Principles for Taxation, and tax policy
WHAT TAX POLICY SHOULD DO:
1. The government (and tax policy) SHOULD fund all constitutionally mandated activities with current year taxes.
2. The government (and tax policy) SHOULD obey the 5th Amendment limitation on government power to abuse any citizen.
3. The government (and tax policy) SHOULD encourage American ingenuity, and should treat all taxpayers equally.
WHAT TAX POLICY SHOULD NOT DO:
1. The government (and tax policy) should NOT punish citizens for being successful.
2. The government (and tax policy) should NOT manipulate citizens into any behavior they would not otherwise choose.
3. The government (and tax policy) should NOT tax inflationary increases on investment returns
4. The government (and tax policy) should NOT take any previously taxed income away from the rightful heirs.
Let me repeat and expand on each of these bullets:
Under the Constitutional The People and the States, yielded a limited access to their property, transactions, and income under Article 1, Section 8, clause 1:
Section 8.  The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
As this clause only required Duties, Imposts and Excises to be uniform, the 5th amendment addressed and limited the ability to lay and collect taxes. There was proper fear that the majority might use Federal powers, including the power to tax, to punish the minority. The 5th amendment says more that just that the government can not compel anyone to testify against themselves, It states:
No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
The 5th amendment was to limit the Federal government’s ability to harass individuals. The government was to be limited in using its power against individuals. It required due process of law. It prevented the government from filing the same charge multiple times until a jury to the governments liking could be found. It preserved the rights of the people to own property and pursue life and liberty. It prevented the government from taking private property (including income) for public use, without JUST compensation. Taking property, when the taking is NOT EQUAL, was not to be a power of the Federal government.
WHAT TAX POLICY SHOULD DO:
1. The government (and tax policy) SHOULD fund all constitutionally mandated activities with current year taxes. Neither the government, nor any generation should live on the contributions of future generations. If anything, current generations should lay up provision for future generations. Deficit spending in times of peace is indefensible. Congress has the authority and obligation to tax. It should only spend what it is willing to tax. Politicians should not be allowed to stand for reelection when they appear to have purchased votes by providing Federal services to citizens that were not fully paid for by taxation.
2. The government (and tax policy) SHOULD obey the 5th Amendment limitation on government power to abuse any citizen. The 5th Amendment is a PROHIBITION on abuse of government power. It offers protection to The People from being deprived of life, liberty, or property, without due process of law, because unchecked the government could be expected to deprive life, liberty and property rights. It denied the government that power to take private property for public use, without just compensation, because without this limitation the government could be expected to unjustly take the private property of a few, for the public use of the majority. Private property should be recognized to include income. A Democratic Republic form of government had the risk of majority rule, rather than the rule of law. A Democratic Republic government needed to be limited in power, to prevent abuse of any individual.
I believe that taking a greater percentage of income, from one citizen than another is taking their property. I do not believe there is any additional benefit derived by that citizen by having a greater percentage of their income taken, and therefore I belive a progressive tax violates the 5th amendment protection from government taking of property without just compensation.
3. The government (and tax policy) SHOULD encourage American ingenuity, and should treat all taxpayers equally. American business should not be sent overseas because of efforts to avoid taxation, nor should the tax rate on business, and individuals be different, so as to manipulate citizens into, or away from, any business structure, to avoid taxes, or achieve a tax preference. One tax rate, on all income not given to charity, over a base exemption for the individual, should apply to all tax payers. I believe the government has a compelling interest to exempt some income for all tax payers, and to collect an equal percentage of taxes from all other tax payers. I believe the government has a compelling interest in the social welfare of citizens that religious and other charities provide, as a community benefit, and therefore believe the government should exempt gifts to charity, from taxation. I propose the base exemption for all citizens be set at $25,000 for an adult, and $10,000 for each dependant child. For a joint filer, this would mean that $50,000 would be exempt from taxes. If they had two dependant children, than a total of $70,000 would be exempt from taxes. For the great majority of Americans the tax due to the government would be zero.
If a member of the House or Senate (who are currently paid $174,000 per year) with two dependants, made no charitable gifts, they wold pay taxes on $104,000 per year. If they gave away $54,000 to charity, they would pay the flat tax rate on $50,000. Warren Buffet, and other billionaires, would get the same consistent deductions, and pay the full rate on all remaining income. His secretary, likely would pay little to no income tax.
I do not know what the tax rate would be, but the Congressional Budget Office could calculate that value needed to meet Federal obligations.
WHAT TAX POLICY SHOULD NOT DO:
1. The government (and tax policy) should NOT punish citizens for being successful. Class warfare requires one individual or group (class), to be placed against and opposite another group (class) of people. Punishing any citizen with a higher rate of taxes, simply because they are successful, is not American, and is not aligned with the 5th amendment protections. As proposed above the tax rate should be the same for ALL. Charity should be exempt from income. All income should be be taxed at the same rate in excess of the base income credit. A progressive tax, with exemption loopholes, only serves the interests of lawyers, tax preparers, lobbyist, and reelection war chests. They do not serve the interests of the American people. Successful Americans should be rewarded for their success, not punished by the government.
2. The government (and tax policy) should NOT manipulate citizens into any behavior they would not otherwise choose. When the tax rate varies, or when exemptions from tax are available, lobbyist work to create more exemptions. Lawyers, and Accountants make profits, but citizens are abused. When tax preferences are granted, re-election war chests are filled, but the country is pickpocketed. The base, and common income credit (exclusion from taxes) should be common. It should be set high enough to compensate for the loss of current interest, health, and other tax credits. Having the same credit for all, means that renters, will have no less tax benefit than a home owner who is in dept to the bank. It means an American who chooses a large house, with a large mortgage, will not have a tax advantage over a responsible citizen who has a small mortgage, or has already paid off their banking debt. Tax policy should not have a marriage penalty, nor a marriage bonus. Tax policy should not encourage debt, nor encourage or discourage purchase decisions of education, homes, cars, boats, planes, trains, trucks. Americans should be free of manipulation by their government, and government tax policy.
3. The government (and tax policy) should NOT tax inflationary increases on investment returns. Today we have a different tax rate on capital gains. I would propose that all income be treated as income, but that inflationary income be exempt from tax.
What I mean by this is that the interest paid on investments, should be reduced for the changes in the consumer price index (CPI), but not below zero. If the bank paid 1% interest, but the CPI for the year went up by 1.5% there is no income, just inflation, and therefore no tax. If an investment realized a 5% return, then 3.5% would be taxable income, and 1.5% would be inflationary recovery. If a long term investment returned 35% over the original investment, but during the same time the CPI went up 37% there would be no income, just inflation. However if the CPI only went us 31% there would be a 4% income.
4. The government (and tax policy) should NOT take any previously taxed income away from the rightful heirs. Gifts made from fully taxed income should not be taxable a second time when given to the recipient. Gifts are not income, and no income is subject to double taxation. However, gifts of property pass at the existing base value. Gifts to heirs pass at the base value of the giver adjusted by inflation. If the giver has a base purchase of a home at $50,000 that today is worth $400,000 the gift passes to the heir with the value of $50,000 adjusted by the CPI change between of the year acquired by the giver and the date of the gift. If the CPI was a change of 120% the gift would pass at a value of $110,000 ($50,000 + 120% of $50,000) When sold, and profits are realized, the CPI would be applied to the $110,000 to determine the inflation adjusted value at the date of sale, and the income to be recognized for taxes.
A flat tax rate is defensible, a progressive tax rate, serves no purpose than to punish those citizens who are successful, and is against the principles of taxation and tax policy I have proposed.