Federal Income Tax Overhaul

[RedBeard]

I propose that Occupy Chicago formally request that the Congress of The United States of America take up legislation to fundamentally reform the current Federal Income Tax Code. The current tax code is overly complicated and gives unfair breaks to the wealthiest individuals and corporations. At this point, revisions cannot fix the problem and the entire system must be overhauled. Our new income tax system should adhere to the following points.

 

1) Expand the income brackets so that the highest bracket affects all income above $1,000,000

 

This should ensure that the new tax system is more in line with current incomes, especially when considering capital gains (part of point #2). Not only will it make our system more progressive, but also potentially broaden the tax base.

 

2). Treat Capital Gains/ Dividends Earnings as Earned Income.

 

This is where the wealthiest have the biggest advantage over the working class. In our current system, the rich are rewarded with low tax rates when they use money, instead of hard work, to create more personal wealth. In our current system, wealthy individuals are able to sidestep income tax by accepting stocks instead of salary. By treating Capital Gains and Dividends Earnings as earned income, and taxing them based on the income bracket they put the individual in, we can ensure that these people pay their fair share.

 

3). Eliminate all Tax Expenditures that overwhelmingly benefit those who do not need it. The only Remaining Tax Expenditures should be: 

A)Earned Income Tax Credit and Child Tax Credit: a partially refundable tax write off of $1000 per child and refundable EITC similar or equivalent to current law ($457 - $5,666 based on income)

B) Standard Deductions and Exemptions: A standard deduction of $5,700 ($11,400 for couples filing joint tax returns), personal and dependent exemptions of $3,650

C) Mortgage Interest: A write-off of interest accrued on mortgages (only on primary residence and only on first $500,000 of mortgage principle)

D) Employer Provided Health Care: Excludes value of this benefit from earned income up to a certain premium

E) Charitable Giving: deduct 12% of all charitable contributions to not-for-profit entities with an IRS 501c(3) tax exempt status

 and F)Retirement Savings: A Tax credit of up to $1,000 for those who are actively contributing to a personal retirement fund

 

There are currently over 150 tax expenditures in the current Federal Income Tax Code, nearly all of these disproportionately benefit the wealthiest Americans. I have left in place only the ones which truly benefit ALL American tax payers. This is the single greatest move to simplify the tax code and make it work better for those in the lower income tax brackets.

 

4). Create a single Corporate Tax Rate and eliminate ALL corporate Tax Expenditures.

 

There are currently over 75 Corporate Tax Expenditures which artificial benefit select industries, such as Big Oil,  which have used their lobbying power to gain unfair advantages. Eliminating these puts small businesses on a level playing field with large corporations. Overall, small businesses should see an over all tax decrease while large corporations should see an over all tax increase. This should stimulate hiring and lead to a higher median income among small business employees

 

5). Be overall revenue positive.

 

Additional income should be used to fix our current Debt/Deficit issues. When these issues are cleared up, spending on social services should be increased. The amount of additional revenue in the near-term can be small as these changes should lead to a growing economy, and therefore a growing tax base, which leads to greater long-term increases in revenue.

 

I believe a new tax code that follows these policies will decrease the tax burden on those who can least afford it, force large corporations and the wealthiest individuals to pay a fair amount of tax, and increase demand for consumer goods (which leads to more hiring).

Let me know what you all think about this and if you have any questions please don't hesitate to ask.

 

Thank you Occupy Chicago,

 

Todd Cheney

[Chopin]

While I agree with the post, I propose that you introduce each section as a proposal so it all can be more likely to pass.

[RedBeard]

Thanks, Chopin. I may just do that. I am, however, a bit scared that breaking it up would water down the whole point of the idea. I'm still hoping for more input from other members before I formally propose it, but nobody else has responded to it.

[skeptical]

I'm not an economist, so I can't speak on the value of your proposal.

However, I will vote against it because it doesn't conform to what I believe should be the sole mission of this movement--to get money out of politics.

Any tax proposal divides people. Getting money out of politics brings us together.

[GuyFawkes]

I believe in an overhaul of the tax code as well.   Everyone should pay federal income taxes.  Not just the top 50%

[RedBeard]

@GuyFawkes: In a sense, everyone who is gainfully employed does pay income tax. However, for roughly 47% of wage earners, SSA and Medicare withholdings cover all necessary taxation.

@Skeptical: I fully understand and respect what you are saying. I too believe money should be taken out of politics. I believe that this system could help achieve Public Campaign Financing and bring democracy back to the people. However, you can't have PCF when our country is running a deficit as large as ours currently is.

[Billy]

     These specific demands are bad for group cohesion.

 

     Locally making specific demand without consulting the other occupations seem a bit arrogant.

 

     There are many people that think the Federal income tax is unconstitutional or should be completely abolished.

 

     Talking about tax reform without addressing the insane amount of waste is ridiculous. 

 

     I can not say this enough people need to stop with the concrete demands. No good can come of them and lots of bad is coming of them.

[BackSeatEconomist]

5). Be overall revenue positive.

 

Additional income should be used to fix our current Debt/Deficit issues.

The government being revenue positive is deflationary and depletes private sector savings.  Right now, in a balance sheet recession, the government should be running a deficit.  The U.S. government, being the worlds only supplier of dollars can never run out.  The only risk of deficit spending is inflation, and that only happens once excess capacity has been depleted.  With 9% unemployment, I think we have plenty of excess capacity.

By the way, there seems to be a lot of misunderstanding on these boards about what inflation means.  Rising food prices and declining wages is bad for the middle class, but it's not inflation.  Inflation is when everything rises in price.  If wages and real estate prices are falling, but food and energy is rising that is probably a push.  Most estimates right now is that inflation is less than 1% and we're possibly in a period of deflation.  Also, this assumption that inflation is always bad is wrong too (perhaps because of the misconception that inflation is rising prices but not wages).  Too much inflation is a bad thing because it destroys confidence in the currency, but a little inflation is a good thing.  It serves as a tax on unused capital.  Yes it depletes the purchasing power of middle class savings slightly, but it has a much bigger impact on billionaires sitting on piles of cash.  A little inflation encourages the 1% to invest their money in increasing the total productive capacity of the country and creating jobs, otherwise their cash will decrease slightly in value every year.  Think of inflation as a tax on hording cash.  Not so scary now, I hope.

On another topic, the mortgage interest deduction helped fuel the housing bubble.  I'm not sure why you want to preserve it if you're overhauling the personal income tax code.

[Guest1250]

CLOSE YOUR BANK ACCOUNTS!  Stop supporting big bankers and corporations!  If you take away the money, they will not be in power!

 

Keep your gold at home and become SELF-SUFFICIENT!  It's starts us US!

Grow your own food and trade with your neighbor!

 

CLOSE YOUR BANK ACCOUNTS!

[RedBeard]

BackSeatEconomist said:

5). Be overall revenue positive.

 

Additional income should be used to fix our current Debt/Deficit issues.

The government being revenue positive is deflationary and depletes private sector savings.  Right now, in a balance sheet recession, the government should be running a deficit.  The U.S. government, being the worlds only supplier of dollars can never run out.  The only risk of deficit spending is inflation, and that only happens once excess capacity has been depleted.  With 9% unemployment, I think we have plenty of excess capacity.

....

On another topic, the mortgage interest deduction helped fuel the housing bubble.  I'm not sure why you want to preserve it if you're overhauling the personal income tax code.

--------------

By Revenue Positive I only mean that it increases the over all amount of taxes collected, not that we stop running a deficit. While most aspects of Keynesian Economics have been shown to not really work, a government still must funnel money into the economy during a recession as government spending accounts for roughly 30% of our GDP in a growing economy and slightly more during a retracting economy.

The people who would feel the brunt of this would be stock traders. Currently, investors pay 15% tax on profits made from purchasing and selling stocks. Many of these investors would be in the top income bracket if this was looked at as earned income. Under current law, if I made a $1,000,000 profit I would pay $150,000 in taxes. If treated as Earned Income I would then pay roughly $340,000.

If you look at the report put out last year by the Commission on Fiscal Responsibility (something close to that name, a bit too busy to look it up right now) you'll see that they recommended many of these steps, managed to lower tax rates across the board, and increase projected revenue by $80B this year.

As for the Mortgage Interest deduction: If you look at the current law and compare it to what I've put you'll see that I've scaled it back tremendously. My only intent with it is to maintain affordability for middle income families to purchase a home. Right now I could buy two $1,000,000 houses and write off all interest on both mortgages. My changes limit it to only the first $500,000 of the mortgage on a primary residence. In effect, eliminating up to 75% of the possible current deductions. This change maintains the deduction for the middle class while eliminating a large portion of what the most wealthy could once take advantage of.

While the MID did play a large factor in the housing bubble, it was far from the only factor. Purchasing a home is one of the best ways to help expand the economy. On average, every family that purchases a home puts an additional $60,000 into the economy over the time they are living there. It is also more fiscally responsible than renting and over time leads to higher levels of consumerism due to the money saved when compared to renting. 

Thanks for your input, though. It's nice to have an informed discussion about things like this. I know it's not perfect and I'm fully willing to change things so keep it coming.