Intro
My tax plan would end poverty in the US, balance the budget, stimulate the economy, and lower taxes! This is done by having a flat tax rate, a negative income tax, cutting out all loopholes, slashing spending, eliminating red tape, and introducing a Value Added Tax.
Part 1: Income!
The negative income tax of would be distributed as 1/12th of the poverty line each month for every adult with no income. Today that would be $1000/ month(1). For every two dollars that individual makes they loose one dollar of the subsidy. This way a person making twice the poverty line ($2400/ year today) would pay no taxes. Every dollar above this would be taxed at a flat 25%. This would ensure that every American was at least above the poverty line. Because of the lack of tax brackets there would be no disincentive to work overtime or otherwise earn more income. There would also be less disincentive to hide income. This very low tax would prevent the rich from leaving, and in fact would probably cause the rich who are leaving other tax happy places like France to move here and pay our taxes. The negative income would replace social security (because it would provide every senior citizen with a bottom threshold of income) and all government student aid (because it would at least pay for food and housing for every low income college student). This would also replace the tax credit and close all income tax loopholes. There would be no housing credit.
This system of entitlement is better for most every American than current systems because those with the lowest income would receive cash. Studies show that receiving cash can be more beneficial than other forms of help (3). Besides lifting them out of poverty, this money will be directly injected into the economy. Then the next "level" of income would have very little taxes. After that the flat income tax would mean more people get to keep more of their money, which with be invested into the economy (which will produce more income to tax, increase the stock market, and thereby people's retirement accounts, as well as produce jobs), given away as charity, or spent (which produces jobs and improves the economy). In other words this tax plan would stimulate the economy in every way and encourage the markets.
This system of entitlement is better for most every American than current systems because those with the lowest income would receive cash. Studies show that receiving cash can be more beneficial than other forms of help (3). Besides lifting them out of poverty, this money will be directly injected into the economy. Then the next "level" of income would have very little taxes. After that the flat income tax would mean more people get to keep more of their money, which with be invested into the economy (which will produce more income to tax, increase the stock market, and thereby people's retirement accounts, as well as produce jobs), given away as charity, or spent (which produces jobs and improves the economy). In other words this tax plan would stimulate the economy in every way and encourage the markets.
Part 2: Healthcare
Every citizen of the United States (adults and children) would receive a $400 voucher each month for health insurance (this is just under the average cost of health insurance (2)). That way everyone could have health insurance, the government does not meddle with people and their doctors, and everything is voluntary. This would replace all requirements of employers to provide health insurance and citizens to have health insurance. This should appease Democrats who want everyone to be taken care of, Republicans who want a free market, and Libertarians who want voluntary transactions.
Part 3: Business
I would put a flat tax on profit from businesses done in the U.S. at 25%. Make it the same as income taxes. I would also put hefty (like up to 25% of revenue) fines on any company that is obviously using tactics to avoid taxes (i.e. it is known that they are stashing money or assets in the Caymens or Ireland, etc.). Any company that refuses to play by the rules does not need to operate in the U.S.
I would also set a 0% tariff on all countries who reciprocate in good faith (i.e. they are not intentionally ignoring our copyright laws. I'm looking at you, China!). Any country who does not wish to abide by this does not need to trade with us. There would be another exception for extreme cases of national security (i.e. North Korea or Iran. There would be a limit on this to prevent abuse. "*Achem* Trump! *Achem* excuse me"). Getting rid of all tariffs might at first seem like it would be bad for our economy, but it would mean cheaper imports which is which would mean cheaper good for Americans. This improves our standard of living. Cheaper imports also helps our manufacturing plants, which in turn produces jobs and money for the economy.
I would also remove all subsidies. I would require that any company that the government invested in or otherwise gave benefits to for the greater good (examples include Tesla, the bailouts of the banks and auto industry, etc.) would need to in return give the government 20%, or a reasonable negotiated amount, of a special type of stock that would not give the government any say in the running of said business, but that would provide a return on investment to the tax payer. This would produce a more equitable outcome for citizens who then get to pay the real price for corn, sugar, and gasoline. They then get to choose if they want to pay that much, instead of the government stealing their money to give it to corporations, to lower the price, so that people can then "afford" that good. It would also be more equitable for our trading partners who would then be able to compete in a fair and open market. This will drive down the price of goods, which improves the standard of living for Americans.
I would also institute VAT tax. This is a tax that is imposed on all value added. So if a company mines up iron ore they pay a tax on the ore they sell. Then if the next company refines the ore they sell into steel they pay a tax on the increase in value, not the amount they sell the steel for. The purpose of this tax is so that companies like Amazon who do not turn a profit for years still pay into the country that allowed them to become successful.
Note: I am not an expert on economics. I could also see an alternate where instead of paying taxes companies can donate 40% ownership of their company, or whatever tax rate was decided on, in the type of stock described above..
I would also set a 0% tariff on all countries who reciprocate in good faith (i.e. they are not intentionally ignoring our copyright laws. I'm looking at you, China!). Any country who does not wish to abide by this does not need to trade with us. There would be another exception for extreme cases of national security (i.e. North Korea or Iran. There would be a limit on this to prevent abuse. "*Achem* Trump! *Achem* excuse me"). Getting rid of all tariffs might at first seem like it would be bad for our economy, but it would mean cheaper imports which is which would mean cheaper good for Americans. This improves our standard of living. Cheaper imports also helps our manufacturing plants, which in turn produces jobs and money for the economy.
I would also remove all subsidies. I would require that any company that the government invested in or otherwise gave benefits to for the greater good (examples include Tesla, the bailouts of the banks and auto industry, etc.) would need to in return give the government 20%, or a reasonable negotiated amount, of a special type of stock that would not give the government any say in the running of said business, but that would provide a return on investment to the tax payer. This would produce a more equitable outcome for citizens who then get to pay the real price for corn, sugar, and gasoline. They then get to choose if they want to pay that much, instead of the government stealing their money to give it to corporations, to lower the price, so that people can then "afford" that good. It would also be more equitable for our trading partners who would then be able to compete in a fair and open market. This will drive down the price of goods, which improves the standard of living for Americans.
I would also institute VAT tax. This is a tax that is imposed on all value added. So if a company mines up iron ore they pay a tax on the ore they sell. Then if the next company refines the ore they sell into steel they pay a tax on the increase in value, not the amount they sell the steel for. The purpose of this tax is so that companies like Amazon who do not turn a profit for years still pay into the country that allowed them to become successful.
Note: I am not an expert on economics. I could also see an alternate where instead of paying taxes companies can donate 40% ownership of their company, or whatever tax rate was decided on, in the type of stock described above..
Let's Run The Numbers
I will study the year 2015 because that year I can find the most statistics I need. I will start by studying income:
In that year the Federal Government produced 1.54 trillion dollars from income taxes and 0.34 trillion dollars in corporate taxes, a total of $1.1 trillion (4). That year people made 7.33 trillion dollars (5). Part 1 of my tax plan would produce $1.1 trillion in income off that same taxable income (6). Part 4 of my plan would produce $0.57 trillion from corporate taxes (7). The total becomes 1.67 trillion dollars. This is compared to the actual total income from 2015 of 3.2 trillion dollars where 1.1 came from social security, and .3 came from other revenues.
Now let us consider spending in 2015. The total spending in 2015 was 3.8 trillion dollars (8). 0.6 trillion went to the military. This plan does not cover military, so let us leave this alone. $1.28 trillion was spent on Social Security. $1.05 trillion went to medicare and health. $.14 trillion went to food and agriculture. I am unsure what parts of this would be cut out by defunding subsidies, and how much goes to legitimate purposes (like testing for ecoli). I will assume for this analysis that it is half and half, good enough for this rough calculation. $0.1 trillion went to education. I will make the same assumption about the transportation budget of $0.085 trillion (or 85 billion, I am trying to keep the numbers easy to follow). $0.061 trillion went to housing. I have left out spending that is not covered by this plan.
My plan would eliminate $2.6 trillion dollars of expenditures; and create about $0.517 trillion (9) from the negative income tax (part 1 of the plan) and $1.28 trillion for insurance, for a total of $1.8 trillion added. That is a net savings of 0.8 trillion dollars, bringing the total cost of the government down to $3.0 trillion.
In that year the Federal Government produced 1.54 trillion dollars from income taxes and 0.34 trillion dollars in corporate taxes, a total of $1.1 trillion (4). That year people made 7.33 trillion dollars (5). Part 1 of my tax plan would produce $1.1 trillion in income off that same taxable income (6). Part 4 of my plan would produce $0.57 trillion from corporate taxes (7). The total becomes 1.67 trillion dollars. This is compared to the actual total income from 2015 of 3.2 trillion dollars where 1.1 came from social security, and .3 came from other revenues.
Now let us consider spending in 2015. The total spending in 2015 was 3.8 trillion dollars (8). 0.6 trillion went to the military. This plan does not cover military, so let us leave this alone. $1.28 trillion was spent on Social Security. $1.05 trillion went to medicare and health. $.14 trillion went to food and agriculture. I am unsure what parts of this would be cut out by defunding subsidies, and how much goes to legitimate purposes (like testing for ecoli). I will assume for this analysis that it is half and half, good enough for this rough calculation. $0.1 trillion went to education. I will make the same assumption about the transportation budget of $0.085 trillion (or 85 billion, I am trying to keep the numbers easy to follow). $0.061 trillion went to housing. I have left out spending that is not covered by this plan.
My plan would eliminate $2.6 trillion dollars of expenditures; and create about $0.517 trillion (9) from the negative income tax (part 1 of the plan) and $1.28 trillion for insurance, for a total of $1.8 trillion added. That is a net savings of 0.8 trillion dollars, bringing the total cost of the government down to $3.0 trillion.
Post Script
If a few years down the road the country has been running in the black and it were to get out of debt then I would like to see the same conservative budgeting continue, and see the VAT continue, but see the tax rate on citizens go down to 20, and maybe even 15%.
(1) https://www.peoplekeep.com/blog/2017-federal-poverty-level-guidelines
(2) https://www.ehealthinsurance.com/resources/affordable-care-act/much-health-insurance-cost-without-subsidy
(3) https://www.poverty-action.org/impact/cash-transfers-changing-debate-giving-cash-poor
(4) https://www.usgovernmentrevenue.com/year_revenue_2015USrn_20rs1n_106063305040#usgs302
(5) from deviding 1.54 trillion by 13.5%, the average tax rate paid by Americans on income: https://www.fool.com/retirement/2017/03/04/whats-the-average-americans-tax-rate.aspx
(6) from taking 7.33 trillion and subtracting the number of employed persons in 2015 (121.5 million according to: https://www.statista.com/statistics/192356/number-of-full-time-employees-in-the-usa-since-1990/) which was multiplied by $24,000, the minimum taxable income in this plan then taking that number and multiplying by 25%.
(7) I use .34 trillion in corprate taxes from (5). It was very difficult to find the effective corporate tax rate from 2015. The closest I could find is 24% from: https://www.cbpp.org/research/federal-tax/actual-us-corporate-tax-rates-are-in-line-with-comparable-countries this seemed very reasonable when compared to historic corporate tax rates as was found in this study: https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Average-Effective-Tax-Rates-2016.pdf I will use this rate to find a total taxable corporate profits from 2015 and then multiply that by 40% to find corporate income. I realize that this is not a good expectation because if the taxes were so high corporations might not have had as much profits, but that would probably push up income taxes, and otherwise show up in an improved economy, etc.
(8) I will use https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/ quite a lot in this section.
(9) in 2015 there were 43.1 million people in poverty. That times $12,000 is $0.715 trillion.
(2) https://www.ehealthinsurance.com/resources/affordable-care-act/much-health-insurance-cost-without-subsidy
(3) https://www.poverty-action.org/impact/cash-transfers-changing-debate-giving-cash-poor
(4) https://www.usgovernmentrevenue.com/year_revenue_2015USrn_20rs1n_106063305040#usgs302
(5) from deviding 1.54 trillion by 13.5%, the average tax rate paid by Americans on income: https://www.fool.com/retirement/2017/03/04/whats-the-average-americans-tax-rate.aspx
(6) from taking 7.33 trillion and subtracting the number of employed persons in 2015 (121.5 million according to: https://www.statista.com/statistics/192356/number-of-full-time-employees-in-the-usa-since-1990/) which was multiplied by $24,000, the minimum taxable income in this plan then taking that number and multiplying by 25%.
(7) I use .34 trillion in corprate taxes from (5). It was very difficult to find the effective corporate tax rate from 2015. The closest I could find is 24% from: https://www.cbpp.org/research/federal-tax/actual-us-corporate-tax-rates-are-in-line-with-comparable-countries this seemed very reasonable when compared to historic corporate tax rates as was found in this study: https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Average-Effective-Tax-Rates-2016.pdf I will use this rate to find a total taxable corporate profits from 2015 and then multiply that by 40% to find corporate income. I realize that this is not a good expectation because if the taxes were so high corporations might not have had as much profits, but that would probably push up income taxes, and otherwise show up in an improved economy, etc.
(8) I will use https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/ quite a lot in this section.
(9) in 2015 there were 43.1 million people in poverty. That times $12,000 is $0.715 trillion.