President Biden introduced a new tax proposal last month, and that means over the next few months, taxes will become a major topic for debate in Washington, D.C. Why should you care?
- Because as a nation, we are $28 trillion in debt. Our nation’s tax policy will determine how much money comes into the government to offset its expenses. As a citizen, you are a part-owner of the United States government. We are going broke. The population in the United States is 331.5 million people which means your share of the national debt is $84,477.
- The trend is not our friend. The nation’s annual debt has risen every year under each of the last four presidents, and the amount keeps growing. On average, the annual increase has been: Bill Clinton, $125 billion/year; George W. Bush, $420 billion/year; Barack Obama, $968 billion/year; Donald Trump, $1.4 trillion/year.
- Ultimately, our military strength will go the way of our financial strength. Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff, said, “The greatest threat to our national security is our debt.” Mullen made that comment in 2010, when the national debt was $13.6 trillion – less than half its current level. If you care about your security and the security of the free world, you should care about our debt.
- The government provides services that benefit you every day. If the government’s financial strength continues to deteriorate, one day it will have to significantly cut spending for health care, Social Security, defense, education, roads, etc.
- Our quality of life is at stake. If we continue with our deficit binge, the party at some time will come to an end. Interest rates will go up and the government will be forced to drastically cut spending and increase taxes. This day is coming unless we bring some fiscal sanity to our federal government.
In simple terms, President Biden’s tax proposal would:
- Increase the top tax rate on individuals making above $452,700 from 37% to 39.6%.
- Increase the corporate tax rate from 21% to 28%. The tax rate for corporations from 1994 to 2017 was 35%.
- For taxpayers who make more than $1 million a year, increase their capital gains tax rate to 39.6%. This is almost double today’s rate.
If we, as a nation, want to get serious about our country’s financial situation, I would recommend taking these steps:
- Cut the tax code from the current 2,652 pages to 10! We have the most complicated tax code in history. A tax code that is made up of thousands of loopholes for rich people who can afford lawyers and accountants to reduce their tax bills. Shrink the tax code to 10 pages and we would clean out all the ridiculous loopholes that members of Congress put in to benefit their contributors. As former Republican Senator Tom Coburn said, “The biggest breaks go to the corporations and individuals who can afford the best lobbyists, lawyers, and accountants, leaving everyday Americans to fill the gap.” As an example, in 2011, General Electric filed a federal tax return that was 57,000 pages long, and ended up paying zero taxes on $14 billion in profit.
- Adopt the Simpson-Bowles recommendation and eliminate ALL tax breaks with the exception of the child credit, the earned income tax credit for very low-income earners, employer-sponsored health insurance reduced rates, charitable-giving deduction, retirement savings reduced rates, and mortgage interest reduced rates. Everything else goes. This would provide a simple, understandable tax code that would level the playing field for all Americans.
- Tax capital gains and dividends at the same rate as salary or any other type of income. There should only be one type of income. All income should be earned income.
- Eliminate ALL corporate tax breaks and leave the rate at 21%. President Biden has proposed increasing the rate to 28%. My opinion is that the problem is not the rate; it is the thousands of loopholes that exist. According to the Institute on Taxation and Economic Policy, 60 of the Fortune 500 companies paid ZERO tax on $79 billion in profits in 2018.
- Have the IRS send a pre-filled tax return, complete with all the relevant information, to each taxpayer. This is being done for some taxpayers in three dozen countries including Germany, Japan, and the United Kingdom. President Biden wants to spend $80 billion over the next ten years to add IRS employees in order to enforce the tax code. How about if we simplify the tax code and save the $80 billion?
Steve Jobs saved Apple with one concept: Simplicity. He cut the company’s product line by 70% and in so doing, Jobs transformed a company on the brink of bankruptcy into the most valuable company in the world.
As citizens of the United States, we should strongly suggest to our leaders that they stop making small changes, and do the work that needs to be done to put America’s financial house in order and restore fairness to our tax code. This can be done. It is just a matter of leadership in both parties to make this dream a reality.