A Fair Way To Tax

Dear Honorable Citizen,

As you know, over the last several years our country has confronted unprecedented challenges. These challenges include a global pandemic, an increase in violent crimes, a threat to our democracy and homelessness and more. Fortunately we continue to overcome these challenges and to move forward, and for this we are grateful.

Sadly though, we have also become acutely aware of the many inequities within our communities.  Several months ago, Congress approved the Inflation Reduction Act which addresses important tax issues such as climate change, healthcare, and corporate taxation.  However, we must also re-think how we tax the earnings of citizens who spend the major portion of their lives working. We believe this can be accomplished by creating a new tax plan that is simple and FAIR. As a result, we are submitting what is called “A Fair Way To Tax Plan”. And request you give this serious consideration.

What if____

What if our country used a new, simple, fair tax plan, that would meet the needs of the government and the people.  How would it affect all of us, and where would the federal government get the money needed?

To have a chance at finding an answer, we have to make some assumptions.

First, we need to ensure that the taxes collected meet the needs of the government. This means figuring out the government expenses for the year and taxing to cover them.

Second, we need to make sure that no citizen is unduly burdened.

A Fair Way To Tax

Ordinary citizens spend the major portion of their lives working and paying taxes to support our government.

Over the past few years it has become increasing clear that there is a transfer of money and economic opportunity from the people with incomes in the lower 80% to people with incomes in the upper 20%. Many people in the upper 20%, especially at the very high end of the income range, have become inadvertent collectors of wealth.

Money needs to flow through the economy. People use money to buy and invest. This money creates a financial river that spreads and recirculates money, creating opportunity.

 A capitalist society needs both workers and consumers.         

Workers whose incomes are near or below their COST OF LIVING, put all of their income into financial river, leaving no disposable income.

Many of the upper 20% inadvertently create a reservoir of money, unable to put more than a small portion of their accumulated wealth into the economic river.

A FAIR income tax is the most efficient way to move money from a reservoir and back into the economic river to meet the needs of our government.   

A Fair way to Tax

“No new taxes” or “No more taxes” or “Cut taxes” have all been political rallying cries, but the hard truth is: A society must have tax money to provide for the needs of its people.

So instead of these calls to eliminate taxes, we need a new mandate for a FAIR TAX for all. No matter which of these issues takes precedence, for real progress in solving or mitigating the problem, there is going to be a need for “funding”, and that means TAX money.

All societies have issues that need to be addressed or problems that need to be solved. The United States is no exception. As members of our society we all have thoughts and beliefs about which issues are most important. For some of us it’s health care, for others it’s abortion, or climate change, or immigration, or free speech, or inflation or gun violence, or homelessness or voting rights. The list of problems that need to be solved is extensive and complex.

A plan for a FAIR income tax;

This plan involves:

  1. Income: Anything that increases the net worth of the family unit or individual. This includes wages, inheritance, bequest, interest, dividends, etc. (There are many configurations of families.)
  2. Cost of living: The cost of everything a family or individual needs to live a reasonably  stress free life. (Food, lodging, transportation, medical insurance, utilities, daycare, care of others and related costs.)
  3. Disposable Income: All the money that’s left after you pay for your cost of living.

Right now, families that earn less than the cost of living pay income tax, even though they don’t make enough to live on.

A FAIR income tax would raise the standard deduction to the Cost of Living. Cost of living varies widely throughout the US. In general, the Midwest and South have a lower cost of living. The two coasts have the highest cost. Rural areas have a lower cost of living than urban areas. 

This Fair model uses a cost-of-living range of $48,000/$78,000 or about $23/$34 an hour. This is based on a 40-hour work week with a 52-week work year. The two numbers reflect the inflation we’ve experienced in the last 6 years.

It’s clear some people have a lot more disposable income than others. Disposable income is what we should be taxing.

The federal government would figure your cost of living deduction and the tax owed in the tax table.

The form the tax payer would fill out could look like this:

  1. How much did you earn?________________________
  2. Subtract Cost of Living ($48 to $78K)__________________
  3. Disposable income (if 0, no tax owed)______________
  4. SS and Medicare Tax 7.5% times line 3_____________
  5. Taxable income Line 3 minus line 4________________
  6. Tax from tax table______________________________

In addition to the Cost Of Living deduction, the tax for Medicare and Social Security would also be a deduction, as would charitable donations and extreme health costs.  The current Social Security tax is about 7.5% and is only applied to wages up to $135.000. The Fair plan would change this so the 7.5% deduction is applied to all income over the cost of living. This amount would be subtracted from taxable Income to get the amount on which you would pay income tax. 

 The tax rate tables would be calculated and adjusted to bring in enough revenue to balance the budget.

The result would be a budget that balances the cost of living with the needs of the country.

No one would pay an income tax if their income was under the cost of living.

The tax table used in the following examples is the 2022 US tax table.

Line 7 was included to show that even though millionaires pay more in taxes, they still have a lot more to spend.

Using different earnings, here are 4 examples using a Cost Of Living of $48,000.

Taxpayer 1

  1. How much did you earn?  _________$48,000
  2. Subtract Cost of Living ($48,000)____$48,000
  3. Disposable income (if 0 no tax owed) $0______
  4. SS and Medicare Tax 7.5% times line 3_______
  5. Taxable income Line 3 minus line 4__________
  6. Tax from tax table_________________$ 0
  7. Disposable income left_____________$0

Taxpayer 2

  1. How much did you earn?___________$60,000      
  2. Subtract Cost of Living ($48,000)_____$48,000
  3. Disposable income (if 0 no tax owed)   $12,000
  4. SS and Medicare Tax 7.5% times line 3__$900
  5. Taxable income Line 3 minus line 4___$11,100
  6. Tax from tax table_________________$1,140
  7. Disposable income left_____________$9,960

Taxpayer 3

  1. How much did you earn?____________$100,000
  2. Subtract Cost of Living ($48,000)______$48,000
  3. Disposable income (if 0 no tax owed)     $52,000
  4. SS and Medicare Tax 7.5% times line 3__$3,900
  5. Taxable income Line 3 minus line 4____$48,100
  6. Tax from tax table__________________$5,780
  7. Disposable income left______________$42,320

Taxpayer 4

  1. How much did you earn?_____________$1,000,000
  2. Subtract Cost of Living ($48,000)_______$48,000
  3. Disposable income (if 0 no tax owed)       $952,000
  4. SS and Medicare Tax 7.5% times line 3__ $71,400
  5. Taxable income Line 3 minus line 4_____$880,600
  6. Tax from tax table___________________$297,342
  7. Disposable income left_______________$601,258

 This would be the only federal tax people would pay and all would pay their fare share.

This method would eliminate the worry of Social Security running out of money and Medicare and Medicaid would be fully funded.  The tax table would be adjusted to reflect the needs of the government. Possibly money would be budgeted to reduce the debt. As the debt went down so would taxes. Raising the national minimum wage from $7.25 to $23 would put more money into the river and produce more taxpayers. Are there problem we need to find answers for? Of course. But compared to what we have now, this is a good solution.