If You Like The IRS, You Can Keep IT. Earlier this week I tweeted. “I can give you hundreds of reasons the CUT Tax don’t work. I also can give you 75,000 pages why the current system don’t work.” Thinking about this all week I have come up with a solution that will remove a lot of the reasons the CUT Tax does not work. For this, I have to credit President Obama. I have been thinking of this in terms of winner take all. We have been conditioned by years of political process to accept this as the way things were done. The conventional wisdom of politics is that the winner gets what they want and the loser(s) will get a large earmark for their state or district. I am trying to change that, at least in this process. In my form of taxation there would be winners and losers, and a few companies that would be decimated if a work around was not found for this tax. Like all ideologues, I accepted this in my mind as “the ends justifies the means.” If, 99% of the population benefits overall, than less than 1% collateral damage seemed acceptable. It is not. Since, some of you that have came upon this blog and are unfamiliar with the CUT Tax. I will try to make a brief explanation. The Currency Use Tax (CUT) is basically a gross revenue tax. This tax form is vilified by many economist due to it’s inflexibility and the pyramiding of embedded taxes. Although, I understand their reasons I do not concur with their reasoning. For clarification on this, view my “In Defense of Gross Receipts Taxation” blog. Now, back to the point. The CUT Tax is a one time tax on all new revenue deposited into any financial institution. As an example: If you deposited $100.00 and the CUT Tax was 3.75%. $3.75 would be withheld at deposit leaving $96.25 left in you bank account. No annual filing required, no government interaction, and no IRS having access to your financial information. All this is handled at the transactional level with no direct government oversight. This would replace all your withholding from your paycheck. Although, there are better details in the book, I am just giving the most basic information. The biggest losers in my form of taxation are businesses that operate on a profit percentages based on gross that falls below the CUT Tax rate. Mostly very high volume industries, and speculators. There are some large stock speculators that operate on a one cent variation in stock prices. Although, they may net a Million dollars a day, they may have grossed a hundred million or more dollars a day. Therefore, a 3% tax on gross would make their business model worthless. This was one reason for the work around on interest in the book. Because, the tax rate could exceed the current interest paid. This created a hole in my tax plan that you could almost sink Wall Street in. I believe that my tax model will benefit 95% of businesses and individuals. Yes, some may have a higher tax liability. However, their compliance cost and convenience cost may offset this increased tax burden, and possibly increase their profit margins. That is why I am comfortable that in the arena of ideas this tax will win out. Now, to the reason I credit President Obama with this solution to my worries over the problems with The CUT Tax. Is this. “If you like the IRS. You can keep your current income tax code.” Now, I said this not to be facetious. Well... maybe a little. This has lead to my free market solution. Instead of an all or nothing approach to the replacement of the Federal Income Tax Code. How about a five year test run? Before the fiscal year starts an organization will decide on how they want their taxes handled in the upcoming year. Or, opt into a plan if you will. I will even give the IRS plan the benefit of the default option. Every year they will decide which plan they choose during this open enrollment period. Under the IRS plan if the company chooses this option they and their employees will be processed like before. With the current rules of withholding and filing. During the test run the financial institutions method of collection would be bypassed and all those that select The CUT Tax option would be required to file and pay quarterly on gross income. the company would also withhold for the employee’s tax. This would be paid with the employers quarterly filing. I am sorry employees will be not be able to select an option at this particular time. It will be determined by employer. The reason for this is to prevent business from choosing one option, then selecting another for their own salary or bonuses. This would prevent laundering of corporate profit through the cheaper CUT Tax. I also realize that the initial tax percentage on gross would be higher than normal due to a lack of uniformity at the beginning. Because of this dynamic, the percentage is above my level of math and economics for me to figure. Therefore I am unable to give a close approximation. I will have to leave this up to economist and hope for their best estimate. I may be able to give a static number that is close, but not a dynamic number. Too many variables, and Calculus was not my best subject. However, I feel this number will start higher than needed, then fall through the course of the five years. Also, there may be a little confusion with individual filing. That being if one member of the household works for a company enrolled in The CUT Tax, and the other based on income tax, there may have to be some financial gymnastics performed for the fair collection on both taxes. However, I have faith in a government that can design a functional website that can handle 450 million health care users. Therefore, how hard could prorating a few million joint returns be. My simple answer is this. A person that is on the CUT Tax can not be counted as dependant. If that status changes through the year. Than the Income Tax and deductions are prorated for the portion of the year under the Income tax rate. Likewise for EITC figuring. Near the end of the five year competition, the final decision could be made. That decision could have several outcomes. One may be the addition of a few more years of further study. A second may be the failure of the CUT Tax. Or the other option may be the continuing forward with the CUT Tax with maybe a few companies grandfathered into the Income Tax Code because they would not exist any other way. If this was the case then no existing company or new company after that would be able to choose the Income tax method unless they were grandfathered in. At this point individuals would become part of The CUT Tax. In a way I made an empty promise to you about keeping the form of tax you choose. I left that up to the employer. Since, the employer has the job, it is not yours. They have made the decision for you. Kind of like if your employer paid for your health insurance but didn’t keep it. It wasn’t your plan to begin with. Therefore, like the President, technically, I did not lie. One of the reasons, that this looks like a good solution to me is that the IRS will still be there to audit and pursue previous years tax policies for at least five years after any implementation. This five year plan could act as a transition period for the CUT Tax. President Obama may not tell you what his end goal is, But mine, is the removal of one institution of control over us. THE IRS. #TheCUTTax
Posted on: Fri, 25 Oct 2013 00:47:13 +0000
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