Saving America With Tax Policy


S.T.R.I.V.E.

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 for

these provisions to be implemented effective 1/1/13. Send comments to striveforamerica@gmail.com.

 

James Truslow Adams said of the American Dream, “It is not

a dream of motor cars and high wages merely, but a dream

of social order in which each man and each woman shall be

able to attain the fullest stature of which they are innately

capable and be recognized by others for what they are,

regardless of their fortuitous circumstances of birth or

position.”

I have the fairly unique experience of beginning my CPA career preparing tax returns when the top tax

rate was 70% just before Ronald Reagan revamped the tax code.  I know from personal observation that

the incentives that Reagan championed into the tax code led to job creation that dwarfs our currently

feeble economic recovery.  In the 32nd

month of Reagan’s presidency the US economy created 1.1

million jobs, in the 32nd

month of Obama’s presidency the US created 103,000 jobs (WSJ 10/8&9/2011

A1).  Reagan inherited double digit inflation and high unemployment that inspired a new economic

index the misery index.  The prime interest rate reached just over 20%.

Gas Shortage.” Cartoon.  Morganpolotan.wordpress.com 1979.

25 Aug. 2012

 

Under Carter we had to wait in line for gas that

we couldn’t afford.  Photo from 1979.

 

When Reagan left office unemployment had

fallen from a peak of 10.3% to 5.2% and the

misery index fell from a high of 23.9 to 9.72.

 

 

Reagan’s tax policies looked at the problems of the day and proposed policies to correct those

problems.  He did not waiver from the essential theme that lower taxes and less government

interference would unleash American energy and ingenuity and would heal our broken economy. He

was a leader; he did not excuse the economy’s initial poor performance on Jimmy Carter.

The Federal Reserve has been trying everything they can think of to stimulate our economy with

monetary policy but with interest rates so low they have no arrows left in their quiver.  President

Obama’s stimulus spending did not work, for the first time in our history a deep recession was not

followed by rapid growth. We are still down about 4,770,000 jobs from the start of the recession (BLS

February 2007 to July 2012) and we are 5.334 trillion more in debt since Obama took office 15,960

trillion 8/22/12 vs. 10.626 trillion on 1/20/09 www.treasurydirect.gov.  Our national debt for every man

woman and child is an unapplied for mortgage of $50,874 www.usdebtclock.org.

 

 

More than 5 million people have been

jobless for 27 weeks or more, nearly

twice the previous high set in 1983,

according to the Bureau of Labor

Statistics.

“We see a lot of people applying for

disability once their unemployment

insurance expires,” said Matthew

Rutledge, a research economist at

Boston College’s Center for Retirement

Research.

 

To expand food stamps on

9/30/09 USDA sent a letter to all

regional administrators 3rd

 

paragraph:

“From this time forward, we

will use the term, “broad-based

categorical eligibility” to refer to the

policy that makes most,

if not all, households categorically

eligible for SNAP because they

receive a non-cash

TANFA4OE funded benefit or

service, such as an informational

pamphlet or 8O0-number.”

 

http://waysandmeans.house.gov/uplo

adedfiles/democrat_efforts_to_elimin

ate_work_requirements_august_201

2.pdf

 

For every dollar the government spends we are borrowing 43 cents of that dollar.   Our interest rate is

low now but interest rates will go up and then our financial situation will be even more catastrophic.

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.  We have

allowed the government to become bloated.  At Long Island Rail Road 98% of public union employees

got supplemental disability pension averaging $36,000 starting as early as age 50 (NY Times 9/21/08 by

Walt Bogdanich).  At California Highway Patrol 82% of employees got a supplemental disability pension,

Bell Police Chief Randy Adams, who, according to a Los Angeles Times report, “was declared disabled the

same day that he was hired. Under the arrangement, the 59-year-old Adams would receive a lifetime

disability benefit whenever he decided to retire, meaning he would not have to pay taxes on half of his

$400,000-plus annual pension.” (Cal Watchdog 10/11/10 by Steven Greenhut).

 

When you are young and have not yet acquired valuable work skills and consequently have not yet

acquired any wealth I would argue that you benefit less from what the federal government provides and

consequently should pay at a lower rate.  Wealth creation to a certain extent is a function of time on the

planet.  As wealth is acquired you benefit more from the court system that protects property rights.  At

some point when a large amount of wealth is obtained the wealthy need to provide for their own

security, build their own roads buy their own airplanes and hire attorneys and accountants to protect

them from the government.  So I advocate for a progressive tax system that starts with low rates that

rise as income rises, with more tax brackets that has a peak and then at some point the marginal rates

should start to come down.  Lowering marginal tax rates on the very wealthy should reduce people

expatriating such as Facebook co-founder Eduardo Saverin, cheating on their taxes or bribing

government officials to get sweetheart deals.

My experience informs me that certain situations in life require more spending, such as moving when

your employer shuts down, raising children, stretching to buy your first home, medical problems, etc., so

a one or two rate flat tax may require a tax when a person has no money available.    When tax brackets

are fewer I have found that there is a large disincentive for people to work harder if they are on the

verge of going into the next higher bracket such as from the 15% bracket to the 28% bracket.  This

disincentive is stronger when ones’ low income qualifies them for the refundable earned income credit.

 

The essence of this policy is

to lessen the burden off of

employers and to

incentivize behavior that

will increase jobs.  The goal

is to increase employment

by 12,000,000 over the

next four years an average

gain of 250,000 jobs per

month.  Job growth is

critical:

According to Mortimer

Zuckerman (WSJ 7/23/12)

“Fewer Americans are

working today than in the

year 2000, despite the fact

that our population has

since grown by 31 million

and our labor force by 11.4

million”

Depression era

unemployment line

pictured.

Our student loan debt now exceeds one trillion, $1,000,000,000,000 so our young people need to get to

work and to get out of their parent’s home so they can make their way in the world.

 

“Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home,

getting married (and) having children,” says Mark Kantrowitz, publisher of FinAid.org.

According to General Stan McChrystal (WSJ 5/21/12) “Over the next five years more than 1,000,000

service members will be returning from active duty.” Having work available for these heroes is critical,

Paul Rieckhoff, founder of Iraq and Afghanistan Veterans of America said: “IAVA’s groundbreaking

annual survey shows that unemployment for Iraq and Afghanistan veterans is significantly higher than

reported by the government. Nearly 17% of IAVA members are unemployed, which is eight percentage

points higher than the national average as reported by the Department of Labor.” We all want these

patriots who have risked their lives to be able to get work.

By and large the baby boom generation has not saved enough for retirement so these older workers

need to stay in the work force.  Some resources: www.seniorjobs.org; National Older Worker Career

Center, www.nowwcc.org  www.seniorjobbank.org www.workforce50.com www.wiserworker.com

I urge older citizens to relish work as it can give our lives purpose.  With life expectancies increasing due

to medical technological innovation it is unrealistic to think that one can work for 35 years and then live

in retirement for another 35 years.

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

1A. Reduce corporate income tax rate

Since  Japan has  lowered  their corporate  tax  rate  the United States now has  the highest 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

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 their corporate tax rates, here are a few examples

www.oecd.org/tax/taxpolicyanalysis/oecdtaxdatabase.htm#C_CorporateCaptial:

2012      2000

Australia   30.0%      34.0%

Canada    26.1%      42.4%

France     34.4%      37.8%

Germany   30.2%      52.0%

Ireland    12.5%      24.0%

Italy    27.5%      37.0%

Korea    24.2%      30.8%

Switzerland  21.2%      24.9%

United Kingdom 24.0%      30.0%

United States   39.1%      39.3%

 

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 6th

and 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.

 

1B. Maintain tax treatment of dividends at same rate as long term capital gains but have federal income

tax withholding from all dividends withheld at source even for tax deferred or retirement accounts.  This

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

collected.  Putting taxes “on sale” as with putting tuna fish on sale should increase revenue.

 

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 Corporate 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.

1C. 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.

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. 7

 

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%

2024  19%

2025  20%

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.

1C. 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.

1D. 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

The main reason that large corporations such as GE pay 0 US tax is that we have a system that when a

corporation makes  taxable  income  in a  foreign country  they can keep  the  funds  in a non US bank and

not pay US  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.

 

1E Reduce deficit by collecting taxes from foreign income of U.S. based multinational corporations

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.    I will make  an  educated  guess  that Apple  has  among  the  largest  deferred  tax

liability.  As  of  9/2010  Apple  showed  deferred  Income  taxes  of  $4,300,000,000  if  this  was  all  from

unrepatriated income then over the next ten years they would pay U.S. taxes on this money net of any

foreign  tax credits.   Lowering our  corporate  tax  rate  to be  in  line with other  countries  takes away an

irrational  incentive  to  never  bring  investment  dollars  back  into  the U.S.  but  it  gives  these  companies

time to arrange their affairs to minimize adverse cash flow problems.

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 may decide to move their corporate headquarters outside the U.S. but these

companies would need to pay the present value of scheduled corporate 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.

1F. 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.

 

Tax incentive #2 Increase demand for real estate

We have lost millions of jobs in the construction industry.  Our government all three branches have

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 rental properties. Currently if a single or married filer has

income above $150,000 they are not able to currently deduct real estate losses. 9

 

This will bring in a new supply of real estate buyers who have been regulated out of the market since

1986.  For new purchasers of rental properties that have at least a 20% down payment allow taxpayers

to be able to claim currently whatever loss they incur, instead of having to carry forward losses.

2B. Change depreciation life for residential real estate from 27.5 years to 25 years 4% per year and for

commercial property from 39 years to 33 and 1/3 years or 3% per year with full year deduction of 3% or

4 % in the first year irrespective of when in the year the property is acquired.

 

2C. Allow retirement accounts to be used to buy rental properties without incurring a tax on retirement

account distribution or an early withdrawal penalty with the cost basis of depreciable improvements

being reduced by the amount of the retirement account exchanged into it.  Upon sale the amount of

exchanged retirement funds would be taxed at ordinary income rates.  If seller is under age 59and 1/2

seller can put exchanged retirement funds back into an IRA otherwise it will be subject to 10% early

withdrawal penalty.

 

2D. Do away with depreciation recapture provisions of code section 1245 and 1250 property and tax

gain due to depreciation at capital gains rate.

 

2E. If a refinance is done and it is not used to improve the property a federal escrow tax at current

capital gain tax rates will be paid which can be applied as a prepayment for when property is eventually

sold.

 

2F. Allow homeowners to deduct as itemized deduction on their principle residence hazard insurance.

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 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, this

will eliminate a problem with unreported rental income.

 

2J. Allow deduction of greater of mortgage interest paid or 2.5% of the original cost basis of the principle

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

residence.

2K. Exclusion of gain on principle residence to be tied to 2% of original purchase price per year plus

improvements.

 

Incentive #3 Benefit reform

 

3A. Unemployment benefits will have Social Security and Medicare taxes withheld from the check.

 

3B. 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. Let’s say it is $400 per

week.

1st two week period pay at 131.25%   based on $400 weekly benefit 1st

check = $1,050

2nd

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

3rd

two 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 8th

check = $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.

Social Security and Medicare

3C. All social security benefits received will be treated as 100% taxable.

Current recipients of social security have won the demographics’ lottery.  Every younger American’s

social security benefits are much less certain.

 

3D. 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.

 

3E. Widows and widowers benefits to not start earlier than other beneficiaries of social security.

 

3F. Medicare co-pays need to increase to make consumers more aware of their cost of care and to make

it more profitable for Drs. to take Medicare patients.

 

3G. To fairly tax we need to keep score better.  The value of social benefits received needs to be

factored in as taxable income.  We need incentives for able bodied people to get off government

assistance.

One exception is that school vouchers will not be taxable because our school systems are broken.  In

2010 the Los Angeles school system of 33,000 employees could only fire five bad teachers at a cost of

$3,500,000. Study after study shows we are losing ground against other countries in education.

 

3H. New miscellaneous itemized deductions to include for profit 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 income.  Single parents desperately need these resources and I think we should encourage this.

 

3J. Eliminate deductions for union dues, safe deposit box fees 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.  If the 70% or more of credit exceeds the

amount of the current year income tax then the credit can carry forward to a later year for as many

years as is needed to claim the full benefit.

3L. For self-employed individuals the first $9,000 of profit will not be subject to self-employment taxes.

If self-employment income is “forgotten” and not entered on the return the self-employment tax

exclusion of the first $9,000 will not apply to this “forgotten” income.  Self-employed is the incubation

period for an entrepreneur and entrepreneurship must be encouraged to increase prosperity.

Unfortunately we cannot afford to pay less into Social Security or Medicare, but if we lighten the burden

on the employer it can free them up to make additional hires. The reduction of Social Security taxes

from 6.2% to 4.2% withheld from employees that was promoted by President Obama for 2011 and 2012

was bad policy because it took funds from Social Security a program that is rapidly heading toward

bankruptcy.  Reducing the employer’s cost will have had a higher chance of stimulating new hiring.

 

3M. Federal, state and local government employees should not have benefited from this windfall as

there are fewer private sector earnings to pay them the additional 2% and this will be clawed back for all

government wages that exceed $30,000 per year.

 

3N. The net tax going into Social Security will rise from historic amount of 12.4% (currently 10.4%) to

13%. Social security withheld from employee’s pay to increase from 6.2 or currently 4.2 to 8%,

employer’s share of social security to decrease from 6.2 to 5%.

3O. The net tax going into Medicare will rise from 2.9% to 3% Medicare w/h for employees to go to 3%

from 1.45% the employer’s share of Medicare to decrease from 1.45% to 0%.

S.T.R.I.V.E. favors allowing deductions from taxable income for necessary expenses of employment

because the money for mandates is not available to pay more taxes such as:

 

4A. Social Security tax withheld from wages will be deductible from federal income tax as is 401K.

 

4B. The 3% of wages paid into Medicare proposal 3O. will be considered part of medical expenses for

employee.

 

4C. Childcare expense should be a deduction from taxable income rather than a credit. Currently the

child care credit only considers up to $3,000 of childcare expenses for one child or a maximum of $6,000

of childcare expenses for two or more children at a credit rate of 20% to 30% depending on adjusted

gross income. In my opinion the deduction allowed for childcare expenses should have a much higher

limit for example up to the age of possible Kindergarten enrollment allow a deduction against income 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 child care credit.

 

4E. Child care providers need to report their income.  The office in home deduction is too complex and

burdensome for childcare providers instead a new deduction of 10% of child care income will be taken

for the office in the home deduction.  Food and diapers will not be a deduction for the daycare operator;

the parents of the children are expected to provide these items. As with all self-employed individuals the

first $9,000 of profit of the daycare operator will not be subject to self-employment taxes.

4F. Moving expenses to include up to three months of storage, one house hunting trip and use the

business mileage rate for miles driven, for example in 2012 using 55.5 cents per mile instead of 23 cents

per mile.  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. Non-government employers of workers under age 25 will not have to contribute to employer’s share

of Social Security on up to $3,000 per quarter.

5B. Non-government employers of former active duty military workers under age 30 will not have to

contribute to any employer’s share of Social Security on up to $5,000 per calendar quarter.

5C. When an 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 nonrefundable credit for federal

unemployment taxes.

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

 

5E. Give homeowners ability to claim a deductible loss on the sale of their principle residence perhaps 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.

5F. Allow homeowners to deduct as itemized deductions the following expenses personal services such

as lawn maintenance and maid services.  Tax identification of service provider needs to be reported.

5G. Roll-back the federal minimum wage to $6.00 per hour and keep it there at least until the

unemployment rate for minorities, ages 16-24 goes below 18% for six month, or until the net worth of

Hispanics climbs from its current level of less than $6,500 to the 2005 level of $18,359.  States and local

jurisdictions should set their own minimum wage related to their local market.

 

Less unsubstantiated deductions from taxable income

6A. Eliminate the exemption deduction for filer and spouse and reduce standard deduction to:

$800 for married filing separate

$1,000 for single

$1,500 for head of household

$2,000 for married filing joint

This will have the effect of making almost everyone itemize. One advantage is that there will be a tax

benefit for everyone that donates to a charity.

There is a tradeoff of more complexity versus fairness, in 2011 some married taxpayers had no itemized

deductions and qualified for a standard deduction of $11,600 and others had charitable contributions of

$10,000 and used the same standard deduction of $11,600.  Tax software and competent tax preparers

will ensure that the vast majority of taxpayers will not suffer undue hardship from having to itemize.

6B. Allow itemized deduction of professional tax preparation fees and tax software costs not subject to

any adjusted gross income threshold limitations to compensate for the complication of making more

taxpayers itemize.

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

 

S.T.R.I.V.E    2013 AS IS

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

Withholding for Social Security       -6,400  8%       -4,000 6.2%

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

Net pay before fed, state and other w/h $71,200    $74,840

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

Assume just standard deduction      -1,000        -5,950

Exemption        ——–         -3,800

Taxable not itemizing      $72,600    $70,250

Income tax          -11,020     -13,593

Net pay after federal income tax  $60,180     $61,247

 

At 80,000 employee pays extra (1,067) of which more in Social Security and Medicare by (3,640) with

savings in income tax of +2,573.

Employer’s savings of 2,120 after they pay income taxes on 2,120 profit will make this virtually revenue

neutral to the federal government.

An individual that had itemized deductions of greater than $5,850 would pay less taxes under S.T.R.I.V.E.

Employer saves payroll taxes of $2,120 instead of 7.65% pays only 5%, saving 2.65% on $80,000.

Lowering the cost of employing people will increase number of employees or wages paid to employees.

 

 

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.

7A. Dental and vision insurance will no longer be a deductible tax free fringe benefit.  These insurances

do not transfer enough risk to be worthy of federal tax subsidy.

7B. Dental expenses paid by individual and dependents up to $300 per person per year will be an

itemized deduction not subject to any income limitations. Dentists should be seen twice per year for

dental checkups which can head off a whole host of medical problems.

7C. Vision expenses paid by individual and dependents up to $100 per person per year will be an

itemized deduction not subject to any income limitations.  Eye exams every few years can also head off

a whole host of medical problems.

 

7D. 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.

Keep in mind that an employee will already have 3% of their wages contributed to Medicare. Individuals

that purchase health insurance and have contributed to social security and Medicare through work

would get a nonrefundable credit of 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.  I believe that as one gets

older medical care will become more of a necessity and that as one gets to an advanced aged 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.

7E. Adopt medical deductibility adjusted gross income (AGI) thresholds by age brackets:

For taxpayers under age 40 medical expenses exceeding 5% of (AGI) will reduce taxable income.

For taxpayers age 40 to 65 medical expenses exceeding 7% 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 to 85 medical expenses exceeding 12% of AGI will reduce taxable income.

For taxpayer age 86 and older medical expenses exceeding 15% of AGI will reduce taxable income.

On jointly filed return married couples will average their age to determine the appropriate % of AGI that

the medical expenses will need to exceed.

 

7F. 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.

 

 

8. New tax brackets under S.T.R.I.V.E.

Single and married filing separate tax brackets shown.

Married filing joint brackets would be doubled.

Up to $10,000        5%

$10,001 to $20,000      $500 + 10% above $10,000

$20,001 to $40,000      $1,500 + 15% above $20,000

$40,001 to $75,000      $4,500 +20% above $40,000

$75,001 to $125,000      $11,500 +22% above $75,000

$125,001 to $200,000      $22,500 +24% above $125,000

$200,001 to $300,000      $40,500 +28% above $200,000

$300,001 to $500,000      $68,500 +30% above $300,000

$500,001 to $2,000,000     $128,500 +34% above $500,000

$2,000,001 to $5,000,000    $638,500 +33% above $2,000,000

$5,000,001 to $10,000,000    $1,628,500 +31% above $5,000,000

$10,000,001 to $15,000,000    $3,178,500 +30% above $10,000,000

Above $15,000,001      $4,678,500 +28% above $15,000,000

 

 

9. Retirement Contribution catch-up measures:

Taxpayers that are eligible to deduct their traditional IRA contributions, that is with relatively low

income and or not having a retirement plan at work that fail to make a timely contribution can get

caught up at 90% of their unfunded portion in a later year when they may have a windfall.  The

calculation of eligible IRA contribution carryover will be tracked on form 8606.

Other issues

Social Security Cost Containment Measures

To incentivize wealthy Americans to not take social security benefits.  Currently there is no benefit of

waiting beyond age 70 to claim social security benefits.  Reduce increase in social security benefit for

deferring receiving benefits ages 69 and 70 from current 8% rate to 6% per year with 4% increase going

beyond age 70 until death of individual.  To further incentive individuals to never receive social security

benefits allow ½ of social security benefits not taken after age 68 to be bequeathed to a named

beneficiary.  Beneficiary election form to have primary and at least four contingent beneficiaries.  The

bequeathed amount will not be part of deceased’s estate for estate tax purposes but heirs will have to

report death benefit as taxable income in year of receipt. For individual who unexpectedly need benefits

upon applying they can receive three years back benefits lump sum but lose ability to bequeath social

security benefits.  This beneficiary designation can be overridden by wills or trusts signed after this

election.

For individuals that started taking social security benefits who are perhaps concerned about a special

needs grandchild they can repay three years of benefits received and start accruing a death benefit by

stopping their social security benefits.  Lump sum death benefit to individual receiving benefits in spite

of being taxable income will not be counted against them for purposes of any government assistance

programs.  I have noticed that many of my older clients inherit money or sell real estate that would

allow them to repay the benefits and not require receiving benefits.

Currently spousal benefit is available for former spouses where the marriage lasted more than 10 years.

This benefit available to divorced spouse does not reduce other spouses benefit.  Change this formula to

allow spousal benefit where marriage lasted 18 years.

For any year where life expectancy for individuals age 65 increases from 2010 levels respective increase

will be made to starting age of benefits.  For example if mortality at age 65 increases by three months

then all retirement benefit ages will have three months tacked on in the subsequent year.  There will not

be any adjustments downward to starting age of benefits until life expectancy goes down two full years

from 2010 age 65 mortality levels.   At that point starting age for accessing social security benefits would

decrease at 75% of mortality decreases in the following year.

 

Estate and Gift Tax

The exemption for the federal estate tax should be based on the amount of heirs that the deceased

person leaves behind not the amount of money that the deceased person has irrespective of the

deceased’s heirs.  So if someone has zero children then the exemption amount would be $600,000 for

each child the exempt amount could increase by $600,000.  If someone has three children they would

be able to have $2,400,000 without incurring estate taxes if each child inherited at least $600,000 but if

one child was bequeathed only $50,000 and the other children received $2,350,000 the exempt amount

would only be $1,850,000.  Parents and siblings of the deceased would be eligible for an additional

exemption amount up to $200,000, grandchildren would be eligible for and additional exemption of up

to $300,000 with each subsequent generations exemption being half of the priors exemption.

Alternative Minimum Tax Reform

The itemized deduction for rent will be an add-back for alternative minimum tax as lavish rent should

not be subsidized by other taxpayers.

Life insurance premiums will be an add-back for alternative minimum tax purposes.

 

Eliminate alternative minimum tax add-back for homeowners that have existing refinance (cash out)

mortgage interest.

Eliminate the add-back of state income taxes, sales taxes and real estate taxes for the alternative

minimum tax.  This has unfairly saddled taxpayers who reside in high tax states such as the great state of

California with big alternative minimum tax bills.

All miscellaneous itemized deductions will still be alternative minimum tax add-back.

 

Proposed Laws Regarding the Workings of Federal Government.

In any year that the Congress does not pass a budget have new elections for 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.

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.

Stop baseline budgeting we need to stop perverse incentive to spend money.  Eliminate thrift savings

plan employer contribution except for agencies that reduce their budget by more than 35%.

Cut EPA staff by 20%. Sell or lease out 25% of space used by EPA.  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.  Decrease regulations of gasoline going from 17 formulations to 1

formulation.  Increase drilling permits by 50% for 2013 and at least 10% per year above 2012 levels.  Fast

track approval of new nuclear power plants and new oil refineries.  Mandate that each state pay for the

safeguarding of a proportionate share of nuclear waste.

Have airport security screeners work under the direction and control of airlines.  Eliminate all federal

taxes on air travel.

Government employees will be not be eligible for tax free commuter benefits.

 

Disallow government unions to make campaign contributions.  Don’t allow negotiations with unions for

any future benefits, such as no defined benefit pensions or retiree health insurance, the actuarial

computations needed are not available to the parties.

 

Eliminate all federal loan guarantees and other subsidies of energy, including ethanol, solar, wind,

biomass, conversion of natural gas to diesel, electric and hybrid cars etc.  Solar produced electricity in

2010 was subsidized 1,212 times more than federal subsidies at coal or oil power plants.

Limit early voting on presidential elections to no earlier than three weeks before the election.

Insist that color of Republican Party in electoral maps switch from red to black $ sign as in profitable, in

the black.  Insist that Democratic Party be shown on electoral map as red, the color of red ink or over

spending.

 

 

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

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 are a few famous quotes 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.

Adventure upon all the tickets in the lottery, and you lose for

certain; and the greater the number of your tickets the

nearer your approach to this certainty.

 

Science is the great antidote to the poison of enthusiasm and

superstition.

 

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

703-477-0992­­

 

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