Implement an electronic tax system to replace income tax
Have fun for now that the government has funded a feasibility study to automate the tax system by essentially moving from an income tax based system to a cash flow system of unilateral electronic collection a 5% tax on all cash withdrawals from banks – a tax on withdrawals. The change would be likened to electronic toll collection, which is now widely accepted and trusted. The tax base would be over $9 trillion and would be fully transparent within the banking system.
The first step in the process would be to provide the taxpayer with the option of having the annual amount collected electronically as a total tax charge or by calculating their tax using the historical income tax method and then selecting the tax the lowest. The taxpayer could and should opt for electronic collection of their tax instead of payroll deduction and benefit from the global tax credit against either system. A study to quantify this could easily be done by projecting revenues based on electronic collection versus income tax collection and calculating the magnitude of the personal tax involved. The problem with all of this is that the tax benefits spread throughout the tax system, such as the earned income credit, child tax credit, energy credits and tuition credits, should find a other means of disbursement or simply be credited to the taxpayer. main account.
The American tax system has long been on the government’s chopping block. In 1999, Rep. Steve Largent (R-Okla.) successfully pushed a bill through Congress to end the Internal Revenue Code. In 2004, President George W. Bush commissioned a panel of experts challenging our brains of learned economists to propose new tax systems. The panel was largely supplied with entries for consideration; many scholars have adopted versions of a cash flow tax system. To the dismay of many, including myself, the presidential response was that the income tax system is “good,” but should be simplified. That didn’t happen, and today’s system is expensive to administer and simply impossible for taxpayers to navigate without a tax degree.
Countries have attempted to introduce a system of taxing withdrawals, namely Australia, Pakistan, India and Brazil. Historically, economists have a knee-jerk reaction to such systems. However, the time has come to undertake a serious study of the introduction of a tax on withdrawals.
Individual taxpayers and businesses should embrace this form of dedicated tax, which would eliminate the need for a FICA tax — the federal payroll tax that funds Social Security and Medicare obligations — by supplanting it. Instead of redistributing wealth, this tax on withdrawals would more evenly distribute the government’s obligation for entitlements. It could even turn Social Security into an economically viable system.
The national debt is now over $30 trillion (that’s $30,000,000,000,000!) and continues to grow. No matter how you put that amount, it has never been higher in our history and it will continue to grow despite forecasts of increased revenue.
The national debt is increased by deficit spending, and the focus of debt solutions is the eternal lament that we need to stop spending money we don’t have. As long as we have a Congress that politicizes debt limits, nothing short of default will stop debt junkies from plundering our children’s inheritance. Debt management should encompass three things: who we really owe the debt to, how much we really owe, and how to find a systematic way to not only pay it off but also reduce it. This must be done while finding the political leverage to keep the government focused on realistic fiscal targets.
Programs such as Social Security, Medicare and Medicaid, SNAP — commonly known as food stamps — and unemployment insurance make up about 60% of the total federal budget. They are funded by a 19th century income tax system that politically alienates us from any real hope of finding a solution to the debt problem. There simply isn’t enough disposable income to pay off debt and duties, which amounts to a tab that the American people must pay to maintain our basic standard of living. Something has to change.
A withdrawal tax dedicated to funding all economic security payments would effectively depoliticize the wide range of entitlements. This type of tax would equal the liability it funds, much like a bridge toll. The tax would support all economic security payments without ever having to increase the debt to maintain the whole system, which now impinges directly on national defense and other general government expenditures.
In a sense, a separate, dedicated tax on withdrawals would work similarly to the maintenance of interstate highways, which is funded by the gas tax. This would save the income tax system from having to manage these payments. Instead of redistributing wealth, it would more evenly distribute the government’s obligation for rights.
Given all of these reasons, a tax on withdrawals would work just fine. All we need is the courage to say it.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Patrick R. Colabella, CPAis a professor of accounting at the Peter J. Tobin College of Business at St. John’s University and has practiced as a public accountant for more than three decades.
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