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Los Angeles County, CA | June 3, 2014 Election |
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Reform the Tax CodeBy Thomas Louis "Tom" (Fox) Fox, IICandidate for United States Representative; District 33 |
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Taxes are an inevitable cost of living in a society. The implementation of taxes needs to be fair and just, allowing for upward mobility and economic growth.How is your tax bill doing these days?
We need to strive for fairness in the tax code. But this concept of what is fair is always in the eye of the beholder.
For the person making $50,000. a year, who doesn't own a home and so can't take the home mortgage deduction, they are paying a marginal tax rate of 25% in addition to social security tax of 6.2 % and a Medicare tax of 1.45%, which adds up to about 32.65%. Throw in some state income tax at 9.3% and we are looking at about 42% of every dollar going to taxes, or $21,000, for a net income of $29,000.
Now, lets take someone making $5,000,000 a year. Not taking into account any legal strategies that this individual would have to minimize their tax liability, they are going to pay $ 1,933,065 in federal taxes, $26,950 in Medicare tax and $60,000 in social security taxes, if they don't have an employer, and $615,000 in state taxes, for a net income of $2,364,985, or greater than 50% of their gross pay.
Are these realistic figures? The short answer is no. While the tax for the 50,000 figure could be accurate, the tax for the $5,000,000 is not, because, a person with those types of means is going to have a variety of deductions and tax strategies to whittle that number down. It will still be significant, however.
The lower income person is most likely going to look at their situation and observe that out of the $50,000 income, after taxes they are left with only $29,000 which makes it difficult to save enough money to save money for a down payment on a home and to begin climbing the income ladder. If you factor in student loans and any credit card debt, that it is exponentially more difficult.
Our 5 mill. earner often thinks that by paying almost over fifty percent of his income in taxes, that they are more than paying their fair share. And while many would say that this person is greedy for not being able to live off of 2.5 million dollars, or so, the individual would probably respond that they need more. Is this greed? I think that it is human nature, good or bad, to be dissatisfied and always want more. It is that type of ambition, which probably got them to this level in the first place.
What I think is fair is to remove the guess work out of the tax code and impose some certainty into it. A start would be to simplify the tax code and lower tax rates for the average American taxpayer and businesses and eliminate tax loopholes and deductions that reduce taxable income for all. This will allow for more certainty and better planning. Such certainty, it will also encourage more investment, which is better for the economy and allows it to grow.
David Camp, the Republican Congressman who is the head of the House Ways and Means Committee, has been working on a new tax plan overhaul for the last 3 years. His plan closes loopholes in a targeted way, and imposes extra taxes on many high-income tax earners. The Camp plan would phase out the deduction for mortgage interest for the priciest 5 percent of US homes. And it would impose an extra 10 percent surtax on incomes above $400,000. And it would require hedge fund managers and private equity firms to treat a common form of their compensation called "carried interest" compensation as ordinary income, rather than as capital gain, which is currently taxed at only 20%.
I like the concept of Representative Camps approach to an over haul of the tax system. His statutory tax rate for earners up to $35,000.00 is 10%. He makes a jump to 25% from $35,000. up to 400,000. I would lower that and explore a jump to 15% on incomes from $35,000. to $100,000. with a jump to 20% from $100,000. to $300,000. and because many small businesses are closely held and taxed at these same rates, 25% up to $600,000. 30% up to $750,000. This I would recoup that income from a modest 5% raise in the capitol gains tax and perhaps an additional 3 percent on incomes over $5,000,000. I want to encourage high incomes because they not only provide an incentive for us all but income earners at that level purchase more and pay sales taxes and, like every consumer, spur the economy.
I would too eliminate the special treatment for hedge fund managers and private equity firms and have their income taxed at the regular rates.
But, while Mr. Camp is a Republican, the Chairman of the powerful Ways and Means Committee has spent 3 years researching and drafting the bill, the first real tax reform since 1988, it looks like it is going to be shelved.
It has been reported that just 2 days after Representative Camp unveiled his tax plan, he went to a fund raiser held in Park City Utah, attended by lobbyists by some of the largest banks and corporations in America. For the Republican Party, Mr. Camp raised a lot of funds, but then, after the event, he announced that he wasn't going to seek reelection. There was no hint of this decision prior to this well attended fundraiser. This will result in the death of his tax overhaul bill.
There has been a lot of lobbying going on, with lobbyist being paid tens of millions of dollars to keep meaningful tax reform from succeeding. The corporations that have a vested interest in maintaining the status quo have donated tens of millions of dollars to campaigns and political action committees to ensure that the tax code is not simplified which would benefit the average Americans.
One can draw the conclusion that the reason for their intense lobbying is that the current tax code benefits them, and does so at the expense of the regular American. These lobbyists and corporate interests are in opposition to what is good for the rest of us.
Representative Camp was on to something. The simplifying of the tax code is long overdue. But, I want to further shield folks in the middle class who have good incomes so that they may invest and prosper and climb that ladder of success, so I would explore a more graduated approach as I have outlined.
We all need to pay taxes, it goes part and parcel with being members of a society. But a simplified and clear tax code can leave little doubt as to what is fair. |
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