November 1, 2011

A Truly Fair Tax Structure In A Nutshell

After seeing tax proposals and much wrong analysis thereof in the media and blogs, I've taken time to summarize my ideas from this blog on how to change our tax system to boost American jobs and our economy.

The key to protecting and enriching working American families is boosting our economy and thereby boosting wages.  Key to boosting the American economy is to put American labor on an equal footing with its foreign competition.

We currently tax American jobs in two ways.  Taxing your job only once would actually increase tax revenues over time by increasing the total number of American jobs and increasing wages, and thus income tax revenues.

This effective double taxation encourages many American businesses to open new factories, labs, service centers overseas.

Currently, if a business is considering where to open it's next plant or center, it must consider that in the U.S. it will pay a high tax rate on the business itself (unless it corrupts Congress with bribes to get tax loopholes) and then employees and stock holders will then pay tax again on their earnings.

But, imports from overseas get a tax-free ride, coming into the American market without federal taxes.

Foreign goods come tax free into America, while we heavily tax American goods.

What do you think that does to the playing field?

You're right.

That's not all.  Other nations are far more rational -- they tax all goods sold with a national sales tax.  Therefore, American goods end up paying foreign taxes, foreign sales taxes when competing in other markets.

That means the tax penalty of making things in America is very high.   Since it is often a close call whether to expand or build in America, this difference often is the deciding factor (when the sum of other factors, like transportation, skills, etc. are close).

Our tax structure is a strong, direct incentive to ship American jobs overseas!

(President Obama campaigned in part on changing this.  It hasn't changed yet.)


The net result is a tax penalty on American-made goods and services of about 15%-20% versus foreign competition.

This is in addition to a price disadvantage American products face vs Chinese goods caused by the Chinese currency peg that amounts to about 25-30%.

Our competitors tax us.   And we don't tax them.

Our bad tax structure threatens your own job, no matter what that job is, because all jobs depend on the health of our economy.  All jobs are interconnected, interdependent.

Customers that support your job, or your stock portfolio, are simply other Americans that have jobs.  If there are fewer American jobs, and therefore more job seekers and thus lower wages, then all American businesses have fewer customers and lower profits.

Your own wages/earnings depend entirely on other Americans having jobs.  You get a raise if enough other Americans are earning good money.

You get laid off if not enough other Americans are earning good money.

Whatever decreases American jobs and depresses American wages takes money right out of your own pocket (even if your income is dividends, stock market gains, or rental income....).


Our tax code should put American workers on a level playing field with foreign workers.

This way we can we stop exporting our jobs and our future prosperity to other nations.

Tax Fairness in a nutshell:

Replace the tax on American businesses (and thus on American jobs) with a national sales tax (with exclusions) at a rate of 12% to 15% (using measures below to make it progressive).
Exclude from the national sales tax: Food, children's clothing/items, school and educational supplies, tuition and expenses and out of pocket medical expenses.

To counteract the regressive effect of the national sales tax on other goods and services, increase the federal income tax personal exemption (for oneself, one's spouse, and one's dependents such as children) from the current $3,700 per person to $10,000 per person.

Otherwise, we can keep the current income tax rate structure as is and as it will be later when the Bush tax cuts expire with tax rates and deductions reverting to the levels of the growth-filled 1990s.  The new and higher personal exemptions will improve tax fairness.  (A special 15% rate for direct investment can be separately set up to encourage business expansion.)

Taxing imports equally to American goods will result in rising American wages and increased employment.

Foreign goods being sold in America will begin to pay their fair share of American taxes, just as our goods sold overseas pay shares of foreign taxes. your favorite candidate on board with what is best for America, or only what is best for his donors who have special tax breaks they purchased from Congress?

1 comment:

  1. There is one huge oversight in your assumptions.... that tax alone is what causes US manufacturing to be uncompetitive. Workers in other countries are will it receive less pay. That is the motivating factor here, the tax disadvantage just aggregates it.

    And I am not seeing the practicality of 12% sales tax and a $10,000 exemption. At a tax bracket of 25% it is a savings of $1,575 per person. That means that every sales tax taxable dollar spent in excess of $13,125 a year is an additional burden on citizens. That means they need to demand higher wages to maintain a standard of living. This, in turn, drives up US manufacturing costs.