Two Points on the GOP’s Tax Hikes and Jobs Act

Tax Hikes and Jobs Act

Point #1

Like a broken record, Republican promotors of the Tax Cuts and Jobs Act insist that by raising the 2018 standard deduction for single filers from $6,500 to $12,200, for couples from $13,000 to $24,400, and by lowering selective tax rates, that their plan will usher in a huge tax cut for the middle-class. It, in fact, does no such thing.

Whenever challenged with the reality that their proposal will result in a tax increase on many of their constituents, they exclaim, “Yes, but we are doubling the standard deduction!” Yet, not one of them ever mentions that they are, simultaneously, repealing the personal exemption deduction of $4,150, per person.

In 2018, the standard deduction for single filers will be $6,500, and for married taxpayers filing jointly $13,000, while the personal exemption will be $4,150 (per person). That means a single non-itemizer would already have received $10,650 ($6,500 standard deduction + $4,150 personal exemption) of tax exempt income before the proposal, versus $12,200 after. And, a married couple, without children and not itemizing, would already have received $21,300 of tax exempt income before the proposal, versus $24,400 after.

For single filers, the difference between $12,200 and $10,650 isn’t double, it’s only $1,550. For married couples, the difference between $24,400 and $21,300 is a mere $3,100. This isn’t a doubling of the standard deduction. It is effectively an increase to the standard deduction of $1,550 for single filers and $3,100 for couples without children. So, please stop lying to us.

Furthermore, since this is income that would have been taxed at a rate of 10% before the proposal, the amount of taxes saved will be just $155 for singles, and $310 for couples without children. Those with at least one child will start out in the hole, and must rely on an expansion in tax credits just to get back to par.

Point #2

According to the Congressional Research Service, more than 50% of taxpayers with adjusted gross incomes of $50,000, or more, itemize their deductions. Those with $50,000 to $100,000 of adjusted gross income claim average itemized deductions of $19,187, while those with $100,000 to $200,000 in income claim an average of $25,598 (see table below).

Share of Itemized Deductions and Average Claimed

So, more than half of taxpayers, who pay most of the income tax, itemize. And, the Republican bill seeks to eliminate their deductions for state and local taxes, real estate taxes, medical expenses and unreimbursed employee expenses. This won’t end well.

Share of Avg Itemized Deductions by Income

Among the deductions Republicans seek to disallow, according to the Congressional Research Service, on average, most itemizers with adjusted gross incomes of $50,000 to $100,000 stand to lose a least the following (see table above):

  • State and local taxes: $2,879
  • Real estate taxes: $3,494
  • Total $6,373

And, most itemizers with adjusted gross incomes of $100,000 to $200,000 will, on average, lose at least the following:

  • State and local taxes: $6,033
  • Real estate taxes: $4,883
  • Total $10,916

Although Republicans are also repealing medical expenses and unreimbursed employee expenses, they are not included here because they are not claimed by the bulk of taxpayers. On the other hand, state and local taxes, and real estate taxes are claimed as often as the mortgage interest deduction.

You might say that mortgage interest, real estate taxes and state and local taxes go hand in hand. But, that doesn’t mean one should discount the importance of deductions for medical and unreimbursed employee business expenses.

Almost everyone knows at least one infirm or elderly person that spends all or most of their income on medical care. This is not by choice. Denying them the ability to offset their income will force many into a tax liability where none previously existed.

Collecting taxes from the elderly and infirm, those with the least ability to pay, is of course detestable, but well within the spirit of this horrible bill. The same applies to sales persons and other employees who spend much of their time on the road and are not reimbursed for all the expenses they must incur to earn their pay.

Add the loss of deductions for the state and local taxes, and real estate taxes to the loss of the $4,150 (per person) personal exemption deduction, and single itemizers with adjusted gross incomes between $50,000 and $100,000 stand to lose total deductions of at least $10,523, while married itemizers (without children) lose $14,673.

Thus, under the Republican proposal, an average single itemizer with adjusted gross income between $50,000 and $100,000 stands to lose $10,523 in deductions, which equates to an $1,884 tax hike (at 17.9%). An average married couple (without children) in the same bracket will lose $14,673 in deductions, which equates to a $2,421 tax hike (at 16.5%).

Single itemizers with incomes between $100,000 to $200,000 will lose total deductions of $15,066, while married filers (without children) lose $19,216. Thus, an average single itemizer with adjusted gross income of $100,000 to $200,000 will see a $3,254 tax hike (at 21.6%), while a married couple in the same bracket will see their taxes rise by $3,728 (at 19.4%).

Losing the ability to deduct state and local taxes, real estate taxes, medical expenses and employee business expenses may impair a taxpayer’s ability to itemize at all. That’s because mortgage interest and charitable contributions, alone, for the majority, will not be enough to exceed the proposed $12,200 and $24,400 standard deduction. Thus, taxes will rise more on some taxpayers than others.

At this point, Republican lawmakers will say, “But, you have to look at the whole package. We are also lowering tax rates, and your boss is going to give you a $4,000, or more, pay raise.”

Expanding the 12% bracket to the first $45,000 of taxable income for single filers, to $90,000 for couples; and the 25% bracket to incomes of $200,000 and $260,000, respectively, doesn’t make up all the shortfall for those losing deductions. Although the average tax rate will drop by 1.2 percentage points on single filers, and 1.4 percentage points on couples, middle-class itemizers will at best break even. That’s because a greater amount of their income will be subject to income taxes. At worst, they are punished with a tax hike.

Apples to apples, if deductions were not being disallowed, the GOP’s proposed adjustment to the tax brackets would be a good thing. But, this isn’t apples to apples, it’s apples to applesauce. The GOP is telling more than 50% of middle-class taxpayers, who currently itemize their deductions, “We’re going to tax you on a greater amount of your income, but you’ll save money because we’re taxing it at a lower rate.”

Voilà! That explains why a majority, already carrying the burden of taxes, now face a Republican tax hike. Meanwhile, health insurance premiums continue to spin out of control, and if you’re fortunate enough to afford it, it will no longer be deductible. If this bill passes, you better hope that pay raise comes fast, otherwise the public will vote against every one of you in 2018.

The GOP’s tax reform proposal effectively raises the standard deduction by $1,550 for single filers, and by $3,100 for married couples without children, while lowering it for couples with at least one child. It takes away average deductions of $10,523 to $19,216 for more than half of middle-class taxpayers that itemized their deductions. The lowering of tax rates and expansion of tax credits are fancy mechanisms designed to mitigate a portion of the damage. This is not a tax cut, it’s a tax hike by design.

Another Way

To avoid raising taxes on the middle-class, the GOP could increase its proposed standard deduction on single filers from $12,200 to $21,800, and on couples from $24,400 to 43,600. That way, more than 50% of middle-class taxpayers won’t be punished. A move in this direction would promote simplicity and fairness. It would also be more in line with the original proposal that put DJT in the White House.

 

What the Republican Tax Reform Plan Lacks

According to White House Press Secretary, Sarah Sanders, “Very few people itemize. I think it’s around 20% of people that actually itemize. Those things will be offset by other tax credits that are part of this plan…”

Ms. Sanders would be correct, if she was referring to households earning less than $50,000 per year, a figure which barely skirts the middle-class. However, as you can see in the chart below, 41.7% of households earning between $50,000 and $75,000 itemize. The figure jumps to 58.5% for those earning $75,000 to $100,000, and rises to 78.8% for those earning between $100,000 to $200,000.

Itemized_Deductions-21

On average, 30.1% of taxpayers itemize. A figure which comprises roughly 44,000,000 households. This is something neither the White House nor Congress should take lightly. Any effort to reform the tax code should at least begin with the facts.

The Republican tax reform plan proposes to eliminate the $4,050 (per person) personal exemption, and limit a household’s ability to itemize deductions, replacing both concepts with a higher standard deduction. The proposed standard deduction is $12,000 for single filers, and $24,000 for married couples.

In tax year 2016, the standard deduction and personal exemption(s) combined were $10,350 (6,300 + 4,050) for single filers, and $20,700 (12,600 + 8,100) for married couples. Keep in mind that taxpayers able to claim dependents were allowed additional personal exemptions of $4,050 for each. Dependents include children and in many cases elderly parents.

Under the Republican framework, single taxpayers, who currently do not have enough deductions to itemize, and are not claiming dependents, will receive an extra $1,650 (12,000 – 10,350) of tax free income. Since this income was previously taxed at 10%, their savings under the Republican plan are a mere $165.

Married taxpayers filing jointly, who currently do not have enough deductions to itemize, and are not claiming dependents, will receive an extra $3,300 (24,000 – 20,700) of tax free income. Since this income was previously taxed at 10%, their savings under the Republican plan are a mere $330.

The Republican framework further eliminates the 10%, 15%, 28% and 33% tax brackets. Commencing at 12%, the new framework then jumps to 25%, then 35% and potentially up to 39.6%. We don’t yet know where each bracket will end, but we do know that the plan represents a 20% tax hike at the lowest level. Not good.

2016 Tax Bracket Single

2016 Single Tax Rate Schedule

Actually, in raising the bottom tax rate from 10% to 12%, the Republican plan takes back all of the initial tax savings, placing both single filers and couples in the red. Thus, for non-itemizers, the premise of a higher standard deduction combined with the elimination of the personal exemption results in less than nothing in terms of a tax cut.

Furthermore, married and single non-itemizers with dependent parents or children turn out to be big losers. So, if the framework does nothing for non-itemizers, what will it do for those that currently itemize? I’ll use myself as an example.

For tax year 2016 I filed as Single with no dependents, had itemized deductions of just over $20,000, and claimed a personal exemption of $4,050. Rounding it off, my total deductions were $24,000. That means my taxable income was computed as total income minus $24,000. That’s where the tax brackets kick in.

Of the $20,000 I claimed in itemized deductions, around $6,000 was mortgage interest, $9,000 were employee business expenses (which don’t appear to be part of the discussion), and the remainder were real estate and state and local income taxes.

Being single in 2016 meant the first $9,275 of taxable income (i.e. income above my deductions of $24,000) was taxed at 10%, the next $28,374 at 15%, and the next $53,499 at 25% (see table above).

Moving forward, instead of being allowed to claim my usual itemized deductions and personal exemption of roughly $24,000, the Republican framework will limit me to a new standard deduction of $12,000 (for single filers). Thus, $12,000 of my income that was previously un-taxed will now be subject to a 12% income tax.

So, where $12,000 of my income wasn’t previously taxed, the Republican plan taxes it at 12%, thereby increasing the government’s coffers by an extra $1,440. And, this is just the starting point.

Where the next $9,275 of my income was previously taxed at 10%, the Republican plan taxes it at a rate of 12%, favoring the government by an additional $186. So far, the government is ahead by $1,626. Will an adjustment in the tax brackets make up for my shortfall?

Now, where my next $28,374 of income was previously taxed at 15%, it will presumably be taxed at 12%, assuming the new 12% bracket covers at least the first $49,649 of taxable income (12,000 + 9,275 + 28,374). Compare this to the chart above. If correct, this saves me $851 in taxes (3% of 28,374). Yet, the government is still ahead by $775. If the bracket isn’t extended, I am forced even further into the abyss.

In fact, to break even the 12% tax bracket must be extended to $55,611, for a single person in my shoes (49,649 + (775 / (.25 – .12))). But, since the Republican framework is billed as a big beautiful tax cut, not just a crafty way to simplify the code, at the expense of the middle-class, the 12% bracket must be extended further for me to realize an actual reduction in taxes.

To receive a modest tax cut of $1,440, the 12% tax bracket must apply to taxable income of $0 to $66,688. That’s what it will take for me to lose my current itemized deductions and personal exemption, and wind up with a modest tax cut. It may take more, or less for you, but you get the gist.

Yet, according to the White House, the average American family will receive a $4,000 tax cut. For a taxpayer in my shoes to receive a $4,000 tax cut, the 12% bracket for single individuals must be extended to taxable income of up to $86,380.

So, my new benchmarks for the Republican plan are as follows (yours may differ). If the 12% bracket, for single individuals, ends at $55,611 or less, then the bill is garbage. If the bracket extends to the first $66,688 of taxable income, then it’s alright. And, if the 12% bracket for single filers applies to taxable incomes of up to $86,380, then I’m all in.

Tax brackets for married individuals filing jointly should be roughly double the single brackets. That means the 12% bracket for married couples should apply to taxable income of no less than $111,222 to break even, $133,376 for a modest tax cut, and more optimally to $172,760 to be in line with the administration’s rhetoric.

If you think the Republican middle-class tax hike will be made up for by tax credits, first know that refundable tax credits are not in line with Republican principles. The refundable child tax credit, earned income tax credit, and education tax credit are wealth redistribution mechanisms, favoring special interests, supported by liberals and socialists, and should be abolished under a true Republican administration.

Leaving refundable tax credits in the tax code lends nothing towards simplification, or fairness. As I have long advocated, it is enough not to owe any income taxes at all, that should be as good as it gets. Going beyond this, into the realm of refundable tax credits, only leads to government dependence and unnecessary red ink.

To sum it up, if the 12% tax bracket doesn’t apply to taxable incomes of at least $66,688 for single individuals, and $133,376 for married couples, then the Republican tax plan is little more than a sham, favoring special interests, and will end up confiscating and redistributing even more wealth from the middle-class than it does today.

Alternative Plan:

As an alternative, Republicans could simply raise the standard deduction as proposed, keep the deduction for personal exemptions, maintain the current framework for itemizing, and lower tax rates starting from the bottom up. Add to this a business tax cut and you’ve got something that makes sense.

References:

Tax Foundation: Who Itemizes Deductions?

Politics is a Team Sport: Rand Paul’s Destiny

adfa7100cb2d163a27ee88a1965a4c19_400x400Rick Perlstein said it best, “I believe politics is a team sport. That, for awful and unfortunate reasons beyond any of our control, the American system only allows, effectively, for two teams.”

Is politics a team sport? The question resurfaced recently when Senator Rand Paul referred to the Graham-Cassidy Health Care Plan as — “Amnesty for Obamacare.”

When I saw this, I immediately fired off a tweet to Senator Paul stating, “Not again! It’s a team sport. Time is up. If you are not Republican, then get off the team and go join the Democrats.”

An unidentified third party then replied, “Wrong – it’s absolutely NOT a team sport. Members must represent their constituents’ wishes – not follow some pigheaded slogan.”

In reality, it’s Senator Paul who’s following a self-contrived “pigheaded slogan”, while most Republicans in the House, 90%+ of those in the Senate, and the Trump Administration are in support of a “bill”, which repeals the main provisions of Obamacare, and takes power away from the District of Columbia, handing it back to the states.

If politics isn’t a team sport, then why do political parties exist? And, what is the purpose of winning the majority in both houses and the White House if the party in control isn’t going to stick together on major legislation? Of course, politics is a team sport.

Yet there always seems to be at least one grandstanding maverick, almost always a Republican, who wants to make a name for himself rather than play his position. Face it, Rand Paul doesn’t represent any constituents. Like John McCain and a few others, he merely represents himself.

If Senator Paul represents anyone, it should be the party he belongs to, whichever that may be. At this point, he represents constituents of the Democratic Party, who oppose the bill at all costs, and cares nothing for Republicans, the majority of whom favor some measure of victory.

Under the Graham-Cassidy plan a Federal block grant is given annually to states to help individuals pay for health care, Planned Parenthood is defunded, and the individual mandate, employer mandate, and medical device tax are completely repealed, to name a few. But even better, it’s supported by most Republicans in the House, 90%+ of those in the Senate, and the Trump Administration. So, what’s Rand Paul’s problem?

If Senator Paul can’t get 90%+ of Republican Senators to go along with his proposal, which he can’t, then perhaps he should dismount from his high horse and support the 90%+ of his party who see merit in Graham-Cassidy. If that’s not good enough for Senator Paul, then only one choice remains.

Stop calling yourself a Republican, and go team up with those more in line with your views. At this point in time that would be none other than the Democratic Party, which stands firm, in unison, against every proposal favored by the President and the majority of Republicans.

Extremist v. Extremist, Intolerance

charlottesville81217If you’ve ever been out in the streets protesting anything, you’re an extremist. If you’ve ever assembled peaceably to petition anyone, other than the government for redress of grievances, you’re an extremist. If you can’t handle the First Amendment rights of peaceable assembly and freedom of speech, you don’t deserve to be called an American.

According to the First Amendment, “Congress shall make no law …abridging the freedom of speech, …or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

Freedom of speech may be defined as, “the right to express any opinions without censorship or restraint.” The right to peaceably assemble, and to petition government for redress of grievances may be defined as, “the individual right or ability of people to come together and collectively express, promote, pursue, and defend their ideas; and make a complaint to, or seek the assistance of, one’s government, without fear of punishment or reprisals.”

Congress has, thus far, made no laws abridging the freedom of speech, or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances. Yet others, including some local governments, federal government employees, extremist groups, the Democratic Party, Google / YouTube, and Facebook, often enforce their own un-American statutes.

For example, Google recently suspended my Google Plus account indefinitely, without any right of appeal, simply for declaring myself to be a Trump supporter and posting pro-Trump news articles. Of course, prior to doing so my Collection, entitled, “Trump 2016 / 2020” had over 10,000 followers and more than 10,000,000 views. My attempts to reinstate the account fell on deaf ears.

Since I did not violate any of Google’s rules, it claimed that I violated its impersonation policy, even though, unlike others, I used my real name and biographical profile. Thus, I am no longer a part of Google’s social networking experiment. I no longer have the freedom to express myself, nor the right to peaceably associate with friends and followers, at least not using Google’s services. Nine years of associations, thousands of followers, hundreds of posts and comments, gone in a flash. So, what’s next?

If the KKK, Neo-Nazi’s, white nationalists, Alt-left, Black Lives Matter, Blue Lives Matter or any other group wants to assemble peaceably to petition the government, they have a right to do so without fear of punishment or reprisals. Certainly, such groups have the right to assemble, and the freedom to write or say whatever they wish. But, that’s not the problem in this era. The plight of our day lies in counter-protests.

Counter-protesters serve no useful purpose other than to deny others of their basic Constitutional guarantees. Government condemnation of domestic hate groups serves no meaningful purpose, as they have a right to exist. The role of the federal government should be to condemn intolerance. There is no place for intolerance, at any level, in our society.

Counter-protesters are not petitioning the government for anything. They are rather protesting against other people’s rights to speak freely, to assemble and to petition the government. Shutting down the right of free speech, or the right to associate and petition the government is not the American way.

What the federal government should do is shut down counter-protest movements in every shape, form and fashion. Congress must pass additional laws protecting basic first amendment rights, by cracking down on counter-protesters. It must also outlaw the practice of street protests. Allowing opposing groups to protest at the same time, in public venues, is asinine.

Allowing any group to protest in the streets, or public places, violates the rights of others. Allowing groups with opposing views to counter-protest encourages violence. Rather than cultivate intolerance and violence, the federal government should do everything within its power to discourage it, while at the same time protecting everyone’s First Amendment rights.

The role of the federal government, and all who have taken oath to uphold the Constitution, is not to pick sides, but rather to promote tolerance in a diversity of ideas.

Google’s actions against me are reprehensible. But, the freedom I have was not granted by Google, and Google cannot take it away. Rather than fight, I have chosen to take my business elsewhere.

If you don’t like MSNBC or CNN, don’t watch. If you don’t like Donald Trump, don’t go to a Trump rally, stay at home. Better yet, pow-wow with the candidate of your choice and prepare for the 2020 election. If you don’t agree with the KKK, Neo-Nazi’s, white nationalists, the Alt-left, Black Lives Matter, Blue Lives Matter, the Democratic Party, or any other group, don’t support them or attend their functions. Instead support and associate with groups you agree with. Actions such as these are not extreme in nature, but are simply the American way.

Natural Born Citizenship: Free and Clear

:: Cruz’s Dilemma

– By: Larry Walker, II –

The concept of natural born Citizenship is clear and concise, to anyone with a rational mind. Although some may wish to contort its meaning to fit the presidential candidate of their choice, natural law is incapable of such bias. It takes two parents to produce a child, one male and one female, but you would never know it if your source of information is the lamestream media. By its logic, only one parent is sufficient.

Epigrammatically speaking, if both of your parents were U.S. Citizens at the time of your birth, you are without question a natural born Citizen of the United States. The location of your birth matters little. You could have been born in Kenya, Canada, Panama, or perhaps on the Moon, but as long as both parents were U.S. Citizens, at the time of your birth, you are without question a natural born Citizen.

According to Vattel’s Law of Nations, Chapter 19 § 212: “The natives, or natural-born citizens, are those born in the country, of parents who are citizens. As the society cannot exist and perpetuate itself otherwise than by the children of the citizens, those children naturally follow the condition of their fathers, and succeed to all their rights… The country of the fathers is therefore that of the children; and these become true citizens merely by their tacit consent.”

You can think of natural born citizenship as free and clear citizenship. In other words, the rights of the parents (plural) are passed to their children. Thus, when both parents are U.S. Citizens, their offspring are natural born U.S. Citizens, free and clear. No other country has a claim of right. Comprende?

However, if at the time of your birth, your father was a Citizen of Kenya and your mother of the U.S., this would pose a problem. Oh no! What’s the problem? The problem is duality. Under such circumstances, the child would be a Citizen of Kenya (a British subject pre-1964) by virtue of its father, and equally a Citizen of the United States by virtue of its mother. There’s nothing free and clear in this circumstance. Upon the age of consent, such a child may claim citizenship with one country or the other; however, citizenship does not equal natural born citizenship.

You might not like the result of the above graphic, but that’s simply the way it is. Here are some recent examples.

Is John McCain a natural born Citizen? John McCain’s parents were both U.S. Citizens at the time of his birth, thus he is a natural born Citizen. It matters not that he was born on a military base in Panama. He could have been born in Siberia. No matter where he was born, McCain is a natural born American Citizen by virtue of his parent’s common nationality, at the time of his birth. You got that?

Is Ted Cruz a natural born Citizen? Ted Cruz’s father was a Cuban Citizen and his mother a U.S. Citizen, at the time of his birth. Thus, whether born in the U.S., Cuba, or Canada (where he was actually born) he is not a natural born Citizen of either.

Cruz was born with citizenship rights to Cuba, Canada and the United States. Although he may have chosen U.S. citizenship, at the age of majority, natural born citizenship is not something one chooses. Natural born citizenship is a right passed from one’s parents at birth. As such, Ted Cruz is no more a natural born Citizen than is Barack Obama.

The U.S. is filled with undocumented aliens, birthright Citizens, permanent residents, dual status Citizens, naturalized Citizens, and natural born Citizens. Whether the children of undocumented foreigners, born on U.S. soil, are U.S. Citizens by birthright is questionable. However, without question, such children are not natural born Citizens of the United States.

The main issue is this. According to Article 2, Section 1, Clause 5 of the U.S. Constitution, “No Person except a natural born Citizen shall be eligible to the Office of President.” So where does that leave Ted Cruz? Is he a U.S. Citizen? Sure, if he affirmed. Is he a natural born Citizen? Due to the citizenship status of his parent’s, at the time of his birth, he clearly is not.

Is Ted Cruz eligible to run for the presidency? Technically no, since he is not a natural born Citizen. But since you allowed Barack Obama, who is plain as day not a natural born Citizen, why stop Ted Cruz or anyone else for that matter? If it weren’t for that confounded Constitution, we could nominate whomever we yearned, without conscience. But, since we do have a blessed Constitution, it’s up to us, rather than fainthearted federal judges, to see that it is upheld.

Reference: #NaturalBornCitizen

The GOP’s “Abolish the IRS” Crackpots

“In this world nothing can be said to be certain, except death and taxes.” ~ Benjamin Franklin ::

Separating the Wheat from the Chaff

:: By: Larry Walker, II ::

Each 2016 GOP presidential candidate has proposed to reform the tax code. While seven have offered legitimate proposals, five have advanced theories which are basically maniacal.Those proposing to abolish, or end, the Internal Revenue Service (IRS) may further be classified as crackpots, because, let’s face it, that’s never ever going to happen.

With taxes of such fundamental concern, it’s difficult to take anything else these kooks say seriously. Unless such candidates are willing to revise and clarify their ideas, they should drop out of the race immediately, so conservative voters may focus on genuine tax reform proposals.

Just who are these crackpots and why is their reasoning amiss? That should be evident by now, but let’s run through them, one by one.

Rafael Edward “Ted” Cruz

First there’s Senator Ted Cruz, who might have a better shot if he used his real name, and dropped his flawed and incomplete tax proposal. Senator Cruz proposes a 10% flat tax on individuals, a 16% flat tax on businesses, and to abolish the IRS.

His Simple Flat Tax Postcard lumps all income onto one line, rendering it virtually impossible to verify. Apparently wages, interest, dividends, capital gains, rents, pensions, social security benefits, etc. are all one in his mind. He proposes a $10,000 standard deduction per filer, and a $4,000 personal exemption for each dependent. He would maintain the Child Tax Credit, Earned Income Tax Credit and deductions for charitable contributions and mortgage interest, all without the necessity of an IRS.

Cruz would replace the corporate income tax with a Business Flat Tax of 16%. The tax would apply to “gross revenues minus expenses for equipment, computers, and other business investments”. That means no deductions for salaries, rent, utilities, supplies, and other ordinary and necessary business expenses. Although he would eliminate the payroll tax, this is made up for by effectively assessing businesses a 16% tax on the salaries and wages paid (i.e. since they will no longer be deductible).

Although his idea might seem fair and simple to the average working Joe, it’s not practical in the real world. That’s because, according to Senator Cruz, a small business would basically fork over 16% of its gross business income, without regard to its net cash flow. If its net income percentage is 16%, it would hand it all over to the government, and if it has a bad year and loses money, it would still owe a 16 percent tax on its gross revenues. Great! How many small businesses would survive under this scam?

But that’s not the end of it. According to Cruz’s proposal, small business owners would then owe an additional 10% tax on the salaries and dividends received from such businesses, after the standard deduction and allowance for exemptions, or charitable contributions and mortgage interest. In other words, through stealthy double-taxation, a small business owner could wind up owing as much as 26% on his or her compensation. Yeah, good luck getting this passed without mass resistance!

If the scheme were ever to see the light of day, which is highly implausible, then who would we mail the checks to? Since there will no longer be an IRS, not to mention three or four other agencies, would we simply forward more than 160 million checks to the White House? Who will verify whether everyone required actually files a “postcard-sized” tax return? Who would verify whether those that do file actually pay the full amount due? What happens when they can’t pay in full, or at all? Who will verify whether the amount of gross income reported is accurate?

Folks, this is not a well thought out plan, and it certainly won’t abolish the IRS, so as far as I’m concerned, you can strike Senator Cruz off the short list.

Randal Howard “Rand” Paul

Then there’s Senator Rand Paul, whom I admire, other than for his flawed tax proposal. He proposes to “blow up” the tax code and start over. He has advocated “abolishing the IRS, and replacing it with a simplified, revamped tax code”. He proposes a 14.5% flat tax on individuals and businesses.

For individuals he would allow a $15,000 standard deduction (per filer), and a $5,000 per person exemption, while maintaining the Earned Income Tax Credit and Child Tax Credit. How’s that for pandering? You can have your cake and eat it too. He would then eliminate all deductions other than mortgage interest and charitable contributions. Good luck handling all of this without the IRS.

For businesses, he would levy the tax on revenues minus “allowable expenses”, such as the purchase of parts, computers and office equipment. He would allow the immediate expensing of all capital expenditures, ending the notion of depreciation. Great, but that means no deductions for some of the largest expenses most small businesses incur, such as salaries and wages, rent and utilities, health insurance and retirement contributions.

Following Senator Paul’s approach, small businesses would basically fork over 14.5% of their gross business income, since after the first year most won’t have much in the way of “allowable expenses”. Once that’s done, whether or not there’s anything left over, its owners would then fork over another 14.5% of the salaries and dividends received from their businesses, after subtracting the standard deduction, or charitable contributions and mortgage interest (i.e. the only deductions he would allow), personal exemptions, and allowable tax credits.

Although the plan sounds reasonable on its surface, how would it be carried out without the IRS? Who would we send the checks to? Who would ensure basic compliance? Who will dole out the tens of millions of Earned Income Tax Credit refunds and guard against fraud? It doesn’t sound like Senator Paul will be abolishing the IRS anytime soon, so why the facade? This contradiction removes Senator Paul from serious contention.

Benjamin Solomon “Ben” Carson

As for Dr. Ben Carson, had it not been for money raised prior to his candidacy, by a PAC originally established for the purpose of repealing Obamacare, he wouldn’t even be in this race. Dr. Carson proposes that we all pay mandatory tithes to the federal government, as if it’s our new God, or something. Under his theory (which has yet to be set to pen and paper), individuals and businesses would simply hand the federal government a flat 10% of their gross income without the benefit of any deductions, which would put an end to the IRS.

Carson’s design would result in a 72% to 233% effective tax hike for those in the lowest, second, middle and fourth income quintiles, while at the same time granting an effective tax cut of 30% to 49% for those with the highest incomes. It’s a great plan if you make more than $200,000 a year, but for everyone else it will amount to a humongous tax increase.

Under Dr. Carson’s theory, a small business owner would simply fork over 10% of his (or her) gross business income, without the benefit of any deductions for salaries, rent, utilities, mortgage, state taxes, materials, supplies, depreciation, subcontractors, etc. Then contribute another tenth of the gross salary and dividends received from his or her business, again without the benefit of any deductions. This may seem fair to the average working Joe, until he receives the inevitable pay cut or pink slip, whichever comes first. Just do the math.

If Carson was somehow elected, and his plan were to survive public and Congressional scrutiny, once he abolishes the IRS, who would process our tax payments? Who would ensure basic compliance? Without the IRS, or an IRS-like agency, gross income would likely become whatever voluntary compliers chose to report, leading to a huge decline in tax revenues. In fact, without the IRS, his program would have no chance of success. Ben Carson should either go back to the drawing board, or simply get out of the race. His tax reform proposal eliminates him from serious consideration.

Carly Fiorina

Next we have Carly Fiorina. Although she hasn’t specifically advocated for the complete elimination of the IRS, she has proposed reducing the U.S. tax code from its current 73,000 pages (actually it’s only around 5,084 pages) down to just three pages. Just what would be on those three pages is anybody’s guess. What’s so bad about that? Well, here are a couple of examples.

Let’s say you’re halfway through reporting an installment sale on an owner financed property. Under Carly’s theory, I suppose you would just throw that notion out the window and just pay tax on the full amount received each year going forward, including the return of capital. That’s because, in Carly’s world, it would be far too complicated to determine the amount actually gained on the transaction.

If you have a net operating loss carryforward for the next 20 (or so) years, a charitable contributions carryforward for the next five, or a Section 179 carryover, I suppose you would forget about claiming these as well. Why? Because, there’s no way on earth one could cover such concepts within a three-page income tax code. Furthermore, there would no longer be any distinction between Corporations, S-Corporations, Partnerships, or Exempt Organizations, all too arduous to cover in just three pages.

Ms. Fiorina sure knows how to talk the talk, but at the end of the day that’s all it is. She doesn’t really have a tax reform plan, just a quirky notion that complex ideals can be compressed into thrifty one-liners. Her lack of judgment, in this matter, eliminates her from further consideration.

Michael Dale “Mike” Huckabee

Finally, there’s Mike Huckabee, who proposes to abolish the IRS by enacting the FairTax. Under the Fair Tax, businesses and individuals would pay a 23% national consumption tax on new purchases, above the poverty line. Federal taxes would be collected by retail businesses at the state level, so the IRS could be done away with, or at least its collection function.

According to the plan, “you have control over your own money and what your overall tax rate will be”. In other words, if you only buy used goods, or purchase everything under the table, you could wind up not paying any taxes at all. Just like in Greece, eh!

Then there’s that good old “Prebate”, the program’s key to fairness. The Prebate is akin to today’s standard deduction. Its function is to ensure that no American has to pay the FairTax on the basic necessities of life. Under this concept, every head of household in the United States would receive a monthly check from the government. That is, after having been raked for a 23% consumption tax at retail. How would this work?

Well, first every head of household in the United States would file a simple report with the government (each year) reporting the name and Social Security number of everyone living under their roof. Then, if you’re single you would receive a check from the government for around $183 per month. If you have a household of eight, you would receive around $742 per month. If there are 16 people in your household, you would receive around $1,242 every month. That seems simple, right?

Well, it won’t be so simple once the IRS has been abolished. Who’s going to verify that the individuals claimed on 160 million (or so) “annual reports” actually live in the households claimed? Who will ensure that the same dependents aren’t claimed by multiple FairTax patrons? Furthermore, what agency will process the 160 million annual “Prebate” reports, and issue some 1.9 billion monthly Prebate checks (160 million times 12 months) each and every year?

The IRS, as we know it, already has problems verifying dependents, and accurately issuing a much smaller number of annual tax refunds. It’s constantly battling against the issuance of fraudulent refunds on an annual basis. Accelerating the refund cycle from annually to monthly will only exacerbate such problems. So once the IRS has been abolished, which government agency will carry out these tasks?

Simply hoping and believing that people won’t cheat, when there’s no longer an agency to police the system, would be (well) stupid. So that eliminates Huckabee.

Scattering the Chaff

Along with death and taxes, I’m afraid the IRS will be with us, in some form or fashion, for the duration. No matter whose tax policies you favor, a governmental agency will be needed to administer them. Trumpeting the end of the IRS plays well in certain quarters, but generally among anarchists rather than rational minded conservatives.

Lower taxes, tax simplification and tax reform are ideals most of us agree upon. But as for irrational, radical, fundamental, transformations, haven’t we had enough? When it comes to income tax policy, we must separate the wheat from the chaff. We have thus eliminated Ted Cruz, Rand Paul, Ben Carson, Carly Fiorina, and Mike Huckabee from serious consideration. Please go away!

That leaves Donald Trump, Rick Santorum, Marco Rubio, John Kasich, Lindsey Graham, Chris Christie, and Jeb Bush. It also makes Trump the only viable outsider, not to mention the only one proffering to reduce income tax rates to the lowest levels since the Revenue Act of 1926. The seven offer varyring rates, exemptions and methods, some more appealing than others, but neither advocates the crackpot scheme of abolishing the IRS. It’s up to each of us to determine what’s in our own, and in our country’s best interests. To that end, abolishing the IRS serves no useful purpose.

References:

Matthew 3:12

Trump’s Dynamic Tax Policy

2016 Conservative Tax Plans: Trump vs. Carson

Top GDP Growth Rates in U.S. History

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