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Do-It-Yourself Tax Code
June 18, 1998 headline: "House OKs eliminating tax code.
Was this possible? Was this lets-go-backwards-in-everything-important, don’t-care-if-it’s-unconstitutional Congress actually listening to constituents?
Sorry, but I don’t buy the official Democratic line that this narrowly-approved bill was a Republican gimmick. After all, it only becomes operative if a simplified replacement tax system is in place by the deadline. What’s wrong with that?
(Remember the Balanced Budget Amendment? Everyone got in a froth over that, including those of us who contended loudly that if Congress took its fiscal responsibility seriously, we wouldn’t need a constitutional amendment. And, lo and behold, the budget is now balanced, even sooner than the controversial amendment would have mandated. Funny what can happen when you put your mind to it.)
What this IRS overhaul bill does require (provided Clinton doesn’t veto it) is that we get our rears in gear and make sure that the new code is really fair, particularly for the little guy. Since Republicans are not particularly noted for being fair to real people, tending instead to favor campaign-contributing national and multi-national corporations, that means we need to get cracking and elect down-to-earth Democrats (or rational Republicans, if you can find them) in the next two election cycles.
As for the details of a simplified tax code, this bill is your once-in-a-lifetime chance to put in your two cents’ worth. Let your members of Congress know what you think. Below are a few suggestions of mine.
Children or other dependents would count as whole persons. Divorced parents with joint custody, or people who share expenses for a dependent, could by mutual agreement split the dependent’s exemption, each taking a portion. With appropriate Social Security numbers, the IRS computers can keep track of that.
However, I would tax willed money at the point it reaches the beneficiary, who would then pay regular income tax on the money – just like lottery winners do.
On the other hand, I would only tax money bequests. I would defer any taxes on other willed property until those assets are converted into cash. After all, while you’re alive, long-term capital gains are not taxed until you sell those assets. I think the same rules should apply to inherited property. That way homes, farms, family heirlooms, even stock portfolios, can be kept in the family, with normal taxes kicking in only if and when the stock, items or property are later sold. Not only would this allow family businesses and historical homesteads to be passed down through the generations intact, but it would also give the recipient the option of a gradual liquidation of assets, thereby reducing the overall tax bite. Yes, that means the waterfront mansions in Newport and California might be passed on to the next generation intact. But so might the hardscrabble saltwater farms on the Maine coast.
For example, in my model, the first $14,000 would be tax-free, the second $14,000 of earnings would be taxed at 5 percent, the third $14,000 would be taxed at 10 percent, and so on. That way a single person earning $42,000 would pay $2,100 in federal income taxes. With standard exemptions and deductions, he pays $6,645 now. Likewise, under this plan a family of three with a family income of $42,000 and three $14,000 individual exemptions would pay no income taxes.
It is quite possible that we could collect enough tax money from this plan to cover the budget by the time we get to 45 or 50 percent. That's fine with me. But if not, I think we should have the option of steps going all the way to 90 percent. That top rate would kick in for any income over $266,000 - about twice what we pay our members of Congress. That means the CEO of military defense contractor General Dynamics, who had a salary of $11.3 million at last report, would return about $10 million of that to the federal coffers that paid him. Think he can get by on what's left? (This concept has historical precedent. For the young ones among you, that 90 percent rate was the top tax level in the '60s, when the federal budget was last balanced.)
I think it's important to keep the tax steps equal. Since some members of Congress are on record as thinking $266,000 is middle-income, they might not want to have that 90 percent tax kick in that low. So maybe instead we can make each step twice as large as the individual exemption -- $28,000 steps instead of $14,000 steps. That way a single person would pay $4,200 and a family of three would pay no taxes on the first $70,000 of income. And the GD-CEO might get to take home about half a million more dollars. I could go along with that.
This plan is more than just a fair way to assess taxes. It is also a recognition of two basic principles that have gotten lost over the years:
1. Along with greater income comes more civic responsibility.
2. The disparity of income in this country, with wage workers sometimes earning 1/200th what the CEO in the same company gets, will in the long run tear our society apart. The tax code can very effectively send the message that that kind of inequity is unacceptable, and if companies don't adjust salaries accordingly, the government will do it for them.
That’s just a start folks. You undoubtedly have your own ideas. But we’ve got to get cracking. We only have a couple of years to get our act together, to come up with ways to make our IRS code fair and equitable – and to elect those politicians who will listen to what we think. We can’t afford – literally – to let this current crop of Republicans do it for us.
---------------------------------------------------Jean Hay, who lives in Bangor, is a freelance political columnist as well as managing editor of The Enterprise, a small weekly paper in Bucksport, Maine.