OK, I know this blog is about business. But the issue of income taxes and the behavior our friends at the IRS impacts your business, my business and the business of our personal lives. So, here are my thoughts…..
One evening recently, I was about to fall asleep when I awoke instantly wide awake with a new federal income tax structure. As you read this, please bear in mind that it’s a framework. The details of which I will leave to more talented bean counters than me.
What was rattling around in my head was something that I truly believe can make a huge impact on our government, our freedoms and our economy. I propose a TRUE flat tax (not a FAIR tax as some are proposing. I will let you research the differences). Before you run away screaming, walk along with me for a bit as I summarize the framework.
Individual Income Taxes – We would all pay a certain % of our gross income. No deductions (why should the g0vernment tell us that home ownership is better than renting, for example. The renters get screwed). We could eliminate the individual tax division of the IRS (or whatever it is called) and replace it with a much smaller, computer-driven group that verifies our income as reported on our 1/2 page tax return. The only reason for a return, at all, is to pay taxes on our passive income (our employers will withhold and pay taxes on our earned income). Now, there is a place for debating an income floor for the truly poor. However, even if someone can only pay $10 because of low income, they should.
This model would keep the rich from sheltering income and have the low income individuals pay at least a little. Plus, the government would save $billions with the smaller IRS (yes, the current employees would have to look for jobs, but a lot of us have survived that in our lives, including me).
Organization Net Income Taxes – You will note here, that I used the term “organization” instead of “business.” I will explain in a moment. Each organization will pay a certain % on the net income of the entity (similar to today). The difference is that there will be no such thing as a tax-exempt entity. They have to pay taxes on their NET, too. Before all the charities have a fit, take a breath and read on. Charities are supposed to give away their funds (after operating costs), right? So give it away like you are supposed to. If your expenses and “giveaways” equal your income (donations), you pay no taxes. If, as some supposed-charities do, you hoard funds, you pay income taxes on the remaining “net income.” This includes churches, synagogues and mosques, too. As a man of faith, I struggled with this, but I want my church to be missional (which we very much are) and spend on community outreach. We give offerings to our church to be spent, not kept. Here is the incentive to do so (in case one is needed)!
This set-up will also obviate the division of the IRS that is causing all the wailing and gnashing of teeth. There will be no reason for any group to need tax-exempt status, so there won’t be any politically motivated abuse of those applying for it. How much $$ will that save tax payers?
To monitor this type of entity, the IRS business division would be replaced by the department of organization taxation (or something of that nature). Admittedly, this division might be larger than the current similar IRS division because of the broader base. However, I am hoping that the flat-tax environment will be simpler to enforce and make it no larger, at a minimum.
Naturally, the status quo in congress and all the tax attorneys will scoff (they will need new jobs as a result). “You can’t do this and we have to be able to deduct that.” ….Open your minds, you fossils! Will someone likely pay more taxes than they do now? Of course. But, we have to make some serious changes in this country. We are in debt, as a nation, way over our heads and the economy is still fragile. The tax code seems like the logical place to start (with more restructuring to follow).
What I propose is simpler, which is pretty much always better and cheaper. It puts the rich and poor under the same rules (special interests have no footing without deductions), which creates a more cohesive country as opposed to our currently polarized country. We are the UNITED States of America. Let’s set up the tax rules to encourage that.