It occurred to me one of the biggest issues regarding the push for the White House is whether or not to extend the Bush tax cuts or let them expire. The primary issue is if the top 2% of the wealthiest individuals in the country should pay more in taxes.
For those who are fuzzy on this, it is shown the top 2% typically earn money from investments (i.e., stocks, bonds, etc.), whereas the rest of the 98% have ordinary income, earned from actually working and paid by an employer. The difference between these earnings is investment income is taxed at a flat capital gains rate of 15% (regardless of amount) and ordinary income is taxed based upon the amount earned (i.e., tax bracket.)
So what's the big deal? Well, politics and posturing in our dysfunctional government is the primary reason issues such as this cannot get resolved. However, there is a very simple solution to this problem.
First off, let the Bush tax cuts expire. We don't really need them and they will just complicate things. We need to start leveling the playing field and this is where we begin.
Next, we change the tax code for anyone (corporations and small businesses included) earning ordinary income less than $250,000 to a flat rate of 15%! Notice this is the same rate paid on capital gains. (Of course we would leave the rates the same for those who fall below the current 15% rate as well as for earnings $250,000+.)
Now a funny thing can happen here. The top 2% (or anyone else for that matter) can theoretically have earnings of up to $500,000 (ordinary income of $250,000 plus investment income of $250,000) and still only pay 15% on the entire amount!
That is a pretty good deal only paying 15% on $500,000!
However, the real windfall is where people can now do something else with their cash, other than stick it into the market, and not be penalized by doing so.
This means someone can now start and/or invest in a business, previously holding off on, because income from the business would be taxed at higher rate. Not anymore, and now the business can theoretically hire someone, who then in turn would have taxable income and discretionary spending, thus perpetuating the rebound of the economy! And so on and so forth...
Keep in mind this is tax reform at the utmost simplistic state, but it's hardly any worse than what our high-priced bellhops in congress have come up with thus far.
I therefore present my idea and if anyone in a position to do so wants to run with it, then go for it!
Friday, August 17, 2012
Subscribe to:
Comments (Atom)