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 email@example.com.
James Truslow Adams said of the American Dream, â€œIt 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
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.Â 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.Â In the 32nd
month of Reaganâ€™s presidency the US economy created 1.1
million jobs, in the 32nd
month of Obamaâ€™s presidency the US created 103,000 jobs (WSJ 10/8&9/2011
A1).Â Reagan inherited double digit inflation and high unemployment that inspired a new economic
index the misery index.Â The prime interest rate reached just over 20%.
Gas Shortage.â€ Cartoon.Â Morganpolotan.wordpress.com 1979.
25 Aug. 2012
Under Carter we had to wait in line for gas that
we couldnâ€™t afford.Â 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.
Reaganâ€™s tax policies looked at the problems of the day and proposed policies to correct those
problems.Â 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 economyâ€™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.Â President
Obamaâ€™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.Â 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
“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
To expand food stamps on
9/30/09 USDA sent a letter to all
regional administrators 3rd
â€œFrom 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.â€
For every dollar the government spends we are borrowing 43 cents of that dollar.Â Â 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.Â 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.Â We need to
remain a nation of laws and must always remember that the ends never justify the means.Â We have
allowed the government to become bloated.Â 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).Â 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, â€œwas 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.â€ (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.Â Wealth creation to a certain extent is a function of time on the
planet.Â As wealth is acquired you benefit more from the court system that protects property rights.Â 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.Â 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.Â 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.Â Â Â 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.Â This
disincentive is stronger when onesâ€™ 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.Â The goal
is to increase employment
by 12,000,000 over the
next four years an average
gain of 250,000 jobs per
month.Â Job growth is
According to Mortimer
Zuckerman (WSJ 7/23/12)
â€œFewer 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
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 parentâ€™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) â€œOver the next five years more than 1,000,000
service members will be returning from active duty.â€ Having work available for these heroes is critical,
Paul Rieckhoff, founder of Iraq and Afghanistan Veterans of America said: â€œIAVAâ€™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.â€ 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.Â Some resources: www.seniorjobs.org; National Older Worker Career
Center, www.nowwcc.orgÂ www.seniorjobbank.org www.workforce50.com www.wiserworker.com
I urge older citizens to relish work as it can give our lives purpose.Â 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
SinceÂ Japan hasÂ loweredÂ their corporateÂ taxÂ rateÂ the United States now hasÂ the highest corporateÂ 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 Forumâ€™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%.Â Because
most U.S. states have corporate taxes that average 6.4% this will bring our rates to approximately
30.4%.Â This will make the USA more competitive with other countries.
Most countries have lowered their corporate tax rates, here are a few examples
2012Â Â Â Â Â 2000
AustraliaÂ Â 30.0%Â Â Â Â Â 34.0%
CanadaÂ Â Â 26.1%Â Â Â Â Â 42.4%
FranceÂ Â Â Â 34.4%Â Â Â Â Â 37.8%
GermanyÂ Â 30.2%Â Â Â Â Â 52.0%
IrelandÂ Â Â 12.5%Â Â Â Â Â 24.0%
ItalyÂ Â Â 27.5%Â Â Â Â Â 37.0%
KoreaÂ Â Â 24.2%Â Â Â Â Â 30.8%
SwitzerlandÂ 21.2%Â Â Â Â Â 24.9%
United Kingdom 24.0%Â Â Â Â Â 30.0%
United StatesÂ Â 39.1%Â Â Â Â Â 39.3%
Canadaâ€™s lowered corporate tax rate has helped them to surpass the U.S. in some areas.Â In the 2012
Index of Economic Freedom, www.heritage.org/index/ranking Canada is 6th
and the U.S. is 10th
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.Â This
likelyÂ willÂ haveÂ theÂ effectÂ ofÂ increasing;Â investmentÂ inÂ theÂ U.S.;Â dividendsÂ paidÂ andÂ federalÂ taxes
collected.Â Putting taxes â€œon saleâ€ 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 allÂ to be paidÂ currentlyÂ to government.Â If BushÂ taxÂ cuts expireÂ rate will be 65.53% butÂ less
likely for dividends to be declared and dividends to tax deferred accounts add no tax revenue:
S.T.R.I.V.E.Â Â Â 2013 after Bush tax cuts expire
Profit to be paid out as dividendsÂ Â 1,000,000Â Â Â 1,000,000
Federal Corporate taxÂ 30.4%Â Â Â -304,000Â 39.1%Â -391,000
Dividends paidÂ Â Â Â Â Â Â Â 696,000Â Â Â Â Â 609,000
TaxesÂ 17.8%Â Â Â Â Â Â Â Â -123,888Â 43.4%Â -264,306
Net after taxÂ Â Â Â Â Â Â Â 572,112Â Â Â Â 344,694
Tax rate of 17.8% and 43.4% includes new 3.8% tax passed with Affordable Care Act.
RetirementÂ accountsÂ orÂ otherÂ taxÂ deferredÂ accounts mayÂ electÂ toÂ passÂ throughÂ dividendsÂ andÂ taxes
withheldÂ inÂ currentÂ yearÂ notÂ subjectÂ toÂ early withdrawalÂ penaltyÂ orÂ segregateÂ taxedÂ fundsÂ toÂ avoid
doubleÂ taxationÂ uponÂ finalÂ distribution.Â Â Â This Â willÂ provideÂ aÂ largeÂ incentiveÂ forÂ CorporationsÂ toÂ 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
Clintonâ€™s 1997 capital gains tax cut from 28% to 20%.Â 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.Â 1986 realized capital gains were 179 billion more than in
1987.Â 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
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:
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.Â 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 businessâ€™ questionable practices without fear of economic ruin.Â There
should be term limits for auditors as the auditing self-regulating bodies propose.Â Enron was a scandal
that was hidden in plain sight.Â 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 companyâ€™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.Â This â€œunconstitutionalâ€
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 makesÂ taxableÂ incomeÂ in aÂ foreign countryÂ they can keepÂ theÂ fundsÂ in a non US bank and
not pay USÂ taxes untilÂ theyÂ repatriate or moveÂ theÂ funds backÂ toÂ the US.Â Â OftenÂ timesÂ theÂ incomeÂ is
royaltyÂ incomeÂ from a patented medicine orÂ licensing a brand name such as Coca Cola which hasÂ 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.Â taxation on unrepatriatedÂ income of Corporations and
carriedÂ interestÂ fromÂ hedgeÂ fundsÂ andÂ privateÂ equityÂ firmsÂ of U.S.Â citizensÂ byÂ phasingÂ inÂ a maximum
deferralÂ ofÂ tenÂ years.Â Â Â I will makeÂ anÂ educatedÂ guessÂ that AppleÂ hasÂ amongÂ theÂ largestÂ deferredÂ tax
liability.Â AsÂ ofÂ 9/2010Â AppleÂ showedÂ deferredÂ IncomeÂ taxesÂ ofÂ $4,300,000,000Â ifÂ thisÂ wasÂ allÂ from
unrepatriated income then over the next ten years they would pay U.S. taxes on this money net of any
foreignÂ tax credits.Â Â Lowering ourÂ corporateÂ taxÂ rateÂ to be Â inÂ line with otherÂ countriesÂ takes away an
irrationalÂ incentiveÂ toÂ neverÂ bringÂ investmentÂ dollarsÂ backÂ intoÂ the U.S.Â butÂ itÂ givesÂ theseÂ companies
time to arrange their affairs to minimize adverse cash flow problems.
Prior years deferred federal income taxes to be paid as follows:
Taxes owedÂ for years prior to 1997 taxedÂ in 2014 to be paid 25% over nextÂ four years.Â Â ThisÂ 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.
IfÂ foreignÂ countriesÂ startÂ raisingÂ theirÂ corporateÂ taxÂ rateÂ a multinationalÂ could ofÂ 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.Â Multinational corporations benefit from our military and court system
so I donâ€™t expect that the loss of permanent tax deferral will cause a mass exodus.
1F. Repeal section 199 Domestic Production Activities Deduction. Â These provisions are far too
complicated and economically suspect.Â 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.Â Our government all three branches have
encouraged underwater homeowners to not pay their mortgage.Â Credit scores have been trashed but in
most cases there has been no real relief.Â 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.Â 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.Â Upon sale the amount of
exchanged retirement funds would be taxed at ordinary income rates.Â 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
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
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.Â 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 taxpayerâ€™s principle
2K. Exclusion of gain on principle residence to be tied to 2% of original purchase price per year plus
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. Letâ€™s say it is $400 per
1st two week period pay at 131.25%Â Â based on $400 weekly benefit 1st
check = $1,050
two week period pay at 125%Â based on $400 weekly benefit 2nd check = $1,000
two week period pay at 121.25%Â based on $400 weekly benefit 3rd check = $970
two week period pay at 111.9%Â based on $400 weekly benefit 4th check = $940
two week period pay at 112.35%Â based on $400 weekly benefit 5th check = $910
two week period pay at 110%Â based on $400 weekly benefit 6th check = $880
two week period pay at 106.25%Â based on $400 weekly benefit 7th check = $850
two week period pay at 102.5%Â based on $400 weekly benefit 8th
check = $820
two week period pay at 98.75%Â based on $400 weekly benefit 9th check = $790
two week period pay at 95%Â based on $400 weekly benefit 10th check = $760
two week period pay at 91.25%Â based on $400 weekly benefit 11thcheck = $730
two week period pay at 87.5%Â 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 demographicsâ€™ lottery.Â Every younger Americanâ€™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.Â The value of social benefits received needs to be
factored in as taxable income.Â We need incentives for able bodied people to get off government
One exception is that school vouchers will not be taxable because our school systems are broken.Â 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.Â 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
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 yearâ€™s credit.Â 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 â€œforgottenâ€ and not entered on the return the self-employment tax
exclusion of the first $9,000 will not apply to this â€œforgottenâ€ income.Â 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.Â Reducing the employerâ€™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 employeeâ€™s pay to increase from 6.2 or currently 4.2 to 8%,
employerâ€™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 employerâ€™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
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.Â 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.Â 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.Â 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.Â 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 employerâ€™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 employerâ€™s share of Social Security on up to $5,000 per calendar quarter.
5C. When an employersâ€™ 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
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 Â½
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.Â 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.Â 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.Â 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.Â 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
Example of tax treatment under S.T.R.I.V.E. compared to if Bush tax cuts just expire.
S.T.R.I.V.EÂ Â Â 2013 AS IS
For a single individual earningÂ Â Â Â $80,000 Â Â Â $80,000
Withholding for Social SecurityÂ Â Â Â Â Â -6,400Â 8%Â Â Â Â Â Â -4,000 6.2%
Withholding for MedicareÂ Â Â Â Â Â -2,400Â 3%Â Â Â Â Â Â -1,160 1.45%
Net pay before fed, state and other w/h $71,200Â Â Â $74,840
Taxable income on w-2Â Â Â Â Â $73,600Â Â Â $80,000
Assume just standard deductionÂ Â Â Â Â -1,000Â Â Â Â Â Â Â -5,950
ExemptionÂ Â Â Â Â Â Â ——–Â Â Â Â Â Â Â Â -3,800
Taxable not itemizingÂ Â Â Â Â $72,600Â Â Â $70,250
Income taxÂ Â Â Â Â Â Â Â Â -11,020Â Â Â Â -13,593
Net pay after federal income taxÂ $60,180Â Â Â Â $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.
Employerâ€™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 FDRâ€™s price controls
Many employers provide health insurance for their employee that is a write-off for the businessâ€™s
income taxes and payroll taxes. In addition the employees receiving health insurance through work
reduce their income and payroll taxes.Â 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.Â 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.Â 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 employeeâ€™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.Â 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 oneâ€™s income will be expected to be paid for oneâ€™s survival.Â 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 $10,000Â Â Â Â Â Â Â 5%
$10,001 to $20,000Â Â Â Â Â $500 + 10% above $10,000
$20,001 to $40,000Â Â Â Â Â $1,500 + 15% above $20,000
$40,001 to $75,000Â Â Â Â Â $4,500 +20% above $40,000
$75,001 to $125,000Â Â Â Â Â $11,500 +22% above $75,000
$125,001 to $200,000Â Â Â Â Â $22,500 +24% above $125,000
$200,001 to $300,000Â Â Â Â Â $40,500 +28% above $200,000
$300,001 to $500,000Â Â Â Â Â $68,500 +30% above $300,000
$500,001 to $2,000,000Â Â Â Â $128,500 +34% above $500,000
$2,000,001 to $5,000,000Â Â Â $638,500 +33% above $2,000,000
$5,000,001 to $10,000,000Â Â Â $1,628,500 +31% above $5,000,000
$10,000,001 to $15,000,000Â Â Â $3,178,500 +30% above $10,000,000
Above $15,000,001Â Â Â Â Â $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.Â The
calculation of eligible IRA contribution carryover will be tracked on form 8606.
Social Security Cost Containment Measures
To incentivize wealthy Americans to not take social security benefits.Â Currently there is no benefit of
waiting beyond age 70 to claim social security benefits.Â 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.Â To further incentive individuals to never receive social security
benefits allow Â½ of social security benefits not taken after age 68 to be bequeathed to a named
beneficiary.Â Beneficiary election form to have primary and at least four contingent beneficiaries.Â The
bequeathed amount will not be part of deceasedâ€™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.Â This beneficiary designation can be overridden by wills or trusts signed after this
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.Â 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.Â 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.Â 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.Â 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.Â 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.Â Â 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
deceasedâ€™s heirs.Â 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.Â 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.Â 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)
Eliminate the add-back of state income taxes, sales taxes and real estate taxes for the alternative
minimum tax.Â 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.Â Have all
new committee chairmen appointments with the prior chairmen being ineligible.Â 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.Â Sell or lease out 15% of space used by each agency.
Stop baseline budgeting we need to stop perverse incentive to spend money.Â 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.Â 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.Â Decrease regulations of gasoline going from 17 formulations to 1
formulation.Â Increase drilling permits by 50% for 2013 and at least 10% per year above 2012 levels.Â Fast
track approval of new nuclear power plants and new oil refineries.Â 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.Â 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.Â Donâ€™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.Â 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.Â Insist that Democratic Party be shown on electoral map as red, the color of red ink or over
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.Â Think of government as a building or a hamburger, you might pay $2,000 for a shack or
$49,000,000 for Ellen DeGeneresâ€™ home but you wouldnâ€™t want to be forced to pay $500,000 for a shack
or $1,000,000,000 for a Hollywood Hills home.Â What is the most you would you pay for a hamburger?
We desperately need to scale our government down to do only what we canâ€™t do. Our federal
governmentâ€™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.Â 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 Smithâ€™s â€œWealth of Nationsâ€
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
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