Taxation: Fixed

So with all the talk of Romney's tax plan versus Obama's tax plan and blah blah blah in the media these days, I decided to do a little research of my own. In the process, I though, hey, I wonder how hard it really is to develop a tax plan. Turns out, if you don't complicate it, it's not that hard. Admittedly, I don't have 100% hard evidence for these numbers, but for the purposes of this exercise, they are reasonably reliable.

First: Jump to the end for the tl / dr version.

Target Revenue: According to the Office of Management and Budget we can anticipate a tax revenue of $2,901,956,000,000 ($2.9 trillion) in 2013. First link, Table 1.1, Summary of Receipts, Outlays etc.

Estimated Income: According to this article from the Huffington Post the median income in America in 2011 was $50,054.00 per year. Broken down, that comes to a median income of $26 / hour. Now, obviously some people make more than this and a LOT of people make less than this. But, it's a safe number to work with for the rest of our calculations, though I'd prefer an Average rather than a Median. To be fair, I didn't read the rest of the article, once I had the info I needed I stopped. I did skim it though and it didn't appear that anything else in it was relevant to my exercise.

The Calculation: Alright, so, if we take the median income of $26 per hour and calculate that out for a month of income, pre-taxes, we get $4,160 a month. That's $26 x 160 hours (40 hrs per week, 4 weeks per month).

Now, taking that $4,160.00 per month we multiply that by the roughly 312,000,000 (312 million) people in America as of the 2012 census and we get $1,297,920,000,000. That's $1.297 Trillion in income, per month.

The Tax: At first I tried a flat 10% tax, which gets you $129,792,000,000 ($129 billion) per month in taxes. I won't go through the additional calculations I did but I determined that this was not enough. Bumping it to a 20% income tax (despite my revulsion at so high of an income tax, I'll explain in a bit why it's acceptable) that brings our monthly tax revenue to $259,584,000,000 ($259 billion). Multiplied by twelve that nets us $3,115,008,000,000 ($3.1 trillion) in tax revenue for a year.

The Success: As you can see, $3,115,008,000,000 ($3.1 trillion) is bigger than $2,901,956,000,000 ($2.9 trillion) which means under this assumed tax plan, the USA would rake in $213,052,000,000 ($213 billion) more in 2013 than they anticipate. BAM, taxes simplified. This alone won't solve our deficit problems, but it'll help us on the way to it. Let's look at some ways this will help.

The Cascade: As we all know, every action has consequences and those consequences have consequences and so on and so forth. Reducing the tax code to such a simple system would:

1) eliminate loopholes etc. You pay 20% of all profit/income in taxes. That's it. No more convoluted rules through which people can secure their income away from taxes.

2) make it easier to see when someone isn't paying their taxes, so, the cost of these investigations would go down and the amount of money being lost would recede.

3) reduce the necessary size of the IRS which would reduce the expenditures necessary for funding the operation of the IRS which would free that tax money up for other more worthy programs or departments.

4) leave people with more of their money, allowing for more spending, more investments, more growth and therefore more income, which would then result in the government getting more tax revenue from the increased income. There is a point at which it will not continue to grow, I'm sure, but it would be based on how active the people were, not some shortfall of wealth.

But, But, But . . . : What about deductions!? What about the massive burden to the middle and lower classes!? Why do the rich pay just as much as the middle and lower classes!?

A) All deductions are eliminated under this plan. See explanation in B below.

B) At the moment, at minimum, the middle and lower classes pay about 10% or more of their income to the federal government, plus all the other taxes they pay when they buy gas, food, toys, games, fertilizer, tools, appliances, movies, books, art supplies, yard signs, etc. etc. etc. Every. Single. Thing (except simple foods). You. Buy. Is. Taxed. You even get taxed at death, leaving your family members on the hook for anything your net worth doesn't cover. This probably brings your tax burden up to about 30%.

Yes, at the end of the year the middle and lower classes, because of deductions, get a tax refund BUT, this tax refund almost never adds up to the cost of all they other taxes paid throughout the year AND most people blow their tax refund on stuff like vacations, TV's, cars, etc even though they are in massive debt. AND, sometimes, if you worked a lot of overtime or had some other source of income during the year, it's possible you may unexpectedly be bumped into the next tax bracket and OWE money. This could happen as well if your boss doesn't take enough out for one reason or another.

Imagine how much more money the lower and middle classes would have if we not only paid 33% fewer taxes on their income (20%, out of 30%, is two-thirds. 10% of 30% is only 3% - argument prevented). If you make $12/hr, you get $1920 before taxes. At 30% taxation you're losing $576 every month to income taxes, food taxes, gas taxes and misc other sales taxes. At 20% income tax, and no other taxes, you lose only $384 a month. That means you would have an extra $192 every month. Over the course of a year that's $2,304 that you would have accrued. If you put that into a savings account that means at the end of the year, you'd have that $2304 to do with as you please, just as if you HAD received a tax refund. Only now it's going to go a lot further because you won't be paying taxes on whatever you buy with it.

C) The rich don't pay the same, they pay more, in actual dollars that is. 1st, the argument that the rich should "pay their fair share" is bullshit. There's no reason someone should give up a larger portion of the fruits of their labor, just because their labor produced more fruit. 2nd, 20% of $23,040 (our $12/hr worker) is $4,608. 20% of $500,000 is $100,000 - looks like the rich ARE paying more actual cash in taxes. A very simple argument could be made that THIS is their fair share.

In Conclusion: Coupled with spending reform in other areas, a cessation of unnecessary foreign wars, eliminating our standing bases around the globe (which would save on hazard pay and make sure that pay was spent on US soil instead of foreign soil, being frittered away), eliminating foreign aid (we're in plenty of trouble here at home, lets shore up our own damns before we try to plug the leak in someone else's) and a tax or tariff on imported goods (to encourage companies to establish their manufacturing plants etc. here) we would rapidly be able to cut away our debt and get back in the black. The government will probably never do any of this, but wouldn't it be grand if they did! I know I could use an extra $2,304.00 every year!

TL/DR: I propose a flat 20% income tax to replace ALL other taxes. You can check my math and reasoning above but, in summary, under this plan the USA would net $213,052,000,000 ($213 billion) more tax revenue than we do right now. This doesn't solve our deficit problems alone, but additional measures, plus the cascading results of this plan, conceivably could. Plus, if you make $12 an hour, you'll have an extra $2,304 every year. If you make something other than $12/hr, you can do the following math to see how much more money you'd have every year under this plan:

1. HW is your hourly wage.

2. HW x 160 = monthly income (MI)

3. MI x 30% (the amount of taxes you're paying after all is said and done in a month, on average) = current profits (CI)

4. MI x 20% = proposed profits (PI). The amount you'd make each month on my tax plan.

5. CI - PI = Extra Cash ($$$). This is how much more you'd have every month.

6. $$$ x 12 = Yearly Profit (the extra amount of money you'd have every year).

That's all for now, thanks for reading! I'd love to hear your thoughts below!