STRIVE pdf corp and other tax reform 6 pages


Strategic Tax Reform Incentivizing Valuable Employment

This policy is to be debated by the people and the deemed worthy portions voted on by the Congress. Please share your comments with Gerald Geddes 703-477-0992 or striveforamerica@gmail.com.  Look for updates at http://striveforamerica.wordpress.com

Reagan championed incentives in the tax code 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 index the misery index which fell from a high of 23.9% to 9.72%. The prime interest rate reached just over 20%. 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%. Reagan made us believe that lower taxes and less government interference would unleash American ingenuity that would heal our broken economy.

Taxation is a necessary evil to fund government; it is in its essence legalized theft. Governments are given power to do what is impossible or inefficient for individuals to do.  Paying taxes reduces your freedoms and consequently taxes must be kept to the bare minimum to maximize freedom and the taxes paid should have a relationship to the value of services that you receive from government. Absolute power corrupts absolutely; our constitution when enforced prevents tyranny. We need to remain a nation of laws and must always remember that the ends never justify the means.

Tax incentive #1 Reduce tax on C-corporations and other reforms

1A. Reduce corporate income tax rate

The U.S. now has  the highest central government corporate tax rate in the industrialized world. Our ranking has fallen from #1 in 2008-2009 survey to #7 in 2012-2013 survey in the World Economic Forum’s Global Competitive Index:  www.weforum.org. The Fraser Institutes “Economic Freedom of the World” in 2010 Ratings U.S. dropped 12 spots in two years  from 6th to 18th. http://www.economicfreedom.org/2012/09/18/economic-freedom-of-the-world-2012-annual-report/

Canada’s lowered corporate tax rate has helped them to surpass the U.S. in some areas. In the 2012 Index of Economic Freedom, www.heritage.org/index/ranking Canada is 6thand the U.S. is 10th. Canada with a population of less than 35 million added 140,500 jobs for March and April 2012 while the U.S. with a population of 314 million, nine times larger than Canada only added 211,000 jobs.

Proposal: Tax the first 150,000 of taxable income at 15% and all profits above that at 24%. Because most U.S. states have corporate taxes that average 6.4% this will bring our rates to approximately 30.4%. This will make the USA more competitive with other countries.

Most countries have lowered Corp. tax rates, here are a few examples of central government rates www.oecd.org/tax/taxpolicyanalysis/oecdtaxdatabase.htm#C_CorporateCaptial:

 

2012                1997                        2012/1997 average state or province taxes

Australia              30.0%                 36.0%

Canada                 15.0%/26.1       28.0%/42.94            11.1/13.8

France                   34.4%                 41.7%

Germany               15.0%/30.2       45.0%/56.8             14.4/16.3

Ireland                   12.5%                 36.0%

Italy                        27.5%                  53.2%

Japan                      30.00%/39.5      37.5%/50              11.6/12.3

Mexico                   30.0%                   34.0%

United Kingdom   24.0%                   31.0%

United States        35.0%/39.1       35.0%/39.45          6.4/6.85

1B.  Lower capital gains rate from 15% down to 14%  This likely will have the effect of increasing; investment in the U.S. Putting taxes “on sale” as with putting tuna fish on sale should increase revenue.

1C.  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.  This likely will have the effect of increasing; investment in the U.S.; dividends paid and federal taxes collected.

The effective top tax rate both corporate and individual on dividends with S.T.R.I.V.E. will be 42.79% as calculated all to be paid currently to government. If Bush tax cuts expire rate will be 65.53% but less likely for dividends to be declared and dividends to tax deferred accounts add no tax revenue:

S.T.R.I.V.E.               2013 after Bush tax cuts expire

Profit to be paid out as dividends   1,000,000                 1,000,000

Federal & State Corp. tax 30.4%    -304,000        39.1%  -391,000

Dividends paid                                    696,000                      609,000

Taxes  17.8%                                      -123,888         43.4%  -264,306

Net after tax                                       572,112                       344,694

Tax rate of 17.8% and 43.4% includes new 3.8% tax passed with Affordable Care Act. Retirement accounts or other tax deferred accounts may elect to pass through dividends and taxes withheld in current year not subject to early withdrawal penalty or segregate taxed  funds to avoid double taxation upon final distribution. This will provide a large incentive for Corporations to pay dividends which will help seniors that rely on earnings from investments.

1D. New schedule of predetermined capital gains changes to provide business planning targets:When capital gains rates are cut substantially it frees up locked in capital an example of this was Clinton’s 1997 capital gains tax cut from 28% to 20%. 1998 capital gains realized were 195 billion higher than the 1996 capital gains realized. When capital gains rates are scheduled to be raised in the year prior to the increase it frees up locked in capital as happened in 1986 when the capital gains rate was 20% before the rate went to 28% in 1987. 1986 realized capital gains were 179 billion more than in 1987. But these large swings in capital gains rates are also partly responsible for economic bubbles.Raising capital gain rates keeps needed capital tied up, the wealthy sit on sidelines waiting for favorable tax treatment.

When George W. Bush cut capital gains rate from 20% to 15% the CBO estimated that the US would collect 27 billion less but instead the government received 26 billion extra as reported by economist Donald Luskin.

Predetermined rate changes should help to reduce economic bubbles and relatively low rates would provide adequate amounts of capital to fund our next great ideas. Maximum capital gains rate by year:

2013  14%

2014  15%

2015  16%

2016  17%

2017  18%

2018  19%

The increasing rates up to 2018 provide a slight incentive to reallocate capital to its best use each year. Economic growth should improve by 2018 and thereafter I recommend a rotating tax regimen that is 20, 18, 19, 20, 18, 19, 20, 18, 19 etc.

1E. REDUCE CONFLICT OF INTEREST FOR AUDITORS 35% direct, 35% Sec fund, 35% general revenue

Set up through SEC publicly traded company funding mechanism so that auditors are paid only 35% directly from the corporations that they are auditing and 35% from a SEC funding pool with the last 30% paid from general government revenues and another 5% to oversee SEC. The 35% paid by the audited company should provide enough of 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. There should be term limits for auditors as the auditing self-regulating bodies propose. Enron was a scandal that was hidden in plain sight. The disclosures of impending doom were found by John R. Emshwiller, a Wall Street journal reporter on the oil and gas beat in Texas from looking at the company’s financial statements and interviewing officers at Enron. This provision will improve our financial reporting which will allow us to scale back anti-competitive provisions of Sarbanes Oxley and Dodd Frank legislation.

1F. 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. This “unconstitutional” Clinton era provision led to stock option fraud such as Enron, Micro Strategy, Adelphia Communications and WorldCom and to reduced tax collected because executive wages were converted to capital gains. For a listing of accounting scandals see http://www.forbes.com/2002/07/25/accountingtracker.html

1G. Reduce deficit by collecting taxes from foreign income of U.S. based multinational corporations Large corporations such as GE pay  zero  US tax because we have a system that when a corporation makes taxable income in a foreign country they can keep the assets overseas and not pay U.S. taxes until they repatriate or move the funds back to the US. Often times the income is royalty income from a patented medicine or licensing a brand name such as Coca Cola which has few expenses to offset them and can be manipulated to lower tax countries so these foreign after tax profits from royalties are high.

Proposal: 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. Apple had been one of few multinational companies that showed deferred U.S. taxes, as of 9/2010 Apple showed deferred Income taxes of $4,300,000,000. Lowering our corporate tax rate takes away an irrational incentive to never bring investment dollars back into the U.S. but ten year deferral allows capital to move around world freely with time to plan to pay the tax.

Prior years deferred federal income taxes to be paid as follows:

Taxes owed for years  prior to 1997 taxed in 2014 to be paid 25% over next four years. This four year provision is in case some Companies have a lot of unrepatriated taxes prior to 1997; it is possible some hedge funds may be in this situation.

Taxes owed for 1997 and 1998 taxed and payable in 2015

This two year catch up schedule continues until;

Taxes owed for 2011 and 2012 taxed and payable in 2022

Taxes owed for 2013 taxed and payable in 2023 thereafter maximum deferral is ten years.

If foreign countries start raising their  corporate tax rate a multinational could of course bring money back sooner and pay U.S. taxes sooner.

Multinational corporations and individuals that own hedge funds may decide to move outside the U.S. but these companies and individuals would need to pay the present value of scheduled taxes owed upon exiting, so it lets multinationals move if they must to stay competitive in the world but there will be a price to pay that will benefit U.S. taxpayers. Multinational corporations benefit from our military and court system so I don’t expect that the loss of permanent tax deferral will cause a mass exodus.

1H. Repeal section 199 Domestic Production Activities Deduction. These provisions are far too complicated and economically suspect. Lowering the corporate tax rate will solve the problem that this legislation was supposed to address.

1I. Tax rate of personal service corporations tax rate reduced from 35% to 24%. Medical  practices: sic codes 8010 Offices & clinics of medical doctors, to not be considered personal service corporations to provide tax incentive for getting more talented young people to become Doctors.

1J. 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.

1K. 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.

1L. Claw-back 2% reduction of social security withheld for government employees with adjusted gross income above $200,000 for years 2011 and 2012 on 2012 tax return.

1M. In any year that a branch of Congress does not pass a budget have new elections for the offending chamber(s), Speaker of the House and leader of the Senate with the past Speaker of the House and leader of Senate being ineligible. Have all new committee chairmen appointments with the prior chairmen being ineligible. Each member of Congress should not accrue any pension benefits for a year that a budget is not passed in their chamber.

1N. Cut every federal department staffing by at least 10% in number of employees and in dollar value of payroll. Sell or lease out 15% of space used by each agency.

1O. Stop baseline budgeting make Congress do their job we need to stop perverse incentive to spend money.

1P. Eliminate thrift savings plan employer contribution except for agencies that reduce their budget by 30% or more.

1Q. For 2013 and 2014 have EPA employees travel to all large non U.S. manufacturing plants so they can learn the dire need of getting manufacturing back to U.S.

1R. Decrease regulations of gasoline going from 17 formulations to 4 formulations.

1S. Have airport security screeners work under the direction and control of airlines. Eliminate all federal taxes on air travel.

1T. Government employees to not be eligible for tax free commuter benefits starting in 2013.

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.  Think of government as a building or a hamburger, 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. What is the most you would you pay for a hamburger?

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 6 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 safety 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. Yale computer science professor David Geleinter charged that this is where our school system has failed us the worst. I know we can and must do better. A great start would be to require all Ninth grade students to study Adam Smith’s “Wealth of Nations”

Here is my favorite quote from Adam Smith: “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.”

Friedrich August 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.”

I believe that the Constitution and Declaration of Independence, our system of government makes the United States the best possible country in the world and I am certain that we can right this ship and return the American Dream to its people.

Gerald R. Geddes, CPA since November, 1981

BSBA Georgetown University, May, 1981

striveforamerica@gmail.com

blog site striveforamerica.wordpress.com

coming soon website with tax calculator www.striveforamerica.com

703-477-0992

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