $36,000.00 per year pays approximately $3048.00 yearly in federal income taxes. With a debit tax, and assuming all funds were withdrawn each month, the total tax would be $99.00 per month, or $1188.00 per year. Instead of paying approximately 10%, the effective rate drops to 3%. The additional disposable income would also be a welcome boost for a struggling economy and individual saving could become a realistic goal.
Assume that the same single person earned $72,000.00 per year. With all deductions and credits, that person would pay an estimated $12,103.00 in annual federal tax. Assume that all of it is withdrawn and subject to the debit tax, the total yearly tax cost would be $2376.00.
With proper management, the national debt could be significantly reduced, and possibly eliminated within a decade.
The additional benefits are many. The government has steady, instant cash flow; the cost to individuals is spread out, and only takes very modest amounts out of their funds without any need for withholding. The paperwork load for the government and the citizenry is reduced by vast amounts, cheating is impossible, the need for individuals to have any contact with the taxing authorities is completely eliminated, and it is simple to implement and manage for financial institutions. And no segment of the population is favored, everyone is treated equally.
If corporate taxes were eliminated, the benefits are even greater. Large multi-national companies would pay their fair share, without any significant loss of profits, small businesses would have more income to infuse into their businesses, and create new jobs.
In some ways, the current banking crisis may be a blessing in disguise. It has made re-evaluation of our current spending structure so critical that alternatives become a necessity, not just potentially useful.
It will be up to the American people to demand it, but almost everyone recognizes at this point that change is worth the effort of becoming involved. While perhaps not a perfect solution to the current fabric of our economic crisis, it has the potential to start putting our economy back on its feet, in short order.
The problem is complex, and it will take more than one approach to get our national economic equilibrium back, but it is time for creative solutions, because the very definition of insanity is to keep doing what you have always done and expect a different result.