Sunday, April 24, 2011

Faster Funds Transfer To The Rich...

     ...or starve the government beast – take your pick.
     As with all such plans, Rep. Paul Ryan's (R-Wis) “Roadmap For America's Future” contains numerous changes to our national priorities. Today I wish to write about the changes Ryan and the Republican Party would make to our income tax structure. I will discuss other facets of the Roadmap in upcoming days.
     The Roadmap would not repeal our current personal income tax structure, but would set up a simplified system parallel to it. Taxpayers would be allowed to choose which system they wish to use.
     Under the simplified system there would be only two tax brackets, 10% on the first $100K of taxable income for joint filers, and 25% on taxable income in excess of $100K. It would allow a generous standard deduction and personal allowance ($39K for a family of four). The only credit allowed would be a healthcare credit, which I will discuss at a later date. In short, for the vast majority of taxpayers, the Roadmap would guarantee that they would pay no more under the new system than under the current system.
     However, those taxpayers with gross income of more than $137,300 (2010 rates) would pay considerably less. For a family of four with a gross income of $1M, the savings would be almost $60,000. The higher the income, the greater the savings.
     But that's not all. A large portion of the income of most high bracket taxpayers consists of interest, dividends and capital gains. Under the Roadmap, the tax on these items would be eliminated.
     As I have noted previously, (see March 9, 2011) some hedge fund managers have incomes of over $1B, with one of them taking home $5B. Since that income consists of capital gains, the current 15% tax would drop to zero! Admittedly, this is an extreme case, but you get the picture.
     To top it off, the Roadmap would replace the income tax on corporations with a “consumption” or Value Added Tax (VAT), a term which the Roadmap is very careful to avoid. From the standpoint of the end user this is essentially a price increase. The Roadmap suggests a rate of 8.5% - about half of the lowest VAT rate in the European Union. At each stage of production, manufacturers would pay the tax on the value they have added to the product. Responsibility for the collection of the tax would be shifted from the government to the manufacturer.
     I see two problems with this: (1) Based on the experience of countries operating under a VAT system, it is doubtful that a rate of 8.5% would be enough to pay the government's bills, and (2) there are tremendous opportunities for gaming the system in the company's favor, particularly for those organizations having manufacturing facilities in countries such as India and China, which have no VAT.
     It appears that the “Roadmap for America's Future” is more of the same old GOP crap, with the intention of (1) speeding up the moving of resources into the pockets of the already rich, and (2) starving the “government beast,” with the ultimate aim of returning our economy to the good old days of 1929.
     While it is not difficult to apply the assembly line metaphor to external constructs, it is not so simple to picture how it applies to internal constructs. How can a noun such as love, pain, joy, jealousy or beauty apply to a volume of space/time?
     An In-depth Look At The Spirit's Activity – The Spirit Runs Through It.

      “The Spirit Runs Through It” and “There Are Only Seven Jokes” are available in paperback, or at the Kindle Store.

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