Ron Puma's Federal Taxes Plan – A Better way to Collect Taxes
A. Goals:
Simplify taxes in a fair way – no more annual income tax forms to fill out. We've essentially done that for payroll taxes (Social Security, Medicare, and Unemployment Insurance). So let's do it for Federal Income taxes also.
Eliminate unfair taxes and socially destructive taxes to include:
1. Taxes on Social Security benefits (which was the original promise to us when SS was created).
2. Taxes on deposits and withdrawals to IRAs and 401Ks. Call it the Freedom IRA and the Freedom 401K.
3. Estate taxes. All the taxes were paid while the Estate was being built up. Estate taxes are therefore double taxation. Unfair and unreasonable. Plus estate taxes, in order to be paid, can sometimes involve the forced liquidation of businesses and farms in order to raise the taxes needed to pay off Estate taxes. This results in loss jobs of those owners and employees and lost future revenues from those businesses, a really stupid government consequence. Estate taxes only contribute one half of one percent of Federal government revenues so are near meaningless in total to the government, but can be devastatingly meaningful to family members who inherit the estate.
B. Current Sources of Federal Tax Revenues (before formulating a new plan, we need to know and understand the current plan)
1. Individual Income Taxes – 50% of the total federal revenues. Consists of:
Salary and Wages.
Business Partnership Income.
Capital Gains Income.
Interest and Dividends.
IRA/401K Distributions (recommend eliminating).
Pension Income.
Annuity Income.
Social Security Benefits (recommend eliminating).
Rent and royalty income.
Important Note – 2020 total personal income for the US was $19.7 trillion dollars.
2. Payroll Taxes – 36% of the total federal revenues. Consists of:
Social Security
Medicare
Unemployment Insurance
3. Corporate Income Taxes - 7% of total federal revenues. Consists of Profits.
Important Note – 2020 total corporate profits was $2.3 trillion dollars (compares to $19.7 trillion dollars for total personal income).
4. Estate taxes - .5% of total Federal revenues.
5. Other – 6.5% of total federal revenues. Consists of:
Regulatory fees.
Custom Duties.
Excise taxes.
Gift taxes (recommend eliminating)
C. Federal Spending:
1. What is the level of federal spending that taxes must support?
We need to know that before devising any new tax plan. Answer – Current Federal spending is $3.9 Trillion dollars.
2. How can we reduce Federal spending?
The huge hidden spending “hole” that none of us see and are therefore unable to evaluate are Federal subsidies. Federal subsides are hidden in many federal departmental budgets to hide their totals even though there is a Catalog of Domestic affairs to apply for subsidies that does not group by category or total the amount spent. There are at least 2,300 Federal subsidies and in some years that total has grown by more than 100 new subsidies. It has been estimated that federal subsides exceed one trillion dollars a year, but no one really knows. What we do know is that every subsidy is a “slice of Communism” - the most failed economic system in human history. All subsidies need to be eliminated. Until eliminated, list all subsidies within each category and give dollar spending totals for each subsidy, category, and the grand total of all subsidies combined in the Catalog of Domestic Affairs website and make it available online to everyone. Also, if no spending budget is passed, reduce all budgets to 95% of last year's spending to motivate politicians to compromise and pass a reasonable budget.
Ron Puma's Federal Taxation and Revenue Plan
A. Income Taxes:
1. All taxes on IRA and 401K deposits and distributions are eliminated.
2. All taxes on Social Security Benefits are eliminated.
3. All taxes on Estate inheritances are eliminated.
Individual Income taxes are assessed by individual only (no combined marital income tax). Government keeps track of the following rules and tells employers when a change in taxation rates are needed. Government also automatically refunds individuals when too many taxes have been taken out so that there is no need to fill out forms:
4. The first $25,000 of earned salary and wages (not including above exemptions) is taxed at a nominal 1% so that everyone has an interest in keeping government spending down. No other exemptions are allowed. The $25,000 exemption and the below taxable ranges are adjusted annually for inflation.
a. From $25,001 to $150,000, the tax is 10%. (Third tier)
b. From $150,001 to $300,000, the tax is 15%. (Second tier)
c. Above $300,000, the tax is 20%. (First tier).
Important Note – This plan plus the following plans will be evaluated annually to determine if the tax rates need adjustment up or down depending on how well they do or do not cover federal spending. If adjustments are needed, use the framework given above, with added percentage tax rates if needed, first given to the top tier income bracket, but not to exceed 35%, second tier if needed, but not to exceed 25%, and first tier if needed but not to exceed 15%. If more is needed, then cut spending.
B. Corporate Income Taxes:
Exactly the same as the individual income tax plan except taxes are based on profits not revenues or income.
C. Capital Gains Taxes:
20% of Profits minus losses. Paid automatically by banks and brokerage houses. IRA and 401K capital gains are not taxed.
D. Payroll taxes:
1. On Social Security:
Pension part only – everyone pays the same flat rate up to an amount, calculated by actuaries, so as not to exceed paying more than anticipated future benefits. Probably in the neighborhood of 4% to a cap of about $150,000. Matched by Employers. As is the case today. Must cover SS benefit expenses.
Welfare Part (Disability and widows with children)
Actuary determined percentage to cover expenses with no cap on income taxed. Probably in the neighborhood of 2%. As is the case today, matched by employers.
2. Medicare:
1.5% matched by employers. Adjusted by actuaries as needed. Similar as today.
3. Federal Unemployment Insurance:
1% paid by employers only. Each state has their own unemployment tax plan
E. Other Taxes:
Keep current regulatory fees, custom duties, and excise taxes. Eliminate gift taxes.
F. Revenues without Taxation:
1. Retirement Security:
In the Federal General Fund, that is outside and not related to the Federal Social Security Fund, invest $10,000 for each newborn American citizen into a new retirement fund to supplement Social Security benefits in the future. It is well known that up to 40% of retired Americans live only or mostly on social security benefits and have no supplemental retirement savings. It would be a great idea if for each American born citizen, we deposit $10,000 when they are born into an investment account which buys only ETF indexes (S&P 500- SPY, Nasdaq 100 - QQQ, S& P 400 mid -size companies - MDY, S&P 600 small size companies - SLY) and leave them there (never trading them) until age 65. After that, (when likely it would have grown to over 5 million dollars based on 10 to 11% long term stock market growth) they receive 4% a year (about $200,000 a year to start which should be divided by 12 and paid monthly) until they die. Likely the amount paid each year as benefits will grow in size most years given the 10-11% long term growth of the stock market. The annual cost would be roughly 30 to 40 billion dollars initially or only about 1% of the total Federal budget. Over time, the left over amount when people die must be utilized to fund new future newborns, thus becoming self sustaining over time. Increase the initial $10,000 by the inflation rate each year. Even a hard working poor American with no savings would be well off at retirement. To pacify those afraid of stock markets, put the money in a special US treasury bond with a typical long term interest rate for these securities, so that the higher of the two at retirement age is used to pay out these funds (will always be the stock market). Make it illegal for the Treasury or government to borrow or transfer this money out of these bonds to spend elsewhere.
2. Federal Budget Security:
In a similar manner, take 1% of revenues each year annually into a similar, locked US Treasury bond to invest in the ETF stock market indexes for 50 years. By that time, if past investment growth is realized, those annual investments would have doubled in value 7 times. For example, if we started with the year 2025 and 1% of the federal budget equaled 40 billion dollars, then the amount available for expenses and debt reduction in 2075 would be over 5 trillion dollars!! Similarly, the 2026 investment would yield about the same in 2076, and so on forever. We could eventually eliminate the need for any taxes through this plan.
