Strategic Tax Reform Incentivizing Valuable Employment – STRIVE


What would Reagan do?

Please review this plan and spread the word to everyone that you know that can get this type of reform implemented.

Please share your comments with Gerald Geddes, C.P.A. work 703-764-0829 cell 703-477-0992 orstriveforamerica@gmail.com updates at http://striveforamerica.wordpress.com

Governments are given power to do what is impossible or inefficient for individuals to do.Paying taxes reduces our freedoms and consequently taxes must be kept to a minimum to maximize freedom and the taxes paid should have a relations hip to the value of services that you receive from government.

Reagan championed incentives in the tax code,the investment tax credit, increasing depreciation write-offs particularly for real estate and lowering the top individual tax rate from 70% down to 28% that led to incredible job creation. In the 32nd month of Reagan’s presidency September 1983 the U.S.economy created 1,114,000 million jobs. Reagan inherited double digit inflation and high unemployment that inspired a new economic measure the misery index which fell from a high of 23.9% to 9.72%. The prime interest rate reached just over 20% ; in 1981 I had a mortgage of 18%.When Reagan left office unemployment had fallen from a peak of 10.8% to 5.2%. In 1984 U.S. GDP increased by 7.2%.

This plan will make our corporations more competitive, their financial statements more informative,return capital to the U.S. and increase tax receipts.For-profit employers will have incentives to hire. The alternative minimum tax will be repaired to do its intended purpose.The construction industry will flourish creating millions of jobs.Social Security and

Medicare programs will be strengthened. Taxes on the middle class will be lessened with new 5% and 20% brackets and new or enhanced write-offs for rent paid, childcare expenses, child support payments, hazard and life insurance, private school, English as a 2nd language, tutoring, dental and vision check-ups,principle paid on student loans and moving

expenses. Initial payments for unemployment will start higher and then decrease to provide urgency to the job search.Giving individuals’ incentives will work in unforeseen ways as Adam Smith said“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Our number one priority is reforming our broken corporate tax system. We have the highestcorporate tax rate in the world yet we collect very little in corporate taxes only 242.5 billion in 2011. We supposedly tax multinational corporations on their world wide income but we have an irrational incentive to never bring investment dollars back into the U.S.These reforms will bring manufacturing jobs back.Equally important is fixing our broken individual alternative minimum tax system which has been patched each year but needs to be fully repaired.

2nd priority is to revive the housing/construction industry where millions of jobs were lost with reforms that will bring in qualified investors that have been irrationally forced out of the rental property market.

3rd priority is to shore-up Social Security and Medicare as Reagan did in 1983.

4th priority is to subsidize unemployment less and reward employment more.

5th priority is for temporary measures to assist taxpayers that have suffered the most.

6th priority is to provide incentives that reward people for striving to do the right thing.

1A.Lower corp. income tax rate 1st 100,000 of taxable income 15% above that 24%.

1B.Eliminate permanent deferral of U.S. taxation on unrepatriated income of Corporations and carried interest from hedge funds and private equity firms of U.S. citizens by phasing in a maximum deferral of ten years.Lowering corporate tax rate takes away an irrational incentive to never bring investment dollars back into the U.S.Ten year deferral allows capital to move freely with time to plan to pay the tax.

1C.Lower capital gains rate from 15% down to 14% for 2013 and enact predetermined capital gains changes to provide business planning tar gets.Maximum capital gains rate by year:

2013 14%, 2014 15%, 2015 16%, 2016 17%, 2017 18%, 2018 19%, 2019 20% 2020 18%, 2021 19%, 2022 20%, 2023 18%, then 19%, 20%, 18%, 19% etc.

1D.Maintain tax treatment of dividends at same rate as long term capital gains but have 20% federal income tax withholding from all dividends withheld at source even for tax deferred or retirement accounts.Taxes collected on tax deferred accounts must be used to pay down national debt.

Top tax rate both corporate and individual on dividends with S.T.R.I.V.E.will be 42.79%.

1E. REDUCE CONFLICT OF INTEREST FOR AUDITORS.Eight year term limits for auditors.Set up SEC publicly traded company funding mechanism so that auditors are paid 35% directly from the corporations they are auditing, 35% from a SEC funding pool with the last 30% paid from general government revenues and 5% to fund SEC oversight. The 35% paid by the audited company will provide an incentive to have an efficient audit but will allow the auditors to concisely disclose more of the business’ questionable practices without fear of economic ruin.

1F.For self-employed individuals the first $9,000 of profit will not be subject to self-employment taxes.If any self-employment income is “forgotten” and not entered on the return this exclusion will not apply.

1G.S-corporation profits to be taxed at maximum income tax rate of 33% and subject to 3% Medicare tax which will qualify as medical deduction in year paid.

1H.Individual Alternative Minimum Tax Reform.Calculation to begin at adjusted gross income.Subtractions:

1.Medical expenses reported on schedule A that exceed 10% of adjusted gross income \

2. ½ of state and local income taxes paid and ½ of real estate taxes paid

3. Mortgage interest lines 10 and 11 of 2011 schedule A

4. Charitable donations by cash or check up to maximum of 15% of adjusted gross income

5. Casualty or theft losses from Form 4684 line 16 that exceed 5% of adjusted gross income

6.Subtract exemptions for blind, over age 65 and dependent children over age four

7. Subtract tax refund from form 1040 line 10 or line 21

8. Gain on sale of incentive stock options shares to extent earlier year AMT taxable income Additions:

1. Interest from specified private activity bonds exempt from the regular tax

2. ½ of municipal bond interest that is not from private activity bonds

3. Qualified small business stock (7% of gain excluded under section 1202)

4. Exercise of incentive stock options (FMV of shares acquired in excess of bargain purchase price)

5. ½ of long term capital gains and dividends taxed at favorable tax rates

6. Gain excluded on sale of principle residence above 100,000 for individual and above 200,000 joint

 Exemptions with no phase-out provisions

 

Single and married filing separate                                                                $35,000

Head of Household                                                                                             $50,000

Married filing joint including eligible surviving spouse                    $70,000

 Alternative Minimum Tax Rate Thresholds

20% on first $100,000 of AMT taxable income

25% on $100,001 to $200,000 of AMT taxable income

28% on$200,001 to $400,000 of AMT taxable income

30% on AMT taxable income above $400,000

1I.Depreciation reform: depreciable life reductions: commercial real estate from 39 years to 33 & 1/3 years with 3% deduction in first year, computer equipment from five to four years.

1J. Repeal code section 162(m) that generally limits to $1,000,000 the tax deduction for annual compensation paid to an executive officer of a publicly traded corporation.

1K.Repeal section 199 Domestic Production Activities Deduction. These provisions are complicated and economically suspect. Low corp.tax rates will solve the problem that this legislation addressed.

1L.Tax rate of personal service corporations reduced from 35% to 24%. Medical practices: sic codes 8010 Offices & clinics of medical doctors, to not be considered personal service corporations.

1M.Repeal 2.3% medical device tax. This will have disastrous effect of reducing medical innovation.

G.H.W.Bush’s luxury tax killed shipbuilding in the U.S.and provided net less tax revenue for government.

1N.Raise 2014 threshold of employers required to provide health insurance from 50 employees to 99.U.S. is in danger of going from 40 to 58 hour work week with no overtime as companies cut hours to max of 29 hours per week to avoid Affordable Care Act. 600,000 new part time jobs September 2012.

1O.Claw-back 2% reduction of social security withheld on government employee’s wages for year 2011 on 2012 tax return and for 2012 on 2013 return when adjusted gross income above $250,000 for married filing joint and $200,000 for all other filers.

 Tax incentive #2 Increase demand for real estate

We have lost millions of jobs in the construction industry. Our government has encouraged underwater homeowners to not pay their mortgage. Credit scores have been trashed but in most cases there has been no real relief. These tax incentives will increase demand for housing and the new buyers will have the funds to maintain and improve these homes and increase employment.

2A.Repeal the passive activity loss rules for new rental properties with 25% down payment.This will bring in a new supply of real estate buyers who have been regulated out of the market since 1986.

2B.Revise passive activity loss rules for highly leveraged >75% financing new purchasers of rental properties. Allow up to $50,000 up from $25,000 of losses with phase-out 200,000-300,000 unmarried,and 300,000-400,000 for married filing joint.

2C.Change depreciation life for residential real estate from 27.5 years to 25 years 4% per year with full year deduction of 4% in the first year irrespective of when in the year the property is acquired.

2D.Allow retirement accounts to be used to buy rental properties without incurring a tax on retirement account distribution or an early withdrawal penalty.

2E.Do away with depreciation recapture provisions.Tax gain due to depreciation at capital gains rate.

2F.If a refinance is done and it is not used to improve the property a federal escrow tax of 20% will be paid which will be applied as a prepayment when property is sold.Government must use escrowed funds to pay down national debt.

2G.Homeowners to claim itemized deduction for hazard insurance premium son principle residence.

2H.For taxpayers that need to bring money to the table (short sale) when they sell their home allow distributions from retirement accounts for this purpose to be exempt from the early withdrawal penalty and allow election to be taxed 50% in current year and 50% in next year.

2I. New itemized deduction based on 1/3 of rent paid. Renter needs to report who rent was paid to.

2J.Disallow interest deduction on unrented homes that are not the taxpayer’s principle residence.

2K.Exclusion of gain on principle residence to be limited to 3% per year appreciation of original purchase price plus improvements.Reduce exclusion to $200,000 single and $400,000 married.Shore-up safety net, Social Security and Medicare Reducing the employer’s cost will have had a higher chance of stimulating new hiring.

3A.The net tax going into Social Security to rise from historic 12.4% (10.4% 2011 & 2012) to 13%. In 2013 Social Security withheld from employee’s pay to increase from 6.2% (4.2% 2011 & 2012) to 7%, for-profit employer’s share of social security to decrease from 6.2% to 6%. Government and non-profit employers will still pay 6.2%. In 2014 and later years.

Social Security withheld from employee’s pay to increase from 7% to 8%, for-profit employer’s share of social security to decrease from 6% to 5%.

3B.Social Security tax withheld from wages will be deductible from federal income tax in the same manner as 401K employee contributions.

3C.The net tax going into Medicare to rise from 2.9% to 3% In 2013 Medicare w/h from employees to go to 2% from 1.45% while for-profit employer’s share of Medicare to decrease from 1.45% to 1%. Governments, non-profits will still pay 1.45%. In 2014 and later years Medicare withheld from employee’s pay to increase from 2% to 3%, for-profit employer’s share of social security to decrease from 1% to 0.S-corporation profits to be subject to 3% Medicare tax starting in 2013.

3D.Medicare taxes withheld from employee’s pay will be considered a medical expense.

3E.All social security benefits received will be treated as 100% taxable. Current recipients of social security have won the demographics’ lottery.Younger worker’s benefits are much less certain.

3F.Increase the age when Social Security benefit and Medicare benefit eligibility begins. For people born in: 1948 add one month;1949 add two months;1950 add three months And so on till 1971 and later add 24 months to age of Social Security and Medicare benefits.

3G.Medicare co-pays need to increase.

3H.To fairly tax we need to keep score better. The value of social benefits received including refundable tax credits needs to be factored in as taxable income.

3H.New miscellaneous itemized deductions to include paying down principle on student loan debt above 5% of AGI, cost of private schools, English as a second language courses and tutoring services.

3I.Timely paid child support payments will be a new itemized deduction in excess of 12% of adjusted gross in come. Single parents desperately need these resources and I think we should encourage this.

3J.Eliminate deductions for union dues and limit gambling expenses to 50% of reported winnings.

3K.Reduce the refundable element of credits such as earned income credit, child credit and college education credits to no more than 30% of current year’s credit.Credit can carry forward to later years.

4A.Unemployment benefits to be paid every two weeks under a front loaded decreasing scale for 24 weeks instead of current 26 weeks. Calculate based on normal weekly benefit.Assume $400 per week.

1st two week period pay at 131.25%                        based on $400 weekly benefit 1st check = $1,050

2ndtwo week period pay at 125%                              based on $400 weekly benefit 2nd check = $1,000

3rdtwo week period pay at 121.25%                        based on $400 weekly benefit 3rd check= $970

4th two week period pay at 111.9%                          based on $400 weekly benefit 4th check = $940

5th two week period pay at 112.35%                       based on $400 weekly benefit 5th check = $910

6th two week period pay at 110%                             based on $400 weekly benefit 6th check = $880

7th two week period pay at 106.25%                      based on $400 weekly benefit 7th check = $850

8th two week period pay at 102.5%                         based on $400 weekly benefit 8thcheck = $820

9th two week period pay at 98.75%                         based on $400 weekly benefit 9th check = $790

10th two week period pay at 95%                             based on $400 weekly benefit 10th check = $760

11th two week period pay at 91.25%                       based on $400 weekly benefit 11thcheck = $730

12TH two week period pay at 87.5%                       based on $400 weekly benefit 12th check = $700

The lessening of each subsequent unemployment check should incentivize the job search.

4B.Unemployment benefits will have Medicare taxes withheld from the check.

4C.Childcare expense should be a deduction from taxable income rather than a credit.Deduction allowed for childcare expenses to the age of possible Kindergarten enrollment of the amount paid up to $400 per week. After kindergarten enrollment eligibility age allow up to $6,000 per child up to age 12.

4D.Eliminate employer sponsored dependent care benefits and the childcare tax credit.

4E.Child care providers need to report their income. The office in home deduction simplified for childcare providers instead a new deduction of 10% of child care income will be taken for the office in the home deduction.

4F.Moving expenses to include up to three months of storage, one house hunting trip and use the business mileage rate for miles driven. Liberalize the required duration of employment from 39 weeks to 26 weeks for employees and from 78 weeks to 52 weeks for self-employed.Temporary Targeted Relief until unemployment rate goes below 6% for six months

5A.For-profitemployers of workers under age 26 will not have to contribute to employer’s share of Social Security on up to $3,000 per quarter.

5B.For-profit employers of former active duty military workers under age 31 will not have to contribute to any employer’s share of Social Security on up to $5,000 per calendar quarter.

5C.When a for-profit employers’ quarterly 941 shows an increase in social security wages from the same quarter of the prior year a credit of 1% of increase can be used as credit for F.U.T.A taxes.

5D.Moratorium on cost of living increases on all federal entitlement payments.

5E.Give homeowners ability to claim a deductible losson the sale of their principle residence ½ of total

loss maximum $5,000 per year single, $10,000 per year joint with unused losses being carried forward.This would be its own separate loss distinct from traditional capital loss rules and over and above traditional $3,000 loss limitation. Allow taxpayers to claim refunds going back to home sales as of 1/1/2009 and home sales in Florida eligible to claim refunds for sales going back to 1/1/2008.

 Paying your fair share, less unsubstantiated deductions from taxable income

5F.Lower most 2013 exemption and standard deduction amounts and for go cost of living increases on exemptions, standard deductions and income tax brackets until unemployment target met.

5G.Eliminate the exemption deduction for primary filers under age 66 and reduce exemption amount to $3,000 for spouse, dependents and primary filer age 66 and older.

5H.Blind taxpayers younger than age 66 to get $4,000 exemption. Blind taxpayers age 66 and older to get $6,000 exemption.

5I. Reduce standard deduction to:

$1,000 for unearned income of dependent child (or earned income plus $350 unearned max $3,000)

$2,000 for married filing separate

$2,500 for single

$3,500 for head of household

$5,000 for married filing joint and qualifying surviving spouses

5J.Additional standard deduction for those ages 66 and older or blind to rise to $5,000.

5K.Allow itemized deduction of professional tax preparation fees and tax software costs not subject to adjusted gross income limitations to compensate for the complication of more taxpayers itemizing.

5L.Eliminate phase-outs of itemized deductions and exemptions.

5M.Allow $1,000 child credit for year of birth and next four years of child’s life.

5L.New tax brackets under S.T.R.I.V.E. Unmarried tax brackets shown.

Married filing joint brackets to be double unmarried rates to $400,000.

Up to $5,000                         5%New lowest tax bracket

$5,001 to $10,000              $250 + 10% above $5,000

$10,001 to $35,000           $750 + 15% above $10,000

$35,001 to $50,000           $4,500 + 20% above $35,000 New 20% bracket

$50,001 to $85,000           $7,500 +25% above $50,000

$85,001 to $125,000          $17,000+28% above $85,000

$125,001 to $200,000                                $28,200 +31% above $125,000

Single and married filing separate brackets above $200,000

$200,001 to $400,000                              $51,450 +33% above $200,000

$400,001 to $1,000,000                          $117,450 +35% above $400,000

Above $1,000,001                                         $327,450 +36% above $1,000,000

Married filing joint tax brackets above $400,000

$400,001 to $600,000                                $102,900 +33% above $400,000

$600,001 to $1,200,000                             $168,900 +35% above $600,000

Above $1,200,001                                           $378,900 +36% above $1,200,000

 Example of tax treatment under S.T.R.I.V.E.compared to if Bush tax cuts just expire.

2013                                            2014                                                             2012

S.T.R.I.V.E                                S.T.R.I.V.E.              2013 AS IS               actual

For a single individual renter earning               $80,000                                    $80,000                    $80,000              $80,000

Withholding for Social Security                           -5,600 7%                                -6,400 8%                    -4,960 6.2%            -3,360

Withholding for Medicare                                      -1,600 2%                                 -2,400 3%                     -1,160 1.45%           -1,160

Net pay before fed, state and other w/h          $72,800                                     $71,200                         $73,880                 $75,480

Taxable income on w-2                                           $74,400                                     $73,600                        $80,000                 $80,000

Assume just standard deduction                        -2,500                                          -2,500                             -6,100                     -5,950

Exemption                                                                    ——–                                           ———–                         -3,900                     -3,800

Itemized deductions above std ded                  LIKELY                                         LIKELY                          UNLIKELY           UNLIKELY

Taxable not itemizing                                            $71,900                                         $71,100                         $70,000              $70,250

Federal income tax                                                $9,975                                            $9,775                              $15,005              $13,530

Net pay                                                                        62,825                                              61,425                             58,875                   61,950

Healthcare tax incentives to solve systemic problems caused by FDR’s price controls Many employers provide health insurance for their employee that is a write-off for the business’s income taxes and payroll taxes. In addition the employees receiving health insurance through work reduce their income and payroll taxes. Self-employed persons are able to deduct 100% of their medical insurance premiums. This makes an incentive for employers to insure or transfer too much risk.

6A.Dental and vision insurance will no longer be a deductible tax free fringe be nefit . These insurances do not transfer enough risk to be worthy of federal tax subsidy.

6B.Dental expenses up to $300 per person per year will be an itemized deduction not subject to any income limitations.

Dental checkups can prevent medical problems.

6C.Vision expenses up to $100 per person per year will be an itemized deduction not subject to any income limitations. Eye exams can prevent other medical problems.

6D.To level the playing field employers will report premiums paid as taxable income on employee’s W-2, these premiums would add to other medical expenses to determine if deduction threshold was met.Individuals that purchase health insurance and have contributed to Social Security and Medicare through work would get a nonrefundable creditof 16%.

Medical expenses are currently deductible for all taxpayers of any age when they exceed 7.5% of adjusted gross income and if they are otherwise eligible to itemize deductions.As one ages medical care will become more of a necessity and at advanced ages a higher percentage of one’s income will be expected to be paid for one’s survival. Likewise a younger person that has higher medical expenses is suffering an unusual situation and it is appropriate that our tax code subsidize this misfortune.

6E.Adopt medical deductibility adjusted gross income (AGI) thresholds by age brackets:

For taxpayers under age 40 medical expenses exceeding 6% of (AGI) will reduce taxable income.

For taxpayers age 40 to 65 medical expenses exceeding 7.5% of AGI will reduce taxable income.
For taxpayer age 66 to 75 medical expenses exceeding 10% of AGI will reduce taxable income.
For taxpayer age 76 and older medical expenses exceeding 12% of AGI will reduce taxable income.
On jointly filed return married couples will average their age to determine the appropriate % of AGI.
6F.Life insurance premiums less any annual increase in cash surrender value for the year will be deductible as an addition to medical expenses subject to the medical AGI % thresholds.
What is fairness when it comes to income taxes?
Think of the federal government as a service or good that you need to pay for in relation to how you benefit from it.You might pay $2,000 for a shack or $49,000,000 for Ellen DeGeneres’ home but you wouldn’t want to be forced to pay $500,000 for a shack or $1,000,000,000 for a Hollywood Hills home.
We desperately need to scale our government down to do only what we can’t do. Our federal government’s mandate as provided in the Constitution with current day applications:
Form a more perfect Union,between the states, so in effect referee inter-state disputes and perhaps promote good ideas from one state and disseminate valuable information to other states. To build and maintain interstate roads, tunnels and bridges, provide for a postal service, secure the internet and the electric grid, provide security on inter-state travel etc.
Establish Justice, to be a nation of laws that are unbiased, color blind and logical. Create a court system that allows for appropriate consideration.Insure Domestic Tranquility,to avoid anarchy, insure fair elections, prosecute criminals and separate those convicted from the law abiding population.
Provide for the Common Defense,to establish a Federal military to defend against foreign enemies of the state and to secure the borders to keep our sovereignty.Promote the General Welfare, to disseminate or advertise best practices in food safety, water sanitation, disease prevention, building codes, work saf
ety etc.
Secure the Blessings of Liberty to ourselves and our Posterity,educate the citizens on the founding documents, teach free market economics and capitalism, and protect private property or wealth. Provide for law enforcement at federal level, FBI and for intelligence service CIA, NSA to protect us from foreign enemies.
Friedrich von Hayek was so prescient in his writings, two of his quotes:
 “A claim for equality of material position can be met only by a government with totalitarian powers.”
 “Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.”

 

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